Chapter 5: Competitive Rivalry and Competitive Dynamics 145
This chapter focuses on competitive rivalry and competitive dynamics. A firm’s strate-
gies are dynamic in nature because actions taken by one firm elicit responses from compet-
itors that, in turn, typically result in responses from the firm that took the initial action.^12
For example, in recent years, cigarette manufacturers took actions to introduce electronic
cigarettes as a new product. Commonly called e-cigarettes, and with their health benefits
still unknown, this product is a battery-powered device that converts heated, nicotine-laced
liquid into vapor. The more prominent position in this market has been held by Lorillard,
Inc., which is now merging with Reynolds American to become an even more formidable
competitor in this market and other tobacco product markets. The other large tobacco
product firm, Altria Group, introduced its MarkTen e-cigarette to compete with the other
major firms in this market. Additional competitive actions and responses among these firms
and with international cigarette manufacturers can be expected in the foreseeable future.^13
Competitive rivalries affect a firm’s strategies, as 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’ ini-
tial actions (also called attacks).^14 Although competitive rivalry affects all types of strategies
(e.g., corporate-level, merger and 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 part of the basic building blocks of business-level strategies.^15
Recall from Chapter 4 that business-level strategy is concerned with what the firm does
to successfully use its core competencies in specific product markets. In the global economy,
competitive rivalry is intensifying, meaning that its effect on firms’ strategies is increasing.
However, firms that develop and use effective business-level strategies tend to outperform com-
petitors in individual product markets, even when experiencing intense competitive rivalry.
Figure 5.1 From Competition to Competitive Dynamics- To gain an advantageous
market position - Competitive Dynamics
- Competitive actions and responses taken by all firms competing
in a market
Competitors
Engage inWhat results?Why?How?What results?Competitive
Rivalry- Through Competitive Behavior
- Competitive actions
- Competitive responses
Source: Adapted from M. J. Chen, 1996, Competitor analysis and inferfirm rivalry: Toward a theoretical integration, Academy of Management Review, 21: 100-134.