146 Part 2: Strategic Actions: Strategy Formulation
5-1 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.^16 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 function
of both individual strategies and the consequences of their use.^17
Increasingly, executives recognize that competitive rivalry can have a major effect
on the firm’s financial performance and market position.^18 For example, research shows
that intensified rivalry within an industry results in decreased average profitability for
the competing firms.^19 Although Apple essentially created the smartphone market in
2007 by launching the iPhone, some believe that Google’s Android has rapidly reshaped
the market, as evidenced by the fact that nearly half of all smartphones shipped in 2012
ran on the Android platform. The Opening Case explains how Google is creating the
smartphone of the future which, when introduced, will likely only increase its rivalry with
Apple, Samsung, and other smartphone providers.
Figure 5.2 presents a straightforward model of competitive rivalry at the firm level; this
type of rivalry is usually dynamic and complex. The competitive actions and responses
the firm takes are the foundation for successfully building and using its capabilities and
core competencies to gain an advantageous market position.^20
The model in Figure 5.2 presents the sequence of activities commonly involved in
competition between a firm and its competitors. Companies use this model to under-
stand how to predict a competitor’s behavior and reduce the uncertainty associated with
it.^21 Being able to predict competitors’ actions and responses has a positive effect on
the firm’s market position and its subsequent financial performance.^22 The total of all^
the individual rivalries modeled in Figure 5.2 that occur in a particular market reflect the
competitive dynamics in that market.
The remainder of the chapter explains components of the model shown in Figure 5.2.
We first describe market commonality and resource similarity as the building blocks of a
competitor analysis. Next, we discuss the effects of three organizational characteristics—
awareness, motivation, and ability—on the firm’s competitive behavior. We then examine
competitive rivalry between firms (interfirm rivalry). To do this, we explain the factorsFigure 5.2 A Model of Competitive RealityOutcomes- Market position
- Financial
performance
Drivers of Competitive
Behavior- Awareness
- Motivation
- Ability
Competitive Rivalry- Likelihood of Attack
- First-mover benefits
- Organizational size
- Quality
- Likelihood of Response
- Type of competitive
action - Actor’s reputation
- Market dependence
Competitor Analysis- Market commonality
- Resource similarity
FeedbackSource: Adapted from M. J. Chen, 1996, Competitor analysis and inferfirm rivalry: Toward a theoretical integration, Academy of Management Review, 21: 100–134.