Fast cycle market examples

Running head: BUSINESS LAWS AND REGULATIONS 1

BUSINESS LAWS AND REGULATIONS 2

Firms operating in the same market, offering similar products, and targeting similar customers are competitors.1 Southwest Airlines, Delta, United, Continental, and JetBlue are competitors, as are PepsiCo and Coca-Cola Company. As described in the Opening Case, Apple’s family of products (Macs, iPads, iPods, and iPhones) are currently engag- ing in a competitive battle in the video game market with stand-alone and mobile game platforms produced by Sony, Microsoft, and Nintendo. As noted in the Opening Case, in response, Sony has produced a PLAY phone that has its own game console and allows one to use “play station certified games” on the mobile device.2

Firms interact with their competitors as part of the broad context within which they operate while attempting to earn above-average returns.3 The decisions firms make about their interactions with their competitors significantly affect their ability to earn above-average returns.4 Because 80 to 90 percent of new firms fail, learning how to select the markets in which to compete and how to best compete within them is highly important.5

Competitive rivalry is the ongoing set of competitive actions and competitive responses that occur among firms as they maneuver for an advantageous market position.6 Especially in highly competitive industries, firms constantly jockey for advantage as they launch strategic actions and respond or react to rivals’ moves.7 It is important for those leading organizations to understand competitive rivalry, in that “the central, brute empir- ical fact in strategy is that some firms outperform others,”8 meaning that competitive rivalry influences an individual firm’s ability to gain and sustain competitive advantages.9

A sequence of firm-level moves, rivalry results from firms initiating their own com- petitive actions and then responding to actions taken by competitors.10 Competitive behavior is the set of competitive actions and responses the firm takes to build or defend its competitive advantages and to improve its market position.11 Through competitive behavior, the firm tries to successfully position itself relative to the five forces of com- petition (see Chapter 2) and to defend current competitive advantages while building advantages for the future (see Chapter 3). Increasingly, competitors engage in competitive actions and responses in more than one market.12 Firms competing against each other in several product or geographic markets are engaged in multimarket competition.13

All competitive behavior—that is, the total set of actions and responses taken by all firms competing within a market—is called competitive dynamics. The relationships among these key concepts are shown in Figure 5.1.

This chapter focuses on competitive rivalry and competitive dynamics. A firm’s strat- egies are dynamic in nature because actions taken by one firm elicit responses from competitors that, in turn, typically result in responses from the firm that took the initial action.14 As explained in the Opening Case, Apple, Sony, and other video game produc- ers are changing how they compete as they respond to competitive moves. Likewise, Walmart is seeking to enter the video-on-demand market through Vudu as it responds to iTunes dominance in this market.

Competitive rivalries affect a firm’s strategies, as shown by the fact that a strategy’s success is determined not only by the firm’s initial competitive actions but also by how well it anticipates competitors’ responses to them and by how well the firm anticipates and responds to its competitors’ initial actions (also called attacks).15 Although competitive rivalry affects all types of strategies (e.g., corporate-level, acquisition, and international), its dominant influence is on the firm’s business-level strategy or strategies. Indeed, firms’ actions and responses to those of their rivals are the basic building blocks of business- level strategies.16 Recall from Chapter 4 that business-level strategy is concerned with what the firm does to successfully use its competitive advantages in specific product markets. In the global economy, competitive rivalry is intensifying,17 meaning that the significance of its effect on firms’ business-level strategies is increasing. However, firms that develop and use effective business-level strategies tend to outperform competitors in individual product markets, even when experiencing intense competitive rivalry that price cuts bring about.

A Model of Competitive Rivalry

Competitive rivalry evolves from the pattern of actions and responses as one firm’s com- petitive actions have noticeable effects on competitors, eliciting competitive responses from them.19 This pattern suggests that firms are mutually interdependent, that they are affected by each other’s actions and responses, and that marketplace success is a func- tion of both individual strategies and the consequences of their use.20 Increasingly, too, executives recognize that competitive rivalry can have a major effect on the firm’s finan- cial performance.21 Research shows that intensified rivalry within an industry results in decreased average profitability for the competing firms.22 For example, Research in Motion (RIM) dominated the smartphone market with its Blackberry operating sys- tem platform until Apple’s iPhone platform emerged. Likewise, the introduction of the Android platform by Google has cut into RIM’s market share and has thereby lowered the company’s performance expectations.23