Management of Strategy Concepts International Edition 10th Edition Ireland Solutions Manual 1

Chapter 5: Competitive Rivalry and Dynamics
Management of Strategy Concepts

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Chapter 5
Competitive Rivalry and Dynamics
KNOWLEDGE OBJECTIVES
1. Define competitors, competitive rivalry, competitive behavior, and competitive

dynamics.
2. Describe market commonality and resource similarity as the building blocks of a
competitor analysis.
3. Explain awareness, motivation, and ability as drivers of competitive behaviors.
4. Discuss factors affecting the likelihood a competitor will take competitive actions.
5. Describe factors affecting the likelihood a competitor will respond to actions taken
against it.
6. Explain the competitive dynamics in each of slow-cycle, fast-cycle, and standard-
cycle markets.
CHAPTER OUTLINE
Opening Case Disruptive Innovation: Winning Rivalry Battles Against Competitors
A MODEL OF COMPETITIVE RIVALRY
COMPETITOR ANALYSIS
Market Commonality
Strategic Focus Market Commonality and Resource Similarity in the Global Automobile
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Producer Industry
Resource Similarity
DRIVERS OF COMPETITIVE ACTIONS AND RESPONSES
COMPETITIVE RIVALRY
Strategic and Tactical Actions
LIKELIHOOD OF ATTACK
First-Mover Incentives
Organizational Size
Quality
LIKELIHOOD OF RESPONSE
Type of Competitive Action
Actor‟s Reputation
Dependence on the Market
COMPETITIVE DYNAMICS
Slow-Cycle Markets
Fast-Cycle Markets
Strategic Focus Competition to Sell Cloud Computing Resources
SUMMARY
REVIEW QUESTIONS
EXPERIENTIAL EXERCISES
VIDEO CASE
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NOTES
LECTURE NOTES
Chapter Introduction: The competitive landscape is characterized by

increasing globalization, advanced technological development, and other
factors that will lead to an environment that is more dynamic and charged with
rivalry. Firms will act and react in a dance of sorts, but one involving very high
stakes—even survival. This chapter introduces terms and concepts relevant
to the conversation about competitive behavior in a variety of markets. Figure
5.2 is central to the discussion of most of the chapter.
OPENING CASE
Disruptive Innovation: Winning Rivalry Battles Against Competitors
Disruptive innovation is an “innovation that makes is so much simpler and so much more
affordable to own and use a product that a whole new population of people can now have
one.” The opening case profiles several companies that have developed disruptive
innovations including Canon (copiers), Apple, (phone and personal computers), and
Walmart (video-on-demand). The innovations that these companies developed brought
higher value (in terms of product attributes) while simultaneously lowering cost. In a
rational market, customers will be drawn to super value propositions and firms that create
disruptive innovations are where customers will go.
Teaching Note: The opening case illustrates the competitive power of

disruptive innovation. Ask students to identify other examples of
companies that have developed disruptive innovations. At its core,
disruptive innovations introduce a significantly superior value proposition
to customers, challenge existing industry paradigms, and create power for
new strategic positions by altering existing competitive dynamics. After
students identify examples of disruptive innovations, ask them to
speculate on how competitors are likely to respond to the innovation.
Define competitors, competitive rivalry, competitive

1
behavior, and competitive dynamics.
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 responds
to its competitor‟s initial actions (also called attacks).
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Some important definitions:
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• Firms operating in the same market with similar products targeting similar customers are
competitors.
• Competitive rivalry is the ongoing set of competitive actions and competitive responses
occurring between rivals as they compete against each other for an advantageous market
position.
• Competitive behavior is the set of competitive actions and competitive responses the firm
takes to build or defend its competitive advantages and to improve its market position.
• Firms competing against each other in several product/geographic markets are in
multimarket competition.
• All competitive behavior—that is, the total set of actions and responses taken by all firms
competing within a market—is called competitive dynamics.
Teaching Note: Firms must learn to compete differently if they are to achieve
strategic competitiveness. To provide an idea of what this means, new ways
of competing may include the following:
• Bringing new goods and services to market more quickly
• The use of new technologies (e.g., Amazon.com)
• Diversifying the product line (e.g., Barnes and Noble into music as a
catalyst for growth)
• Shifting product emphasis (e.g., U-haul’s focus on accessory sales)
• Consolidation (e.g., the merger of Hewlett Packard and Compaq)
• Combining online selling with physical stores (e.g., Sears’s acquisition of
Lands’ End)
The focus of this chapter is on competitive dynamics, the series of competitive actions and
competitive responses among firms competing within a particular industry. The implication
that should be strongly stated is that the strategic management process (as described in
Chapter 1 and Figure 1.1) is dynamic, not static.
FIGURE 5.1
From Competitors to Competitive Dynamics
This figure features the key concepts involved in competitive dynamics, which refers to the
total set of actions and responses taken by all of the firms competing in a given market.
Expanding geographic scope contributes to the increasing intensity in competitive rivalry

among firms. That is, firms trying to predict competitive rivalry should anticipate that they
will meet a larger number of increasingly diverse competitors in the future; thus, competitive
rivalry will affect their strategies more than in the past.
Teaching Note: Figure 5.2 provides a model of competitive dynamics and

rivalry, but it also serves as an outline for this chapter’s discussion. You might
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briefly summarize the model at this point and comment that students can refer
to it throughout your discussion.
A MODEL OF COMPETITIVE RIVALRY
Competitive rivalry exists when firms jockey with one another to pursue an advantageous
market position. When one or more firms competing in an industry feels pressure to act or
perceives an opportunity to improve their competitive position, competitive rivalry occurs as
various firms initiate a series of actions and responses.
Research findings showing that intensified rivalry within an industry results in decreased
average profitability for firms competing in it and supports the importance of understanding
these effects.
FIGURE 5.2
A Model of Competitive Rivalry
Viewing the model leads to a number of observations:

• Interfirm rivalry or competitive dynamics begins with competitive analysis in terms of
market commonality and resource similarity.
• Market commonality and resource similarity affect the drivers of competitive behavior—a
firm‟s awareness, motivation, and ability to attack or respond.
• Attack and responses to attack result in competitive outcomes—market position and
financial performance.
• Feedback from competitive outcomes will affect future competitive dynamics.
Teaching Note: Competitive rivalry exists because of competitive

asymmetry, which describes the fact that firms differ from one another in
terms of their resources, capabilities, core competencies, and the
opportunities and threats in their competitive environments and industries. It
is important that firms see that competition results in mutual interdependence
among firms in the industry as each firm tries to establish a sustainable
competitive advantage.
• As firms strive to achieve strategic competitiveness and above-average
returns, they must recognize that strategies are not deployed in isolation
from rival’s actions and responses.
• The strategic management process represents firms taking a series of
actions, fending off counter-actions or responses and developing
responses of their own.
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Describe market commonality and resource similarity

