Chapter 5
Competitive Rivalry and Competitive Dynamics
CHAPTER OVERVIEW
LEARNING OBJECTIVES
LECTURE NOTES
5-1 A MODEL OF COMPETITIVE RIVALRY
5-2 COMPETITOR ANALYSIS
5-2a Market Commonality
5-2b Resource Similarity
5-6 LIKELIHOOD OF RESPONSE
5-6a Type of Competitive Action
5-6b Actor’s Reputation
5-6c Market Dependence
5-7 COMPETITIVE DYNAMICS
5-7a Slow-Cycle Markets
5-7b Fast-Cycle Markets
5-7c Standard-Cycle Markets
ANSWERS TO REVIEW QUESTIONS
Chapter 5: Competitive Rivalry and Competitive Dynamics
CHAPTER OVERVIEW
Competitive behavior and competitive dynamics are the themes of Chapter 5, and several key
terms must be introduced in the early discussion of this chapter. Competitive behavior is the
set of competitive actions and responses an individual firm takes while engaged in competitive
Firms study their competitors in order to predict the competitive actions and responses their
competitors are likely to take. A competitor analysis is the first step the firm takes to predict
its competitors’ actions and responses. Firms study market commonality (the number of
markets with which competitors are involved jointly and their importance to each) and
resource similarity (how comparable competitors’ resources are in terms of type and amount)
to complete a competitor analysis. In general, the greater the market commonality and
resource similarity, the more firms acknowledge that they are direct competitors.
Competitive actions are either strategic or tactical in nature. The firm takes competitive
actions to defend or build its competitive advantages or to improve its market position.
Firms take competitive responses to counter the effects of a competitor’s competitive
action. A strategic action or a strategic response requires a significant commitment of
organizational resources, is difficult to implement successfully, and is difficult to reverse.
In contrast, a tactical action or a tactical response requires fewer organizational resources
and is easier to implement and reverse.
Chapter 5: Competitive Rivalry and Competitive Dynamics
evaluating the first mover’s product, customers’ reactions to it, and the responses of other
competitors to the first mover, the second mover may be able to avoid the early entrant’s
mistakes and find ways to improve upon the value created for customers by the first
mover’s product. Late movers commonly are lower performers and less competitive.
To predict a competitor’s response to its actions, a firm examines the type of action
(strategic or tactical) it took, the competitor’s reputation for the nature of its competitive
behavior, and that competitor’s dependence on the market in which the focal firm took
action. In general, the number of tactical responses firms take exceeds the number of
strategic responses they take. Competitors respond more frequently to the actions taken by
the firm with a reputation for predictable and understandable competitive behavior,
especially if that firm is a market leader. In general, the firm can predict that when its
competitor is highly dependent on its revenue and profitability in the market in which the
firm took a competitive action, that competitor is likely to launch a strong response.
However, firms with greater diversification across markets are less likely to respond to a
particular action that affects only one of the markets in which they compete.
Chapter 5: Competitive Rivalry and Competitive Dynamics
LEARNING OBJECTIVES
1. Define competitors, competitive rivalry, competitive behavior, and competitive dynamics.
2. Describe market commonality and resource similarity as the building blocks of a
Lecture Notes
Chapter Introduction: The competitive landscape is characterized by increasing
globalization, advanced technological development, and other factors that will lead to an
OPENING CASE
The Grocery Industry: Welcome to a New Competitive Landscape
Amazon’s purchase of Whole Foods in 2017 was a strategic action that is dramatically
changing the competitive landscape in the grocery industry. Market leader Kroger, among
others, has responded with a series of strategic and tactical responses. Many of these
involve the use of technology to enhance the e-commerce experience for consumers, and
the firm is also making adjustments to its supply chain.
Teaching Note
Using the grocery industry as an example, help students understand that the nature of
competitive dynamics is a continuous flow of actions and responses. When Amazon
Chapter 5: Competitive Rivalry and Competitive Dynamics
1
Define competitors, competitive rivalry, competitive behavior,
and competitive dynamics.
DEFINING COMPETITION
A strategy’s success is determined not only by the firm’s initial competitive actions, but
Some important definitions are as follows:
• Firms operating in the same market with similar products targeting similar customers
are competitors.
Teaching Note
Firms must learn to compete differently if they are to achieve strategic competitiveness.
