Competitor Analysis and Inter firm Rivalry:
Toward a Theoretical Integration
• Written By MING-JER CHEN
• Academy of Management Review (1996)
Summarised by
RUMAJI
Doctoral Student in Management Science
Economics and Business Faculty
Airlangga University
2013
“Know yourself, know your opponents;
encounter a hundred battles, win a
hundred victories.”
Sun Tzu, “The Art of War”, approx. 500
BC
INTRODUCTION
1. The study of competitor analysis (Hamel &
Prahalad, 1990; Porac & Thomas, 1990; Porter,
1980, 1985; Zajac & Bazerman, 1991) and of
interfirm rivalry (Bettis & Weeks, 1987; D'Aveni,
1994; MacMillan, McCaffery, & Van Wijk, 1985;
Smith, Grimm, & Gannon, 1992) occupies a
central position in strategy.
2. Researchers have examined factors that influence
competitive
responses
and
their
ensuing
performance implications (Chen, Smith, & Grimm,
In press) and patterns of entry into and exit from
rivals' markets (Baum & Korn, In press).
Definitions
• Competitors
 Firms operating in the same market, offering
similar products and targeting similar customers.
• Competitive Rivalry
 The ongoing set of competitive actions and
responses occurring between competitors.
 Competitive rivalry influences an individual firm’s
ability to gain and sustain competitive
advantages.
Definitions
• Competitive Behavior
 The set of competitive actions and competitive
responses the firm takes to build or defend its
competitive advantages and to improve its market
position.
• Multimarket Competition
 Firms competing against each other in several
product or geographic markets.
• Competitive Dynamics
 The total set of actions and responses taken by all
firms competing within a market.
THEORITICAL BACKGROUND
Competitor Analysis : An Overview
• “Competitor analysis is defined an assesment of
the strengths and weaknesess of current and
potential competitors.
• Competitor analysis is used to help a firm
understand its competitors.
• The firm studies competitors’ future objectives,
current strategies, assumptions, and capabilities.
• With the analysis, a firm is better able to predict
competitors’ behaviors when forming its
competitive actions and responses.
Competitor Analysis Technique :
a competitor array
• Define your industry – scope and nature of industry.
• Determine who your competitors are.
• Determine who your customers are and what benefits
they expect.
• Determine what the key success factors in your
industry.
• Rank the key success factors by giving each weighing.
• Rate each competitor on each of the key success factors.
From Competitors to Competitive Dynamics
Why?
Competitors
Engage
in
• To gain an advantageous
market position
Competitive
Rivalry
• Competitive Behavior
• Competitive actions
• Competitive responses
How?
What Results?
What Results?
Competitive Dynamics
Competitive actions and responses taken
by all firms competing in a market
Source: Adapted from M.-J. Chen, 1996, Competitor analysis and interfirm rivalry: Toward
a theoretical integration, Academy of Management Review, 21: 100–134.
Competitive Rivalry’s Effect on Strategy
• Success of a strategy is determined by:
 The firm’s initial competitive actions.
 How well it anticipates competitors’ responses to
them.
 How well the firm anticipates and responds to its
competitors’ initial actions.
• Competitive rivalry:
 Affects all types of strategies.
 Has the strongest influence on
business-level strategy or strategies.
the
firm’s
A Model of Competitive Rivalry
• Firms are mutually interdependent
 A firm’s competitive actions have noticeable
effects on its competitors.
 A firm’s competitive actions elicit competitive
responses from its competitors.
 Competitors
responses.
feel
each
other’s
actions
and
• Marketplace success is a function of both
individual strategies and the consequences
of their use.
A Model of Competitive Rivalry
Competitive Analysis
• Market commonality
• Resource similarity
Feedback
Outcomes
• Market position
• Financial
performance
Source: Adapted from M.-J. Chen, 1996, Competitor analysis and interfirm rivalry:
Toward a theoretical integration, Academy of Management Review, 21: 100–134.
Drivers of Competitive
Behavior
• Awareness
• Motivation
• Ability
Interfirm Rivalry
• Likelihood of Attack
• First-mover incentives
• Organizational size
• Quality
• Likelihood of Response
• Type of competitive action
• Reputation
• Market dependence
A Framework of Competitor Analysis
Market Commonality
• Market commonality is concerned with:
 The number of markets with which a firm and a
competitor are jointly involved.
 The degree of importance of the individual
markets to each competitor.
• Firms competing against one another in
several or many markets engage in
multimarket competition.
 A firm with greater multimarket contact is less
likely to initiate an attack, but more likely to more
respond aggressively when attacked.