2
the building blocks of a competitor analysis.
COMPETITOR ANALYSIS
A competitor analysis is the first step in predicting the extent and nature of rivalry with each
competitor. Appropriate features of this kind of analysis are described below.
STRATEGIC FOCUS
Market Commonality and Resource Similarity in the Global Automobile Industry
The global auto industry is characterized by intense competitive rivalry. The large firms have
a high degree of market commonality because they compete in the same markets. In addition,
they all have similar resources and capabilities—continually exploring knowledge in the
same general areas to improve the cars/trucks that they make. Companies discussed in the
opening case include GM, Toyota, Porsche, Chrysler, Toyota, and Hyundai. A central point
is that to gain market share all of the competitors are dedicated to making continuous product
advances. Given the high market commonality and resource similarity, to do anything less
(as the GM example shows) would have a detrimental affect.
Teaching Note: Even casual observers can recognize the high degrees of both
market commonality and resource similarity in the global auto industry. Ask
students to evaluate the potential for sustainable competitive advantage under
these conditions. Ask students to link the concept of core competencies to
resource similarity. Can firms with high resource similarity truly develop enduring
core competencies? Finally, ask students to identify other industries in which the
competitors have high degrees of market commonality and resource similarity and
how these conditions contribute to the degree of competitive rivalry in these
industries.
Market Commonality
Market commonality is the extent to which firms compete in the same markets. And market
commonality is increasing as more and more firms compete internationally.
Teaching Note: If firms overlap in a number of markets—sometimes referred

to as multipoint competition—this results in a situation where firms compete
against each other simultaneously in multiple geographic or product markets.
This can have a significant impact on competitive dynamics (e.g., expanding
into a new market that the competitor has entered to ensure that the rival
does not tap a market opportunity that could then be used to support
competition in core markets).
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In a number of industries (e.g., airlines, chemicals, pharmaceuticals, and consumer foods) the
largest domestic firms compete in many of the same markets. Thus there is high market
commonality. This means that each has awareness and motivation to respond to competitive
interaction.
Interestingly, high levels of commonality reduce the likelihood of competitive interaction.

For firms that are in many common markets, there generally is competitive peace. However,
when one of these firms makes a competitive move, the others are compelled to respond
rapidly and aggressively.
Resource Similarity
Resource similarity is the extent to which a firm‟s tangible and intangible resources are
comparable to a competitor‟s in terms of both type and amount. Firms with similar types and
amounts of resources are likely to have similar strengths and weaknesses and to use similar
strategies.
Teaching Note: In contrast to market commonality, assessing resource

similarity can be difficult, particularly when critical resources are intangible
(e.g., brand name, knowledge, trust, capacity to innovate) rather than tangible
(e.g., access to raw materials, ability to borrow capital).
In most cases, dissimilar resources may increase the likelihood of an attack whereas firms
with similar resources (overlap between their resource portfolios) will be less likely to attack
because resource similarity increases the likelihood of retaliation.
Teaching Note: Coca-Cola and Pepsi’s decision to target the fast-growing

market for bottled water provides an example of how resource dissimilarity
may cause potential competitors to be overlooked, especially by an industry’s
dominant firms. This means that competitive responses of firms such as
Perrier Group to protect its key bottled water brands may be delayed due to
resource dissimilarity.
FIGURE 5.3
A Framework of Competitor Analysis
The results of the firm‟s competitor analyses can be mapped for visual comparisons. Figure
5.3 shows different hypothetical intersections between the firm and individual competitors in
terms of market commonality and resource similarity. These intersections indicate the extent
to which the firm and those to which it has compared itself are competitors. For example, the
firm and its competitor displayed in quadrant I of Figure 5.3 have similar types and amounts
of resources and use them to compete against each other in many markets that are important
to each. These conditions lead to the conclusion that the firms modeled in quadrant I are
direct and mutually acknowledged competitors. In contrast, the firm and its competitor
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shown in quadrant III share few markets and have little similarity in their resources,
indicating that they aren‟t direct and mutually acknowledged competitors. The firm‟s
mapping of its competitive relationship with rivals is fluid as firms enter and exit markets
and as companies‟ resources change in type and amount. Thus, those with whom the firm is a
direct competitor change across time.
Explain awareness, motivation, and ability as drivers of

3
competitive behavior.
DRIVERS OF COMPETITIVE ACTIONS AND RESPONSES
Awareness refers to whether or not the attacking or responding firm is aware of the
competitive market characteristics such as the market commonality and the resource
similarity of a potential attacker or respondent.
When managers are not aware of these factors or assess them inaccurately, industry
overcapacity or excessive competition may result. For example, this may be a partial
explanation for the recent decline in Levi Strauss‟ core market as the firm appeared to be
unaware of changes in teenagers‟ interests as competition for their business intensified.
Market commonality affects the firm‟s perceptions and resulting motivation. For example, all
else being equal, the 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. The primary reason is
that there are high stakes involved in trying to gain a more advantageous position over a rival
with whom the firm shares many markets.
Motivation is represented by the incentives that a firm has to either initiate an attack or to
respond when attacked.
Resource dissimilarity also influences competitive actions and responses between firms, in
that 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.
Ability relates to each firm‟s resources and the flexibility they provide. Without available
resources (such as financial capital and people), the firm lacks the ability to attack a
competitor or respond to its actions. However, similar resources suggest similar abilities to
attack and respond.
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COMPETITIVE RIVALRY
Competitive rivalry is the ongoing set of competitive actions and responses occurring
between competing firms for an advantageous market position. Because the ongoing
competitive action/response sequence between a firm and a competitor affects the
performance of both firms, it is important for companies to carefully study competitive
rivalry to successfully use their strategies.
Strategic and Tactical Actions
Firms use both strategic and tactical actions when forming their competitive actions and
competitive responses in the course of engaging in competitive rivalry.
• A competitive action is a strategic or tactical action the firm takes to build or defend its
competitive advantages or improve its market position.
• A competitive response is a strategic or tactical action the firm takes to counter the effects
of a competitor‟s competitive action.
• A strategic action or a strategic response is a market-based move that involves a
significant commitment of organizational resources and is difficult to implement and
reverse.
• A tactical action or a tactical response is a market-based move that is taken to fine-tune a
strategy; it involves fewer resources and is relatively easy to implement and reverse.
• Hyundai Motor Co.‟s expenditures on research and development and plant expansion to
support the firm‟s desire to be one of the world‟s largest carmakers by 2010 are strategic
actions.
• Tactical actions are easily reversed—pricing decisions are often taken by these firms to
increase demand in certain markets during certain periods.
Discuss factors affecting the likelihood a competitor

4
will take competitive actions.
LIKELIHOOD OF ATTACK
In addition to market commonality, resource similarity, and the drivers of awareness,

motivation, and ability, other factors affect the likelihood a competitor will use strategic
actions and tactical actions to attack its competitors. Three of these factors—first-mover
incentives, organizational size, and quality—are described below.
First-Mover Incentives
First movers are the firms that take an initial competitive action, either strategic or tactical.
First movers are firms that have the resources, capabilities, and core competencies that
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enable them to gain a competitive advantage through innovative and entrepreneurial
competitive actions.
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By being early, the first mover hopes to:

• Earn above-average returns until competitors respond effectively
• Gain customer loyalty, thus creating a barrier to entry by competitors
• Gain market share that can be difficult for competitors to take in the future
Teaching Note: Consider the success of Harley-Davidson in large

motorcycles (cruisers). In the 1980s Harley-Davidson set the standard for low,
heavyweight motorcycles and has successfully defended its position by
emphasizing its reputation and brand name.
The firm trying to predict its rivals‟ competitive actions might conclude that they will take
aggressive strategic actions to gain first movers‟ benefits. However, though a firm‟s
competitors might be motivated to be first movers, they may lack the ability to do so. First
movers tend to be aggressive and willing to experiment with innovation and take higher, yet
reasonable, levels of risk. To be a first mover, the firm must have readily available the
resources to significantly invest in R&D as well as to rapidly and successfully produce and
market a stream of innovative products.
Organizational slack is what makes it possible for firms to have the ability (as measured by
available resources) to be first movers. Slack is the buffer or cushion provided by actual or
obtainable resources that aren‟t currently in use. Thus, slack is liquid resources that the firm
can quickly allocate to support the actions (e.g., R&D investments and aggressive marketing
campaigns) that lead to first mover benefits.
There also are dangers or disadvantages to being a first mover.