To provide an idea of what this means, new ways of competing may include the
following:
• Bringing new goods and services to market more quickly
Chapter 5: Competitive Rivalry and Competitive Dynamics
The focus of this chapter is on competitive dynamics, the series of competitive actions and
competitive responses among firms competing within a particular industry. The
implication that should be strongly stated is that the strategic management process (as
described in Chapter 1 and Figure 1.1) is dynamic, not static.
STRATEGIC FOCUS
The Emergence of Competitive Rivalry among Battery Manufacturers: Who Will
Establish the Most Attractive Market Position?
As the demand for energy increases, and in response to the growing use of intermittent
energy sources, such as wind and solar, there is now an expanding market for battery
power. Tesla (the first mover), Siemens AG, and General Electric (GE) are primary
competitors in the large-scale, battery-storage system market. As demand grows, these
three firms will most likely face increased competition from new entrants in the market.
Innovation will be key to their continued success.
Teaching Note
Introduce students to the concept of “first movers” by explaining that Tesla was the first
FIGURE 5.1
From Competitors to Competitive Dynamics
This figure features the key concepts involved in competitive dynamics, which refers to
the total set of actions and responses taken by all the firms competing in a given market.
Expanding geographic scope contributes to the increasing intensity in competitive rivalry
Teaching Note
Figure 5.2 provides a model of competitive dynamics and rivalry, but it also serves as
Chapter 5: Competitive Rivalry and Competitive Dynamics
5-1 A MODEL OF COMPETITIVE RIVALRY
Competitive rivalry exists when firms jockey with one another to pursue an advantageous
market position. When one or more firms competing in an industry feels pressure to act or
FIGURE 5.2
A Model of Competitive Reality
Viewing the model leads to a number of observations:
• Interfirm rivalry or competitive dynamics begins with competitive analysis in terms of
Teaching Note
Competitive rivalry exists because of competitive asymmetry, which describes the fact
that firms differ from one another in terms of their resources, capabilities, core
competencies, and the opportunities and threats in their competitive environments and
Chapter 5: Competitive Rivalry and Competitive Dynamics
2
Describe market commonality and resource similarity as the
building blocks of a competitor analysis.
5-2 COMPETITOR ANALYSIS
A competitor analysis is the first step in predicting the extent and nature of rivalry with
each competitor. Appropriate features of this kind of analysis are described below.
5-2a Market Commonality
Market commonality is the extent to which firms compete in the same markets. And
market commonality is increasing as more and more firms compete internationally.
Teaching Note
If firms overlap in a number of markets—sometimes referred to as multipoint
In a number of industries (e.g., airlines, chemicals, pharmaceuticals, and consumer foods),
the largest domestic firms compete in many of the same markets. Thus, there is high
market commonality. This means that each has awareness and motivation to respond to
competitive interaction.
5-2b Resource Similarity
Resource similarity is the extent to which a firm’s tangible and intangible resources are
Chapter 5: Competitive Rivalry and Competitive Dynamics
Teaching Note
In contrast to market commonality, assessing resource similarity can be difficult,
Teaching Note
Coca-Cola’s and Pepsi’s decisions to target the fast-growing market for bottled water
provides an example of how resource dissimilarity may cause potential competitors to
FIGURE 5.3
A Framework of Competitor Analysis
The results of the firm’s competitor analyses can be mapped for visual comparisons.
Figure 5.3 shows different hypothetical intersections between the firm and individual
competitors in terms of market commonality and resource similarity. These intersections
indicate the extent to which the firm and those to which it has compared itself are
3
Explain awareness, motivation, and ability as drivers of
competitive behavior.
Chapter 5: Competitive Rivalry and Competitive Dynamics
5-3 DRIVERS OF COMPETITIVE BEHAVIOR
Awareness refers to whether or not the attacking or responding firm is aware of the
competitive market characteristics such as the market commonality and the resource
similarity of a potential attacker or respondent.
Motivation is represented by the incentives that a firm has to either initiate an attack or to
respond when attacked.
4
Describe how strategic actions and tactical actions drive
competitive rivalry between firms.
5-4 COMPETITIVE RIVALRY
Competitive rivalry is the ongoing set of competitive actions and responses occurring
between competing firms for an advantageous market position. Because the ongoing
Chapter 5: Competitive Rivalry and Competitive Dynamics
5-4a Strategic and Tactical Actions
Firms use both strategic and tactical actions when forming their competitive actions and
competitive responses in the course of engaging in competitive rivalry.