A Framework of Competitor Analysis
Resource Similarity
• Resource Similarity
 How comparable the firm’s tangible and intangible
resources are to a competitor’s in terms of both
types and amounts.
• Firms with similar types and amounts of
resources are likely to:
 Have similar strengths and weaknesses.
 Use similar strategies.
• Assessing resource similarity can be difficult
if critical resources are intangible rather than
tangible.
FIGURE of the Framework of Competitor Analysis
Source: Adapted from M.-J. Chen, 1996, Competitor analysis and interfirm rivalry:
Toward a theoretical integration, Academy of Management Review, 21: 100–134.
Drivers of Competitive Behavior
Awareness
• Awareness is
 the extent to which
competitors recognize
the degree of their
mutual interdependence
that results from:
• Market commonality
• Resource similarity
Drivers of Competitive Behavior
(cont’d)
Awareness
Motivation
• Motivation concerns
 the firm’s incentive to
take action
 or to respond to a
competitor’s attack
 and relates to perceived
gains and losses
Drivers of Competitive Behavior
(cont’d)
Awareness
Motivation
Ability
• Ability relates to
 each firm’s resources
 the
flexibility
these
resources provide
• Without
available
resources the firm lacks
the ability to
 attack a competitor
 respond
to
competitor’s actions
the
Drivers of Competitive Behavior
(cont’d)
Awareness
Motivation
Ability
Market
Commonality
• A firm is more likely to attack
the rival with whom it has low
market commonality than the
one with whom it competes in
multiple markets.
• Given the strong competition
under market commonality, it is
likely that the attacked firm will
respond to its competitor’s
action in an effort to protect its
position in one or more
markets.
Drivers of Competitive Behavior
(cont’d)
Awareness
Motivation
Ability
Market
Commonality
Resource
Dissimilarity
• The
greater
the
resource
imbalance between the acting firm
and competitors or potential
responders, the greater will be the
delay in response by the firm with a
resource disadvantage.
• When facing competitors with
greater
resources
or
more
attractive market positions, firms
should eventually respond, no
matter
how
challenging
the
response.
Competitive / Interim Rivalry
• Competitive Action
 A strategic or tactical action the firm takes to
build or defend its competitive advantages or
improve its market position.
• Competitive Response
 A strategic or tactical action the firm takes to
counter the effects of a competitor’s competitive
action.
Strategic and Tactical Actions
• Strategic Action (or Response)
 A market-based move that involves a significant
commitment of organizational resources and is
difficult to implement and reverse.
• Tactical Action (or Response)
 A market-based move that is taken to fine-tune a
strategy:
• Usually involves fewer resources.
• Is relatively easy to implement and reverse.
Factors Affecting Likelihood of Attack
First-Mover
Incentives
First Mover
A firm that takes an initial
competitive action in order
to build or defend its
competitive advantages or
to improve its market
position.
• First movers allocate funds for:
 Product
innovation
development
and
 Aggressive advertising
 Advanced
development
research
and
• First movers can gain:
 The loyalty of customers who may
become committed to the firm’s
goods or services.
 Market share that can be difficult
for competitors to take during
future competitive rivalry.
Factors Affecting Likelihood of Attack (cont’d)
First Mover
Second Mover
Incentives
• Second mover responds to the first
mover’s competitive action, typically
through imitation:
 Studies customers’ reactions to
product innovations.
 Tries to find any mistakes the first
mover made, and avoid them.
 Can avoid both the mistakes and
the huge spending of the firstmovers.
 May
develop
more
efficient
processes and technologies.
Factors Affecting Likelihood of Attack (cont’d)
First Mover
Second Mover
Late Mover
• Late mover responds to a
competitive action only after
considerable time has elapsed.
• Any success achieved will be slow
in coming and much less than that
achieved by first and second
movers.
• Late mover’s competitive action
allows it to earn only average
returns
and
delays
its
understanding of how to create
value for customers.
Factors Affecting Likelihood of Attack (cont’d)
First Mover
• Small firms are more likely:
 To launch competitive actions.
Second Mover
 To be quicker in doing so.
• Small firms are perceived as:
 Nimble and flexible competitors
Late Mover
Organizational
Size- Small
 Relying on speed and surprise to
defend competitive advantages or
develop new ones while engaged in
competitive rivalry.
 Having the flexibility needed to
launch a greater variety of
competitive actions.
Factors Affecting Likelihood of Attack (cont’d)
First Mover
Second Mover
Late Mover
Organizational
Size -Large
• Large firms are likely to initiate
more competitive actions as well as
strategic actions during a given time
period
• Large organizations commonly
have the slack resources required
to launch a larger number of total
competitive actions
• Think and act big and we’ll get
smaller. Think and act small and
we’ll
get
bigger.