• It is difficult to accurately estimate the returns that will be earned from introducing
product innovations.
• The first mover‟s cost to develop a product innovation can be substantial, reducing the
slack available to support further innovation.
• Lack of product acceptance over the course of the competitor‟s innovations may indicate
less willingness in the future to accept the risks of being a first mover.
Second movers are firms that respond to a first mover‟s competitive action, typically through
imitation. Doing so allows the second mover to
• Avoid both the mistakes and the huge spending of the pioneers (first movers)
• Have time to develop processes and technologies that are more efficient than those used by
the first mover
• Respond quickly to first movers‟ successful, innovation-based market entries
• Rapidly and meaningfully interpret market feedback to respond quickly yet
successfully to the first mover‟s successful innovations
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Teaching Note: An example of industry dynamics—and how a second mover

can succeed—is provided by looking at the competitive dynamics of the
athletic shoe industry.
• New Balance is a second mover in the athletic shoe industry.
• It effectively competes against industry leaders Nike and Reebok by
focusing on the needs of a well-defined market segment.
• New Balance products are not particularly innovative compared to industry
leader, Nike.
• New Balance is able to succeed by doing a better job of satisfying the
needs of baby boomers, whose ages are significantly higher than those of
Nike’s and Reebok’s core customer groups, 42, compared to 25 and 33,
respectively.
• New Balance offers a new model every 17 weeks, compared to six weeks
for most rivals.
• New Balance’s success seems to come not from rapid introductions of
innovative new products, but by offering high-quality products at moderate
prices and by making them available in multiple widths (ranging from AA to
EEEE), recognizing that many people do not have “average” feet.
Late movers are firms that respond to a competitive action, but only after considerable time
has elapsed after the first mover‟s action and the second mover‟s response.
Typically, a late response is better than no response at all, although any success achieved
from the late competitive response tends to be slow in coming and considerably less than that
achieved by first and second movers.
As late movers are the last to respond to the first and second movers‟ actions, late movers
tend to be poor performers and often are weak competitors. For example, Avon was a late
mover in e-commerce and Dell was a late mover in providing Internet access.
Organizational Size
An organization‟s size affects the likelihood that it will take competitive actions as well as
the types of actions it will take and their timing. Small firms are more likely to, and quicker
to, launch competitive actions.
Large firms are likely to initiate more competitive actions as well as strategic actions during
a given time period. Thus, the competitive actions a firm will likely encounter from larger
competitors will be different than the competitive actions it will encounter from smaller
competitors.
Large organizations often have slack resources to launch a larger number of total competitive
actions, and thus do. However, smaller firms have the flexibility needed to launch a greater
variety of competitive actions.
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Walmart appears to be an example of a large firm that has the flexibility required to take
many types of competitive actions. Analysts believe that Walmart‟s tactical actions are
critical to its success and show a great deal of flexibility (such as a quick advertising change
for 2007 back-to-school sales after disappointing spring 2007 sales). In other words,
Walmart‟s competitive actions will be a combination of the tendencies shown by small and
large companies.
Quality
Product quality shapes the competitive dynamics in many industries. In fact, product quality
is no longer a competitive issue but a necessary or mandatory product attribute if firms
expect to successfully implement any of the generic business strategies discussed in Chapter
3—low cost, differentiation, focus, or integrated cost leadership/differentiation. Quality
involves meeting or exceeding customer expectations in the products and/or services offered.
Although quality is necessary, it is not a sufficient product attribute for firms to achieve
strategic competitiveness. An acceptable level of quality merely provides firms with the
opportunity to compete. Products and services must continue to meet customer preferences.
Quality is as important in the services sector as it is in manufacturing. For the importance of

quality to permeate the entire organization (and affect all of its processes and value-creating
activities), a dedication to quality must come from the organization‟s top-level executives.
Quality affects competitive rivalry.

• The firm studying a competitor with poor quality products can predict that the
competitor‟s costs are high and that its sales revenue will likely decline until the quality
issues are resolved.
• The firm can predict that the competitor is unlikely to be aggressive in terms of taking
competitive actions, given that its quality problems must be corrected in order to gain
credibility with customers.
• Once corrected, the competitor will likely act by emphasizing additional dimensions of
competition.
Teaching Note: To improve quality or to maintain a focus on it, firms often

become involved with total quality management, which is a “managerial
innovation that emphasizes an organization’s total commitment to the
customer and to continuous improvement of every process through the use of
data-driven, problem-solving approaches based on empowerment of
employee groups and teams.” Through TQM, firms seek to (1) increase
customer satisfaction, (2) cut costs, and (3) reduce the amount of time
required to introduce innovative products to the marketplace.
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TQM: A Mini-Lecture
TQM combines W. Edwards Deming and Joseph Juran‟s teachings on statistical

process control (SPC is a technique used to continually upgrade the quality of goods
or services that a firm produces) with group problem-solving processes and Japanese
values related to quality and continuous improvement.
A key attribute of SPC is the early detection and elimination of variations in the
processes used to manufacture a good or service (compared to waiting until a product
is completed).
It is interesting—and, at the same time, discouraging—to note that Japanese firms

adapted and implemented Deming and Juran‟s quality management techniques long
before they were recognized as important by US firms. This lag by US firms explains
how Japanese firms were able to achieve a competitive advantage based on product
quality that forced US firms to play catch up.
The principal goals of TQM are increasing customer satisfaction with the firm‟s goods
and/or services, compressing product introduction time (time-to-market), and reducing
costs.
Critical to successfully implementing Deming‟s framework is recognizing that the

firm (and all of its employees) must continuously strive to improve the quality of the
firm‟s processes as well as that of its goods and services.
Newer methods of TQM use benchmarking and emphasize organizational learning for
firms attempting to gain competitive advantage. Benchmarking facilitates TQM by
developing information on best practices that can guide the firm‟s own TQM efforts.
Table Note: Quality-related dimensions of goods and services are shown in

Table 5.1.
TABLE 5.1
Quality Dimensions of Goods and Services
Indicated in Table 5.1, the quality dimensions of products and services differ slightly from
each other. As presented, the quality dimensions of products are more objective or
measurable, relating to performance, features, flexibility, durability, conformance,
serviceability, aesthetics, and perceived quality.
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In contrast, the quality dimensions of services are more subjective, dealing with
timeliness, courtesy, consistency, convenience, completeness, and accuracy
Discuss factors affecting the likelihood a competitor will