• A competitive action is a strategic or tactical action the firm takes to build or defend its
competitive advantages or improve its market position.
5
Discuss factors affecting the likelihood a firm will take
actions to attack its competitors.
5-5 LIKELIHOOD OF ATTACK
In addition to market commonality, resource similarity, and the drivers of awareness,
5-5a First-Mover Benefits
First movers are the firms that take an initial competitive action, either strategic or
tactical. First movers are firms that have the resources, capabilities, and core competencies
that enable them to gain a competitive advantage through innovative and entrepreneurial
competitive actions.
Chapter 5: Competitive Rivalry and Competitive Dynamics
By being early, the first mover hopes to:
Teaching Note
Consider the success of Harley-Davidson in large motorcycles (cruisers). In the 1980s,
Harley-Davidson set the standard for low, heavyweight motorcycles and has
successfully defended its position by emphasizing its reputation and brand name.
If a firm is trying to predict its rivals’ competitive actions, it might conclude that they will
take aggressive strategic actions to gain first-movers’ benefits. However, though a firm’s
There also are dangers or disadvantages to being a first mover.
• It is difficult to accurately estimate the returns that will be earned from introducing
product innovations.
Second movers are firms that respond to a first mover’s competitive action, typically
through imitation. Doing so allows the second mover to:
• Avoid both the mistakes and the huge spending of the pioneers (first movers)
Chapter 5: Competitive Rivalry and Competitive Dynamics
Teaching Note
An example of industry dynamics—and how a second mover can succeed—is provided
by looking at the competitive dynamics of the athletic shoe industry.
• New Balance is a second mover in the athletic shoe industry.
• It effectively competes against industry leaders Nike and Reebok by focusing on the
needs of a well-defined market segment.
Late movers are firms that respond to competitive actions but only after considerable time
has elapsed after the first mover’s action and the second mover’s response.
Typically, a late response is better than no response at all, although any success achieved
5-5b Organizational Size
An organization’s size affects the likelihood that it will take competitive actions as well as
the types of actions it will take and their timing. Small firms are more likely, and quicker,
to launch competitive actions.
Chapter 5: Competitive Rivalry and Competitive Dynamics
Large firms are likely to initiate more competitive actions as well as strategic actions
during a given time period. Thus, the competitive actions a firm will likely encounter from
larger competitors will be different than the competitive actions it will encounter from
5-5c Quality
Product quality shapes the competitive dynamics in many industries. In fact, product
quality is no longer a competitive issue but is now a necessary or mandatory product
attribute if firms expect to successfully implement any of the generic business strategies
discussed in Chapter 3—low cost, differentiation, focus, or integrated cost
Quality affects competitive rivalry.
• The firm studying a competitor with poor quality products can predict that the
competitor’s costs are high and that its sales revenue will likely decline until the quality
issues are resolved.
Chapter 5: Competitive Rivalry and Competitive Dynamics
Table Note
Quality-related dimensions of goods and services are shown in Table 5.1.
TABLE 5.1
Quality Dimensions of Products and Services
As indicated in Table 5.1, the quality dimensions of products and services differ slightly
from each other. The quality dimensions of products are more objective or measurable,
5-6 LIKELIHOOD OF RESPONSE
Once a competitive action has been taken, its success generally is determined by the
likelihood and nature of the competitive response.
In general, a firm is likely to respond to a competitor’s action when:
1. The action leads to better use of the competitor’s capabilities to develop a stronger
Chapter 5: Competitive Rivalry and Competitive Dynamics
To predict how a competitor is likely to respond to competitive actions, firms should
consider (see Figure 5.2):
5-6a Type of Competitive Action
Teaching Note
Remember, competitive actions are significant competitive moves taken by a firm that
The likelihood of a competitive response to an action depends on the type of action
taken—strategic or tactical—and the potential effect on competitors.
Because strategic actions require the use or dedication of specific organizational
resources, are more difficult to implement successfully, are more time consuming, and are
Some examples of strategic actions include:
• Walmart’s entry into the European market
Teaching Note
Tactical actions are taken to fine-tune a strategy. They involve fewer and more general
organizational resources and are relatively easy to implement and reverse, if necessary.