A competitor likely will respond quickly to a tactical action, such as when an airline company almost immediately matches a competitor’s tactical action of reducing prices in certain markets. Either strategic actions or tactical actions that target a large number of a rival’s customers are likely to elicit strong responses. 5-6b Actor’s Reputation
In the context of competitive rivalry, an actor is the firm taking an action or a response, while reputation is “the positive or negative attribute ascribed by one rival to another based on past competitive behavior.” Positive reputation may be a source of above-average returns. Competitors are more likely to respond to strategic or tactical actions when they are taken by a market leader. In particular, evidence suggests that commonly successful actions, especially strategic actions, will be quickly imitated. In contrast to a firm with a strong reputation, competitors are less likely to respond to actions taken by a company with a reputation for risky, complex, and unpredictable competitive behavior. 5-6c Market Dependence Market dependence denotes the extent to which a firm’s revenues or profits are derived from a particular market. In general, competitors with high market dependence are likely to respond strongly to attacks threatening their market position. Interestingly, the threatened firm in these instances may not always respond quickly, even though an effective response to an attack on the firm’s position in a critical market is important. 5-7 Competitive Dynamics Competitive dynamics = the ongoing actions and responses among all firms competing within a market for advantageous positions. (Competitive rivalry, competing with direct competition. 5-7a Slow-Cycle Markets Slow-cycle markets are markets in which the firm’s competitive advantages are shielded from imitation, commonly for long periods of time, and where imitation is costly. Thus, competitive advantages are sustainable over longer periods of time in slow-cycle markets. Building a unique and proprietary capability produces a competitive advantage and success in a slow-cycle market. Hard for competitors to understand due to unique historical conditions, causal ambiguity, and/or social complexity. Copyrights and patents are examples of these types of capabilities. The competitive actions and responses a firm takes in a slow-cycle market are oriented to protecting, maintaining, and extending that advantage. Major strategic actions in these markets, such as acquisitions, usually carry less risk than in faster-cycle markets. The competitive dynamics generated by firms competing in slow-cycle markets are shown in Figure 5.4. In slow-cycle markets, firms launch a product (e.g., a new drug) that has been developed through a proprietary advantage (e.g., R&D) and then exploit it for as long as possible while the product is shielded from competition. Eventually, competitors respond to the action with a counterattack. In markets for drugs, this counterattack commonly occurs as patents expire
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- Fall '17
- Management, Firm, above-average returns, competitive actions, competitive action