5
respond to actions taken against it.
LIKELIHOOD OF RESPONSE
Once a competitive action has been taken, its success generally is determined by the
likelihood and nature of the competitive response.
In general, a firm is likely to respond to a competitor‟s action when

1. 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,
2. The action damages the firm‟s ability to use its capabilities to create or maintain an
advantage, or
3. The firm‟s market position becomes less defensible.
To predict how a competitor is likely to respond to competitive actions, firms should

consider (see Figure 5.2):
• Market commonality and resource similarity
• Awareness, motivation, and ability
• Type of competitive action, reputation, and market dependence
Type of Competitive Action
Teaching Note: Remember, competitive actions are significant competitive

moves taken by a firm that are designed to gain a competitive advantage in a
market, with the type of competitive action taken being based on the firm’s
strategy (described in Chapter 4). Competitive actions can be classified
based on the scope or breadth and significance of the action.
The likelihood of a competitive response to an action depends on the type of action taken—
strategic or tactical—and the potential effect on competitors.
Because strategic actions require the use or dedication of specific organizational resources,
are more difficult to implement successfully, are more time consuming, and are difficult (and
often costly) to reverse, it is more likely that tactical actions will be implemented and
responded to more often.
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Because tactical actions require fewer organizational resources and are relatively easy to
implement and reverse, their effects on the competitive situation are more immediately felt.
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Some examples of strategic actions include:

• Walmart‟s entry into the European market
• Continental‟s decision to initiate flights into Lima, Peru
• Bank One‟s implementation of an Internet banking company
Teaching Note: Tactical actions are taken to fine-tune a strategy. They

involve fewer and more general organizational resources and are relatively
easy to implement and reverse, if necessary. Fare increases (decreases) in
the airline industry represent tactical actions. They require few organizational
resources (other than communicating new prices), are relatively easy to
implement, and can be reversed. Tactical actions also are generally more
quickly responded to by competitors than are strategic actions.
Teaching Note: It can be instructive to compare the rapid response by

airlines to competitors’ tactical actions (such as fare reductions) to American
Airline’s acquisition of another airline company and its $1 billion purchase of
gates at JFK airport to respond to Continental’s efforts to gain market share
(strategic actions).
Actor’s Reputation
To predict the likelihood of a competitor‟s response to a current or planned action, the firm
studies the responses that that competitor has taken previously when attacked, in that past
behavior is assumed to be a reasonable predictor of future behavior.
Competitors are more likely to respond to either strategic or tactical actions taken by a
market leader. For example, competitive actions taken by Home Depot are almost certain to
incite a response from Lowe‟s.
Teaching Note: Some likely effects of reputation are the following:

• Actions initiated by firms with a previous history of success also will be
more likely to result in quick reactions and imitation.
• Actions taken by firms with reputations for risk-taking and for initiating
complex and unpredictable actions are less likely to be responded to.
• Actions taken by price predators (firms who cut prices to capture market
share and then raise prices) are seen as having a negative effect on
competitors and their actions receive only minimal response and imitation.
Dependence on the Market
Market dependence denotes the extent to which a firm‟s revenues/profits are derived from a
particular market. Firms that are highly concentrated in—or dependent on—an industry (or
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market) in which a competitive action has been taken are more likely to respond than are
firms who do business in multiple industries and markets.
Explain competitive dynamics in slow-cycle, fast-cycle, and

6
standard-cycle markets.
COMPETITIVE DYNAMICS
Teaching Note: Recall that Figure 5.1 illustrates the potential outcomes of
interfirm rivalry.
Whereas competitive rivalry concerns the ongoing actions and responses between a firm and
its competitors for an advantageous market position, competitive dynamics concerns the
ongoing actions and responses taking place among all firms competing within a market for
advantageous positions.
To explain competitive dynamics, it is important to understand the effects of varying rates of

competitive speed in different markets (called slow-cycle, fast-cycle, and standard-cycle
markets) on the behavior (actions and responses) of all competitors within a given market.
Competitive behaviors as well as the reasons or logic for taking them are similar within each
market type, but differ across market type. Thus, competitive dynamics differ in slow-cycle,
fast-cycle, and standard-cycle markets. The sustainability of the firm‟s competitive
advantages differs across the three market types.
Slow-Cycle Markets
Slow-cycle markets are those in which the firm‟s competitive advantages are shielded from
imitation, often for long periods of time, and where imitation is costly. Thus, competitive
advantages are sustainable in slow-cycle markets.
Building a unique competitive advantage that is proprietary leads to competitive success in a

slow-cycle market. This type of advantage is difficult for competitors to understand.
Copyrights, geography, patents, and ownership of an information resource are examples of
what leads to unique advantages.
Teaching Note: Noted in Chapter 3, a difficult-to-understand and costly-to-

imitate advantage can be the result of unique historical conditions, causal
ambiguity, and/or social complexity.
Once a proprietary advantage is developed, the firm‟s competitive behavior in a slow-cycle

market is oriented toward protecting, maintaining, and extending that advantage.
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Teaching Note: Providing some examples may help students understand

what has been involved in establishing and defending a one-of-a-kind
competitive advantage. The following are some possibilities:
• IBM’s historical dominance of the mainframe computer industry
• Boeing’s dominant position in larger, commercial jet aircraft (at least until
the Airbus super-jumbo jet hits the market)
• Microsoft’s dominant position in the market for PC operating system
software (though diminished somewhat by a recent swell of new
competitors)
• Walmart’s use of local market monopolies as it established its dominant
position in discount retailing by setting up stores in small, rural communities
Figure Note: The sustainability of competitive actions in slow-cycle markets

is illustrated in Figure 5.4.
FIGURE 5.4
Gradual Erosion of a Sustained Competitive Advantage
As indicated by Figure 5.4, a firm operating in a slow-cycle market may be able to retain its
competitive advantage over time.
• Returns from the competitive action increase during the early, launch years of the strategy.
• When returns level out, the firm exploits its position.
• Competitors counterattack or launch strategies that cause the first firm‟s bases for
competitive advantage to erode. As a result, returns are competed away.
Fast-Cycle Markets
Fast-cycle markets are those in which the firm‟s competitive advantages aren‟t shielded from
imitation and where imitation happens quickly and somewhat inexpensively through reverse
engineering and technology diffusion. Competitive advantages aren‟t sustainable in fast-
cycle markets.
The technology often used by fast-cycle competitors isn‟t proprietary, nor is it protected by
patents as is the technology used by firms competing in slow-cycle markets. For example,
only a few hundred parts readily available on the open market are required to build a PC.
Patents protect only a few of these parts, such as microprocessor chips.
Fast-cycle markets are more volatile than slow-cycle and standard-cycle markets. Prices fall
quickly in these markets, so companies need to profit quickly from their product innovations
(e.g., rapid declines in the prices of microprocessor chips produced by Intel and Advanced
Micro Devices continuously reduces their prices to end users).
5-20
Imitation of many fast-cycle products is relatively easy, as demonstrated by Dell and