Herb Kelleher
Former CEO, Southwest Airlines
Factors Affecting Likelihood of Attack (cont’d)
First Mover
Second Mover
Late Mover
Organizational
Size
Quality
(Product)
• Quality exists when the firm’s
goods or services meet or
exceed customers’
expectations
• Product quality dimensions
include:
 Performance
 Conformance
 Features
 Serviceability
 Flexibility
 Aesthetics
 Durability
 Perceived
quality
Quality Dimensions of Goods and Services
Product Quality Dimensions
1. Performance—Operating characteristics
2. Features—Important special characteristics
3. Flexibility—Meeting operating specifications over some
period of time
4. Durability—Amount of use before performance deteriorates
5. Conformance—Match with preestablished standards
6. Serviceability—Ease and speed of repair
7. Aesthetics—How a product looks and feels
8. Perceived quality—Subjective assessment of characteristics
(product image)
SOURCES: Adapted from J.W. Dean, Jr., & J. R. Evans, 1994, Total Quality: Management, Organization and Society, St.
Paul, MN:West Publishing Company; H.V. Roberts & B. F. Sergesketter, 1993, Quality Is Personal, New York:The Free
Press; D. Garvin, 1988, Managed Quality: The Strategic and Competitive Edge, New York:The Free Press.
Factors Affecting Likelihood of Attack (cont’d)
First Mover
Second Mover
Late Mover
Organizational
Size
Quality
(Service)
• Service quality dimensions
include:
 Timeliness
 Courtesy
 Consistency
 Convenience
 Completeness
 Accuracy
Quality Dimensions of Goods and Services (cont’d)
Service Quality Dimensions
1. Timeliness—Performed in the promised period of time
2. Courtesy—Performed cheerfully
3. Consistency—Giving all customers similar experiences each time
4. Convenience—Accessibility to customers
5. Completeness—Fully serviced, as required
6. Accuracy—Performed correctly each time
SOURCES: Adapted from J.W. Dean, Jr., & J. R. Evans, 1994, Total Quality: Management, Organization and Society, St.
Paul, MN:West Publishing Company; H.V. Roberts & B. F. Sergesketter, 1993, Quality Is Personal, New York:The Free
Press; D. Garvin, 1988, Managed Quality: The Strategic and Competitive Edge, New York:The Free Press.
Likelihood of Response
• Responses to a competitor’s action are taken
when the action:
 Leads to better use of the competitor’s capabilities
to gain or produce stronger competitive
advantages or an improvement in its market
position.
 Damages the firm’s ability to use its capabilities to
create or maintain an advantage.
 Makes the firm’s market position becomes less
defensible.
Factors Affecting Likelihood of
Response
• Firms study three other factors to predict
how a competitor is likely to respond to
competitive actions:
 Type of competitive action
 Reputation
 Market dependence
Factors Affecting Strategic Response
Type of
Competitive
Action
• Strategic
actions
strategic responses
receive
 Strategic actions elicit fewer total
competitive responses.
 The time needed to implement and
assess a strategic action delays
competitor’s responses.
• Tactical responses are taken to
counter the effects of tactical
actions
 A competitor likely will respond
quickly to a tactical actions
Factors Affecting Strategic Response (cont’d)
Type of
Competitive
Action
Actor’s
Reputation
• An actor is the firm taking an
action or response
• Reputation is the positive or
negative attribute ascribed by
one rival to another based on
past competitive behavior.
• The firm studies responses that
a
competitor
has
taken
previously when attacked to
predict likely responses.
Factors Affecting Strategic Response (cont’d)
Type of
Competitive
Action
Actor’s
Reputation
Dependence
on the market
• Market dependence is the
extent to which a firm’s
revenues or profits are derived
from a particular market.
• In general, firms can predict that
competitors with high market
dependence are likely to
respond strongly to attacks
threatening
their
market
position.
Competitive Dynamics versus Rivalry
• Competitive Rivalry
(Individual firms)
 Market
commonality
and resource similarity
 Awareness, motivation
and ability
 First mover incentives,
size and quality
• Competitive Dynamics
(All firms)
 Market speed (slowcycle, fast-cycle, and
standard-cycle
 Effects
of
market
speed on actions and
responses
of
all
competitors in the
market
Competitive Dynamics
Slow-Cycle
Markets
• Competitive
advantages
are
shielded from imitation for long
periods of time and imitation is
costly.
• Competitive
advantages
are
sustainable in slow-cycle markets.
