Competitive behaviour is driven by:
- Awareness of competitive environment and actions undertaken by competitors
- Motivation consisting of incentives for a given behaviour
- Capability to act which depends on company’s resources
Examples of competitive behaviour: market entry, price decrease, promotional activities, value chain integration.
Because Competitors are companies that share the same markets and resources these three factors are influenced by market and resources similarity.
The greater the market commonality the less likely it is that an attack will be launched but the more likely that the retaliation will happen. Companies are Aware of each other but are discouraged from attacking as the retaliation can be targeted at other markets that the attacker is in. On the other hand, the retaliation is very likely because such advances pose a significant threat.
The entry or expansion in the same or shared market, hence an increase in the market commonality, puts pressure on the other companies. This pressure can be quantified as below:
Where Importance of the Market is the defender’s revenue from the attacked to defender’s total revenue, and size of incursion is the market share achieved by the attacker.
What is interesting is that, two companies may enter each other’s markets, and as a result they will become less inclined to launch subsequent attacks.
The greater the resource similarity the less likely it is that an attack will be launched but the more likely that the retaliation will happen. Retaliation is likely to be effective as the defender has good understanding of resource base of attacker, which attacker knows hence is less encouraged to launch the attack in the first place.
Note that Competition can be asymmetric in the cost of competing or being a competitor in the first place.