Gateway, along with a host of local PC vendors. All of these firms have partly or largely
imitated IBM‟s initial PC design to create their products.
Teaching Note: The focus of fast-cycle competition is competitive

disruption, an approach where competition is based on one set of resources
and then shifted to another—in other words, using price as a first step
toward sustaining a competitive advantage, then shifting to quality, then
speed, then innovation, and so on. The principle is that the primary basis of
the competitive advantage is shifted as the firm disrupts and changes the
rules of the game.
Firms in fast-cycle markets avoid “loyalty” to any of their products, preferring to cannibalize
their own before competitors learn how to do so through successful imitation. This emphasis
creates competitive dynamics that differ substantially from slow-cycle markets. Instead of
concentrating on protecting, maintaining, and extending competitive advantages, these
companies focus on learning how to rapidly and continuously develop superior advantages.
STRATEGIC FOCUS
Competition to Sell Cloud Computing Resources
Cloud computing involves “pooling many remote computers „in the cloud‟ to manage tasks,
warehouse large storage of data, manage and synchronize multiple documents online, and
computationally process intense amounts of data and provide application services. Cloud
computing allows large firms to improve their efficiencies and small firms to access IT
resources that they might not otherwise have access to. Companies discussed in the opening
case include Amazon, Oracle, HP, IBM, SAP, and Dell. The race to the top in cloud
computing is expected to be characterized by intense competition. While it looks like cloud
computing may be the next big IT development, many questions remain to be answered as
there is a high degree of uncertainty concerning companies, uses, adoption rates, and service
attributes. It is clear that cloud computing is a disruptive innovation that provides superior
value (attributes) at a lower cost. As mobile computing (smartphones/tablets) increase in
popularity, more and more consumers will gravitate toward the cloud.
Teaching Note: Students may take cloud computing for granted but it is useful to
have them identify how this disruptive technology is revolutionizing several related
industries. Ask students to relate cloud computing and slow-, standard-, and fast-
cycle markets. Students should realize that because it is impossible for companies
to develop sustainable competitive advantages and competitors are constantly
looking to develop new advantages with continuous product introductions, cloud
computing is clearly a fast-cycle market.
Figure Note: Figure 5.5 can be used to discuss how competitive advantage
would unfold in a fast-cycle market.
5-21
FIGURE 5.5
Developing Temporary Advantages to Create Sustained Advantage
As illustrated, one way in which firms might sustain a competitive advantage is to move
continuously from advantage to advantage. This is accomplished by moving from one source
of advantage to another, never allowing competitors to catch up.
Examples of firms that have successfully followed the incremental approach to sustain
competitive advantage are Vodaphone in telecommunications services and Cisco Systems in
telecommunications systems.
Teaching Note: The following has been prescribed as the incremental or

step-by-step approach to managing competitive advantages in fast-cycle
markets.
1. Disrupt the status quo A firm should identify new opportunities to meet
customer needs, thereby shifting or changing the basis of competition.
2. Create a temporary advantage The temporary advantage should be based
on improved knowledge of customers’ needs, innovative application of
technology, and an attempt to define the future basis of customer
satisfaction.
3. Seize the initiative Move aggressively and rapidly, forcing competitors to
play catch up; take a proactive approach while leaving competitors to be
reactive.
4. Sustain the momentum Continue to develop new sources of advantage;
don’t wait for competitors to catch up; stay one step ahead.
Teaching Note: As discussed earlier, the contemporary competitive

landscape requires that firms (1) introduce more new products, (2) develop
broader product lines, and (3) provide more rapid product upgrades.
Standard-Cycle Markets
Standard-cycle markets are those in which the firm‟s competitive advantages are moderately
shielded from imitation and where imitation is moderately costly. Competitive advantages
are partially sustainable in standard-cycle markets, but only when the firm is able to
continuously upgrade the quality of its competitive advantages.
The competitive actions and responses that form a standard-cycle market‟s competitive
dynamics find firms seeking large market shares, trying to gain customer loyalty through
brand names, and carefully controlling their operations to consistently provide the same
usage experience for customers without surprises.
5-22
Because of large volumes, the size of mass markets, and the need to develop scale
economies, the competition for market share is intense in standard-cycle markets. P&G and
Unilever are direct competitors—they share multiple markets, have similar types and
amounts of resources, and follow similar strategies. For example, they both compete
aggressively for market share in laundry detergents, where tiny fractions make a huge
difference at the bottom line.
Innovation has a substantial influence on competitive dynamics as it affects the actions and
responses of all companies competing within a slow-cycle, fast-cycle, or standard-cycle
market.
— ANSWERS TO REVIEW QUESTIONS
1. Who are competitors? How are competitive rivalry, competitive behavior, and
competitive dynamics defined in the chapter? (pp. 120–121)
Competitors are firms competing in the same market, offering similar products, and targeting
similar customers. Competitive rivalry is the ongoing set of competitive actions and
competitive responses occurring between competitors as they compete against each other for
an advantageous market position. The outcomes of competitive rivalry influence the firm‟s
ability to sustain its competitive advantages as well as the level (average, below-average, or
above-average) of its financial returns. For the individual firm, the set of competitive actions
and responses it takes while engaged in competitive rivalry is called competitive behavior.
Competitive dynamics is the set of actions taken by all firms that are competitors within a
particular market.
2. What is market commonality? What is resource similarity? What does it mean to