• All
firms
concentrate
on
competitive
actions
and
responses to protect, maintain
and
extend
proprietary
competitive advantage.
Competitive Dynamics (cont’d)
Slow-Cycle
Markets
• The
firm’s
competitive
advantages aren’t shielded
from imitation.
Fast-Cycle
Markets
• Imitation happens quickly and
somewhat expensively
• Competitive advantages aren’t
sustainable.
 Competitors
use
reverse
engineering to quickly imitate or
improve on the firm’s products
• Non-proprietary technology is
diffused rapidly
Competitive Dynamics (cont’d)
Slow-Cycle
Markets
• Moderate cost of imitation may
shield competitive advantages.
Fast-Cycle
Markets
• Competitive advantages are
partially sustainable if their
quality
is
continuously
upgraded.
Standard-Cycle
Markets
• Firms
 Seek large market shares
 Gain customer loyalty through
brand names
 Carefully control operations
Competitor Mapping
SOME PROPOSITIONS
Market Commonality and Interim Rivalry
• Proposition 1a: The greater B’s market
commonality with A, the less likely A is to
initiate an attack against B, all else being
equal.
• Proposition 1b: The greater A’s market
commonality with B, the More likely B is to
respond to A’s attack, all else being equal.
SOME PROPOSITIONS
Resource Similarity and Interim Rivalry
• Proposition 2a: The greater B’s resource
similarity with A, the less likely A is to initiate
an attack against B, all else being equal.
• Proposition 2b: The greater A’s resource
similarity with B, the More likely B is to
respond to A’s attack, all else being equal.
SOME PROPOSITIONS
Market Commonality and Resource Similarity
• Proposition 3: market
commonality is a
stronger predictor of competitive attack and
respond that is resource similarity
SOME PROPOSITIONS
Competitive Asymmetry and Interm Rivalry
• Proposition 4a: Competitive asymmetry is likely to
exist within a pair of competitors. That is, any two
firms are unlikely to have identical degrees of
market commonality and resource similarity with
each other.
• Proposition
4b:
Because
of
Competitive
asymmetry in the market commonality and in
resource similarity , the likelihood that A will attack
B will differ from likelihood that B will attack A. the
same will hold true for response likelihood.
The Implications
 The article highlights the significance of the
market in which competitive battles play out
and the importance of comparing the overall
market profiles of firms.
 This article spans various analytical levels: firm,
group, industry, market, competitive move and
focus on competition within industry or at the
business level not corporate level.
The Implications
 The idea for framing the competitor analysis also
would be applicable to mapping global competitors
in various country markets (Franko, 1989) or rivals
competing where industry boundaries are unclear
or ill defined (e.g., multimedia industries), and to
examining competition among nations (Porter,
1992).
 This action/response dichotomy has implications to
an important issue in competitive studies, whether
similar firms tend to compete more aggressively or
less aggressively with one another.
The Implications
 The article suggests that the issue is not whether
similar firms are aggressive toward one another in
an absolute sense or across all conditions, but
rather how they are likely to behave in a given
context, as attackers or as defenders.
 Competitive Asymmetry has implication to firm’s
manager to analyze the competitive environment
from the point of view of each of its competitors.
Limitations and Future Directions
 The article only focus on existing competitors in a
industry, but it is important to develop a
conceptualization of potential competitors.
 The action and response variables only examined a
subset (group of similar object) of rivalrous
behavior rather than a selection of the dependent
variables (market signals, strategic commitment,
speed of decision, market entry and exit.
 The propositions presented should be examined
empirically to test significance of market
commonality and resource similarity in predicting
rivalry
Limitations and Future Directions
 It would be useful to conduct interindustry
longitudinal studies to develop a fuller
understanding of the relationship between market
commonality and resource similarity over time.
 It would be useful for authors to explore the
relationships between objective and subjective
notions of competition, the extent to which these
two perspectives may correspond, and to what
extent this correspondence may relate to firm
performance.
SUMMARY
 The present article, drawing on a diverse set of
theories and spanning different analytical levels,
raises a number of theoretical issues that
contribute to researchers' understanding of
interfirm competition.
 The conceptualization of market commonality
refines
the
important
idea
of
market
interdependence,
which
prevails
in
the
management literature.
SUMMARY
 The idea of competitive asymmetry introduced
here offers a unique perspective that can be used
by theorists to gain a deeper understanding of
competition; it also brings to the fore the
fundamental question of perceptual versus
objective views of competition.
 The microfocus on firm-specific competitive
relationships and on individual competitive moves
contributes toward the ultimate goal of building a
predictive theory of microcompetitive behavior.
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