say that these concepts are the building blocks for a competitor analysis? (pp. 123–
127)
Market commonality refers to the number of markets with which competitors are jointly
involved and their importance to each. Resource similarity refers to how comparable
competitors‟ resources are in terms of type and amount. These are the building blocks of a
competitor analysis (which is the first step the firm takes to be able to predict its competitors‟
actions and responses) because they are foundational to this understanding. Chapter 2
discussed what firms must do to understand competitors. The discussion is extended further
in the current chapter to describe what the firm does to predict competitors‟ market-based
actions. Thus, understanding precedes prediction. And in general, the greater the market
commonality and resource similarity, the more firms acknowledge that they are direct
competitors.
5-23
3. How do awareness, motivation, and ability affect the firm’s competitive behavior?
(pp. 127–129)
As shown in Figure 5.2, market commonality and resource similarity influence the drivers
(awareness, motivation, and ability) of competitive behavior. In turn, the drivers influence
the firm‟s competitive behavior, as shown by the actions and responses it takes while
engaged in competitive rivalry.
Awareness, which is a prerequisite to any competitive action or response being taken by the
firm or its competitor, refers to the extent to which competitors recognize the degree of their
mutual interdependence that results from market commonality and resource similarity.
Awareness tends to be greatest when firms have highly similar resources (in terms of types
and amounts) to use while competing against each other in multiple markets. Awareness
affects the extent to which the firm understands the consequences of its competitive actions
and responses.
Motivation, which concerns the firm‟s incentive to take action or to respond to a competitor‟s
attack, relates to perceived gains and losses. Thus, a firm may be aware of competitors but
may not be motivated to engage in rivalry with them if it perceives that its position will not
improve as a result of doing so or that its market position won‟t be damaged if it doesn‟t
respond.
In some instances, the firm may be aware of the large number of markets it shares with a
competitor and may be motivated to respond to an attack by that competitor, but it lacks the
ability to do so. Ability relates to each firm‟s resources and the flexibility they provide.
Without available resources (such as financial capital and people), the firm lacks the ability
to attack a competitor or respond to its actions. However, similar resources suggest similar
abilities to attack and respond. When a firm faces a competitor with similar resources, careful
study of a possible attack before initiating it is essential because the similarly resourced
competitor is likely to respond to that action.
4. What factors affect the likelihood a firm will take a competitive action? (pp. 130–
134)
In addition to market commonality and resource similarity and awareness, motivation, and
ability, three more specific factors affect the likelihood a competitor will take competitive
actions. The first of these concerns is first mover incentives. First movers, those taking an
initial competitive action, often earn above-average returns until competitors can successfully
respond to their action and gain loyal customers. Not all firms can be first movers in that they
may lack the awareness, motivation, or ability required to engage in this type of competitive
behavior. Moreover, some firms prefer to be a second mover (the firm responding to the first
mover‟s action). One reason for this is that second movers, especially those acting quickly,
can successfully compete against the first mover. By studying the first mover‟s product,
customers‟ reactions to it, and the responses of other competitors to the first mover, the
second mover can avoid the early entrant‟s mistakes and find ways to improve on the value
5-24
created for customers by the first mover‟s good or service. Late movers (those that respond a
long time after the original action was taken) often are lower performers and much less
competitive.
Organizational size, the second factor, tends to reduce the number of different types of
competitive actions that large firms launch though it results in smaller competitors‟ using a
wide variety of actions. Ideally, the firm would like to initiate a large number of diverse
actions when engaged in competitive rivalry. The third factor, quality, dampens firms‟
abilities to take competitive actions, in that product quality is a base denominator to
successful competition in the global economy.
5. What factors affect the likelihood a firm will initiate a competitive response to the
action taken by a competitor? (pp. 132–136)
The type of competitive action (strategic or tactical) the firm took, the competitor‟s
reputation for the nature of its competitor behavior, and its dependence on the market in
which the action was taken are studied to predict a competitor‟s response to the firm‟s action.
In general, the number of tactical responses taken exceeds the number of strategic responses.
Competitors respond more frequently to the actions taken by the firm with a reputation for
predictable and understandable competitive behavior, especially if that firm is a market
leader. In most cases, the firm can anticipate that when its competitor is highly dependent for
its revenue and profitability in the market in which the firm took a competitive action, that
competitor is likely to launch a strong response. However, firms that are more diversified
across markets are less likely to respond to a particular action that affects only one of the
markets in which they compete.
6. What competitive dynamics can be expected among firms competing in slow-cycle

markets? In fast-cycle markets? In standard-cycle markets? (pp. 136–142)
Competitive dynamics concerns the ongoing competitive behavior occurring among all firms
competing in a market for advantageous positions. Market characteristics affect the set of
actions and responses firms take while competing in a given market as well as the
sustainability of firms‟ competitive advantages. In slow-cycle markets, where competitive
advantages can be maintained, competitive dynamics finds firms taking actions and
responses that are intended to protect, maintain, and extend their proprietary advantages. In
fast-cycle markets, competition is almost frenzied as firms concentrate on developing a series
of temporary competitive advantages. This emphasis is necessary because firms‟ advantages
in fast-cycle markets aren‟t proprietary and as such, are subject to rapid and relatively
inexpensive imitation. Standard-cycle markets are between slow-cycle and fast-cycle
markets, in that firms are moderately shielded from competition in these markets as they use
competitive advantages that are moderately sustainable. Competitors in standard-cycle
markets serve mass markets and try to develop economies of scale to enhance their
profitability. Innovation is vital to competitive success in each of the three types of markets.
Firms should recognize that the set of competitive actions and responses taken by all firms
differs by type of market.
5-25
INSTRUCTOR'S NOTES FOR EXPERIENTIAL

—
EXERCISES
EXERCISE 1: WIN-WIN, WIN-LOSE, OR LOSE-LOSE?
The purpose of this exercise is to illustrate basic concepts of game theory, so they can be
more readily related to competitive dynamics. The exercise has both individual and
group components.
In the first half of the exercise, students are asked to play the prisoner‟s dilemma, using
the computer version of the exercise at www.gametheory.net. The prisoner's dilemma is
based on the following elements:
• Two criminals are arrested as suspects in a bank robbery.
• Before they have a chance to coordinate their alibis, the criminals are moved
to separate cells.
• Each criminal is given a choice: stay silent or betray their partner. If they
betray their partner, and the partner remains silent, they will go free while the
partner will serve 10 years in prison. If they each betray their partner, they
will each serve 2 years. If they stay silent, the will be jailed on a lesser
charge, and each serve six months.
• What should each criminal do?
Note: the exact terms of the sentences vary across different versions of this exercise.
There are four possible outcomes that are possible, depending on whether each criminal
stays silent or betrays his partner:
5-26
B stays silent Betrays
A stays silent A serves 6 months A serves 10 years
B serves 6 months B goes free
A betrays A goes free A serves 2 years
B serves 10 years B serves 2 years
The best solution is for neither criminal to confess: total time served is one year,
compared to four or ten years in other scenarios. But, individual utility is maximized by
betraying the partner, with the opportunity for freedom. Recognizing that the partner
may come to the same conclusion, each criminal decides to betray the other, and both
serve two year sentences.
When discussing this exercise in class, it may be useful to supplement a discussion of the
dilemma with a discussion of the tragedy of the commons. Garrett Hardin published the
article „Tragedy of the commons‟ in Science magazine in 1968. Science has a .pdf reprint
of the article available online, as well as an extensive set of subsequent articles, available
at http://www.sciencemag.org/sciext/sotp/commons.dtl.
Hardin‟s discussion starts with the following scenario:
Imagine a common grazing area in a rural community:
• Ten families each have one cow that grazes on the commons
• The land can optimally support ten cows
• Each cows sells for $100 at the end of the season
• Family revenue is $100
• Community revenue is $1,000
The scenario extends with the question, "What happens if one farmer adds a second
cow?"
5-27
• Because of overgrazing, each cow feeds less, and sells for only $85 at the end of
the season
• The community is now earning only $935 overall
• Most farmers are earning $15 less
• The farmer with two cows earns $170
Then, another farmer adds a second cow.
• With more overgrazing, each cow sells for $70 at the end of the season
• The community is now earning only $840 overall
• Most farmers are earning $30 less
• The farmers with two cows earn $140
The rational decision at the macro level is to only graze one cow per family on the
common. However, the rational decision at the individual level is to add an extra cow.
Eventually, everyone follows suit, and all members of the community earn far less than
they did previously.
To make a connection between game theory and strategy, ask students how the prisoner's
dilemma and the tragedy of the commons relate to competitor interactions. Topics that
can be addressed here include:
• Head-to-head market share battles
• Multipoint competition and mutual forbearance
Additional resources include:
For a good example of a market share battle, see the article on TAC and Orange
competing in the Thai phone market, in “Pre-emptive strike” in Far Eastern Economic
Review, April 26, 2001, p.50.
For a more general article on the economics of price competition, see the paper “The
deadly dynamics of price competition” in Marketing Research, Winter 2004, 14(4) by
Dozoretz and Matanovich.
5-28
EXERCISE 2: DOES THE FIRST MOVER TRULY HAVE AN ADVANTAGE?
The purpose of this exercise is for students to examine the interplay between first mover
advantage and the competitive dynamics of the three industry markets (slow, fast,
standard). Working individually or in small teams, you can assign this exercise as best
suits your particular class size. This is best assigned the week before your visit this
chapter in order to allow students to choose their preferred industry to investigate. The
reason to do this is to avoid teams from all doing firms or products that happened to be in
the news cycle the most (NetFlix, Apple, Amazon, etc.). This will also provide some nice
context as some will likely choose historical examples (baby diapers) as well as more
recent examples (portable hard drive music players). It is also desirable to have many
different industries represented so as to provide context for different industry life cycle
stages and how that may or may not play into the likelihood of success.
An excellent resource for the instructor or students is The Half-Truth of First-Mover

Advantage. By: Suarez, Fernando, Lanzolla, Gianvito, Harvard Business Review,
00178012, Apr2005, Vol. 83, Issue 4. This would be a good article for the instructor to
help identify the concepts behind first mover and highlight some good examples for
discussion. One of the highlights of these authors‟ findings is that industry context
matters significantly, one of the key take aways for students from this assignment. Is the
product a disruptive technology or an incremental one?
During the discussion the instructor can prod students with the following questions:
• Why was the first mover successful or not. If the clock could be rewound, what
might that firm have done differently, if anything?
• How important was the competitive dynamics of the market at the time of the new
product introduction.
• How important was the new introduction to the company‟s future. Did the firm
need a home run, was this a risky strategy?
• What other contextual issues did the students find? What about the firms core
products, were they in decline? How about management: long tenured CEO, new
CEO, acquisition history?
• What did rivals do?
Driving the discussion through items as above will provide a foundation for first mover
advantage and its relevance to the chapter on competitive dynamics. By using historical
and current examples many of the books relevant topics can be discussed that have been
studied to this point;
• Sustainable competitive advantage
• Business level strategy
• Value chain
• Tangible vs. intangible resources
• Industry environment
• Macro environment
5-29
— INSTRUCTOR'S NOTES FOR VIDEO EXERCISES
Title: A FOCUS ON COMPETITIVE DYNAMICS: HYUNDAI SOUTH KOREA

RT: 4:58
Topic Key: Competitive behavior, Competitive dynamics, Multimarket competition,
Competitive response, Strategic actions, Late movers
The video opens with a heavy traffic President‟s Day sale at a Hyundai dealership in
Long Island, NY. Consumers were shown raving about the new Hyundai Sonata style and
price. Hyundai‟s strategy is to sell more cars for less than the competition. With the rest
of the auto industry in free fall (being off 21% from the previous year), Hyundai‟s US
sales had increased 8%. Michael Brown, Vice President of Atlantic Hyundai‟s parent
company, a dealership network, indicates that Hyundai has the hot hand with an aim to
dominate the marketplace. John Kraftchick, President and CEO of Hyundai Motor
America, is shown test driving one of the new Hyundais and is interviewed saying that
Hyundai‟s chairman initiated the move to achieve the highest level of quality in the
industry in five years. With a quantum leap in quality, Hyundai has new models that are
now well-equipped, fuel efficient, and stylish. James Bell, analyst for the auto industry‟s
Kelly Blue Book, reflects on the first 1986 Hyundai to enter the marketplace. He
concludes that Hyundai retrenched and came back stronger by curing its reliability and
durability concerns with longer warranties and a blitz of ads that gained consumer public
attention. The Toyota downfall is an advantage for Hyundai but Hyundai, too,
experienced its own recalls. The Vice President for Hyundai Motor America concludes
with their concerns that Hyundai may experience the Toyota woes but it has been a wake-
up call. John Kraftchick provides a sneak peek of the newest Hyundai flagship
automobile that will compete with the BMW 7 Series, Mercedes Benz S Class, Lexus LS,
and those cars that cost $70,000 to over $100,000. He concurs that Hyundai stands for
something different rather than price. And though Hyundai remains reactive, it is
concerned about vehicles from India, Vietnam, China, and other upstarts just like
Hyundai once was.
Also check out http://www.hyundaiusa.com/ and http://worldwide.hyundai.com/
Suggested Discussion Questions and Answers
• Describe Hyundai‟s competitive behavior.

o Text: Competitive behavior is the set of competitive actions and responses
the firm takes to build or defend its competitive advantages and improve
its market position.
o Hyundai: Sell more cars for less than the competition; improved quality
and style; increased warranties; advertising blitz
5-30
• What kind of competitive dynamics might you expect from Hyundai and other
automakers?
o The industry will use capabilities and core competencies to gain advantage
in the market; Hyundai along with other automakers will perform
competitive analysis, analyzing the market commonality and resource
similarity; will look at their ability, awareness, and motivation level to
compete; will look at each company‟s likelihood of attack through mover
incentives, organizational size, and quality; and will look at the likelihood of
response including historical competitive actions, reputations, and market
dependence. Larger firms such as GM and Toyota are not likely to initiate
attacks but will respond aggressively when attacked by a company like
Hyundai. Again, firms are likely to respond by bringing new products to the
market but they do not use price a retaliatory weapon. Firms having resource
similarities may arrange a “coopetition” agreement. A firm may be more
likely to attack the rival with whom it has low market commonality than the
one with whom it competes in multiple markets. Hyundai is likely to refrain
from all out attack due to fewer resources than the larger and more
established competitors.
• Is Hyundai involved in multimarket competition? Why or why not?
o Text: Firms competing against each other in several product or geographic
markets are engaged in multimarket competition.
o Hyundai: Yes; Hyundai is making a blitz attempt to compete in
geographic markets similar to other competitors by offering a variety of
products that compete in the same product categories offered by the
competition.
• What impact will market commonality have on competitive responses in the auto
industry?
o Text: Market commonality: Competing in most of the same segments of
the market, from the luxury car to small fuel-efficient car, as well as
hybrids, SUVs, and trucks. Market commonality is concerned with the
number of markets with which the firm and a competitor are jointly
involved and the degree of importance of the individual markets to each.
o Firms in the auto industry will be continually exploring knowledge in the
same general areas to advance their products and make them more
desirable for consumers. They will also be aware, motivated, and have the
ability to compete for market share in each segment and country they have
entered. Firms with market commonality are likely to compete on product
rather than price, respond aggressively, and seek high reward
opportunities.
• What strategic actions may occur as a result of your answer to question #4?
o Text: Strategic action: a market-based move that involves a significant
commitment of organizational resources and is difficult to implement and
reverse.
o The standards of quality by all firms will be raised to increase
performance, the number and appeal of features, flexibility, durability,
5-31
serviceability, aesthetics, and conformance. Service quality can also

expect to play a key role, which would include increasing timeliness,
courtesy, consistency, convenience, completeness, and accuracy. Increase
support for research and development and technology so that processes
may be quickly imitated and new product technical advances can be made.
• Can Hyundai be identified as a late mover? If so, why? And what consequences
should they be knowledgeable about?
o Text: A late mover is a firm that responds to a competitive action a
significant amount of time after the first mover‟s action and the second
mover‟s response. Hyundai has traditionally been a second mover in the
automobile industry.
o Hyundai: Yes; Top automakers such as GM and Toyota have been
competing for some time while Hyundai introduced a vehicle in 1986,
long after their rivals began. Hyundai also hasn‟t pushed into the market
since that time—until now.
o Consequences: Success is likely to be less than the first and second
movers; to be successful, they must have a unique way to compete and
enter the market, which means keeping a niche strategy with lower cost
production and manufacturing.
— ADDITIONAL QUESTIONS AND EXERCISES
The following questions and exercises can be presented for in-class discussion or assigned as
homework.
Application Discussion Questions
1. Have students read the popular business press (e.g., Business Week, Fortune, Fast
Company), and identify a strategic action and a tactical action taken by firms
approximately two years ago. Next, they should use the Internet to search the popular
business press to see if and how competitors responded to those actions. They should be
able to explain the actions and the responses, linking their findings to the discussion in this
chapter.
2. Why would a firm regularly choose to be a second mover? Likewise, why would a firm
purposefully be a late mover?
3. How did Walmart‟s strategic actions affect its primary European competitors? How has
Walmart‟s e-commerce strategy affected competitors?
4. Have students choose a large firm and examine the popular business press to identify how
its size, speed of actions, level of innovation, and quality of goods or services have
affected its competitive position in its industry. Ask them to explain their findings.
5. Identify a firm in a fast-cycle market. What strategic actions account for its success or
failure over the last several years? How has the Internet affected the firm?
5-32
Ethics Questions
1. Are there some industries in which ethical practices are more important than in other
industries? If so, name the industries that are ethical, and explain how the competitive
actions and competitive responses might differ for these industries compared with a
typical industry.
2. When engaging in competitive rivalry, firms jockey for a market position that is
advantageous, relative to competitors. In this jockeying, what types of competitor
intelligence-gathering approaches are ethical? How has the Internet affected competitive
intelligence activities?
3. A second mover is a firm that responds to a first mover‟s competitive actions, often
through imitation. Is there anything unethical about how a second mover engages in
competition? Why or why not?
4. Standards for competitive rivalry differ in countries throughout the world. What should
firms do to cope with these differences? How do the differences relate to ethical practices?
5. Could total quality management practices result in firms operating more ethically than
before such practices were implemented? If so, what might account for an increase in the
ethical behavior of a firm using TQM principles?
6. What ethical issues are involved in fast-cycle markets?
Internet Exercise
Cisco Systems ranks as one of the greatest success stories of the last decade. The firm used
acquisitions to gain access to R&D with a pace that accelerated from four companies in 1995
to twenty-three companies in 2000. This strategy allowed Cisco to adopt and integrate
innovations faster than its competitors. But when the Internet bubble burst in early 2000,
venture funding for the kinds of start-ups on which Cisco had been feasting (i.e., those
spawning networking innovations) evaporated. The firm faced two immediate problems: (1)
dealing with the complexity of managing the integration of a fast growing stable of new
technology products, and (2) learning again how to innovate without acquisition. Look up
Cisco Systems (http://www.cisco.com) on the Web and try to discern what the firm is doing
to adjust to its new industry circumstances.
*e-project: Discuss how the Internet has become a vital component in increasing the speed,
ease, and frequency of today‟s large mergers and acquisitions.
5-33

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Chapter 5: Competitive Rivalry and Dynamics

Management of Strategy Concepts

Solution Manual: https://testbankpack.com/p/solution-manual-

Test Bank: https://testbankpack.com/p/test-bank-for-

1. Define competitors, competitive rivalry, competitive behavior, and competitive

Chapter Introduction: The competitive landscape is characterized by

Teaching Note: The opening case illustrates the competitive power of

Define competitors, competitive rivalry, competitive

Expanding geographic scope contributes to the increasing intensity in competitive rivalry

Teaching Note: Figure 5.2 provides a model of competitive dynamics and

A MODEL OF COMPETITIVE RIVALRY

Viewing the model leads to a number of observations:

Teaching Note: Competitive rivalry exists because of competitive

Describe market commonality and resource similarity

Teaching Note: If firms overlap in a number of markets—sometimes referred

Interestingly, high levels of commonality reduce the likelihood of competitive interaction.

Teaching Note: In contrast to market commonality, assessing resource

Teaching Note: Coca-Cola and Pepsi’s decision to target the fast-growing

Explain awareness, motivation, and ability as drivers of

DRIVERS OF COMPETITIVE ACTIONS AND RESPONSES

Strategic and Tactical Actions

Discuss factors affecting the likelihood a competitor

In addition to market commonality, resource similarity, and the drivers of awareness,

By being early, the first mover hopes to:

Teaching Note: Consider the success of Harley-Davidson in large

There also are dangers or disadvantages to being a first mover.

Teaching Note: An example of industry dynamics—and how a second mover

Quality is as important in the services sector as it is in manufacturing. For the importance of

Quality affects competitive rivalry.

Teaching Note: To improve quality or to maintain a focus on it, firms often

TQM combines W. Edwards Deming and Joseph Juran‟s teachings on statistical

It is interesting—and, at the same time, discouraging—to note that Japanese firms

Critical to successfully implementing Deming‟s framework is recognizing that the

Table Note: Quality-related dimensions of goods and services are shown in

Discuss factors affecting the likelihood a competitor will

In general, a firm is likely to respond to a competitor‟s action when

To predict how a competitor is likely to respond to competitive actions, firms should

Type of Competitive Action

Teaching Note: Remember, competitive actions are significant competitive

Some examples of strategic actions include:

Teaching Note: Tactical actions are taken to fine-tune a strategy. They

Teaching Note: It can be instructive to compare the rapid response by

Teaching Note: Some likely effects of reputation are the following:

Dependence on the Market

Explain competitive dynamics in slow-cycle, fast-cycle, and

To explain competitive dynamics, it is important to understand the effects of varying rates of

Building a unique competitive advantage that is proprietary leads to competitive success in a

Teaching Note: Noted in Chapter 3, a difficult-to-understand and costly-to-

Once a proprietary advantage is developed, the firm‟s competitive behavior in a slow-cycle

Teaching Note: Providing some examples may help students understand

Figure Note: The sustainability of competitive actions in slow-cycle markets

Imitation of many fast-cycle products is relatively easy, as demonstrated by Dell and

Teaching Note: The focus of fast-cycle competition is competitive

Teaching Note: The following has been prescribed as the incremental or

Teaching Note: As discussed earlier, the contemporary competitive

— ANSWERS TO REVIEW QUESTIONS

2. What is market commonality? What is resource similarity? What does it mean to

6. What competitive dynamics can be expected among firms competing in slow-cycle

INSTRUCTOR'S NOTES FOR EXPERIENTIAL

EXERCISE 1: WIN-WIN, WIN-LOSE, OR LOSE-LOSE?

• Two criminals are arrested as suspects in a bank robbery.

• What should each criminal do?

B stays silent Betrays

A stays silent A serves 6 months A serves 10 years