1. Corporate Strategy Fall 2008
Session 9
Rivalry and Multipoint Competition
Dr. Olivier Furrer
Office: TvA , Phone:
Office Hours: only by appointment
Session 9 © Furrer

2. Example
In July 1969, Michelin announced plans to establish a plant in Canada which would give a foothold in the North American market, attacking market leader Goodyear. As a countermove, Goodyear entered the European market. Michelin continued to increase its market share in North America and attacked Goodyear in Brazil
(Karnani and Wernerfelt, 1985).
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3. Definitions Competitive Dynamics Competitive Rivalry
Results from a series of competitive actions and competitive responses among firms competing within a particular industry
Competitive Rivalry
Exists when two or more firms jockey with one another in the pursuit of better market position
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4. Definitions (cont’d) Multipoint Competition
A situation where firms compete against each other simultaneously in several markets
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5. Focus of this Session
The process by which multimarket (or multibusiness) affects interfirm rivalry
The factors that moderate the impact of multimarket (multipoint)) competition on interfirm rivalry
The implications of multimarket (multipoint) competition for corporate- and business-level strategy
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6. Factors Leading to More Complex Rivalry
Declining emphasis on single, domestic markets and increasing emphasis on global and multiple markets
Advances in communication technology make coordination easier across multiple markets
Advances in technology and innovation have increased competitiveness of small and medium sized firms
National barriers are falling due to the number and scope of trade agreements (WTO, NAFTA, EU)
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7. The Rivalry Matrix Decision Variables Few Many
Warfare Models, Multipoint Competition
Predictable
Game Theory
Nature of the Environment
Scenarios, Simulation, and Systems Dynamics
Uncertain
Frameworks
Reference.: Furrer, Olivier and Howard Thomas (2000), “The Rivalry Matrix: Understanding Rivalry and Competitive Dynamics,” European Management Journal, 18 (6),
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8. Model of Interfirm Rivalry: Likelihood of Attack and Response
Relative Size
Speed
Innovation
Quality
Ability for Action and Response
Outcomes
Drivers of Competitive Behavior
Awareness
Motivation
Capability
Competitor Analysis
Market
Commonality
Resource
Similarity
Interfirm Rivalry:
Attack & Response
Likelihood of Attack
First Mover Incentives
Likelihood of Response
Type of Competitive
Action
Dependence on the
Resource Availability
Actor’s Reputation
Competitive
Slow, Standard
or Fast Cycle
Market Types
Sustained
Advantage
Temporary
Evolutionary
Entrepreneurial
or Market-Power
Growth-Oriented
Actions
Feedback
Model of Interfirm Rivalry:
Likelihood of Attack and Response
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Ref.: Chen, 1996

9. Multimarket Competition and Interfirm Rivalry: The Mutual Forbearance Hypothesis
Mutual forbearance is tacit collusion as a consequence of firms competing in many markets and the resulting increase in their interdependence.
Tacit collusion, as opposed to direct collusion, which is illegal, is a situation in which two firms understand each other’s motives and strategies and implicitly coordinate to avoid competing intensely.
Extent theory suggests that two different processes may be responsible for mutual forbearance as a result of higher degree of multimarket contact: familiarity (Baum and Korn, 1999) and deterrence (Bernstein and Whinston, 1990; Edwards, 1955; Porter, 1980).
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10. Between focal firm and rivals
Multimarket contact
Between focal firm and rivals
Larger number of interactions with rivals
Ability to hurt
Larger revenue exposure to rivals’ actions
Opportunity to hurt
Rivals’ opportunity to retaliate in multiple markets
Better understanding of interdependence and overlapping market fortunes with rivals
Greater attention to rivals in market scanning and competitor information acquisition
Lower expected payoff from rivalry
Increased familiarity
Increased deterrence
MUTUAL FOREARANCE
Lower intensity of competition
Ref.: Jayachandran et al., 1999
Session 9 © Furrer

11. Model of Interfirm Rivalry: Likelihood of Attack and Response
Relative Size
Speed
Innovation
Quality
Ability for Action and Response
Outcomes
Drivers of Competitive Behavior
Awareness
Motivation
Capability
Competitor Analysis
Market
Commonality
Resource
Similarity
Interfirm Rivalry:
Attack & Response
Likelihood of Attack
First Mover Incentives
Likelihood of Response
Type of Competitive
Action
Dependence on the
Resource Availability
Actor’s Reputation
Competitive
Slow, Standard
or Fast Cycle
Market Types
Sustained
Advantage
Temporary
Evolutionary
Entrepreneurial
or Market-Power
Growth-Oriented
Actions
Feedback
Model of Interfirm Rivalry:
Likelihood of Attack and Response
Session 9 © Furrer
Ref.: Chen, 1996

12. Model of Interfirm Rivalry: Likelihood of Attack and Response
Drivers of Competitive Behavior
Awareness
Do managers understand the key characteristics of competitors?
Does the firm have appropriate incentives to attack or respond?
Motivation
Does the firm have the necessary resources to attack or respond?
Capability
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13. Model of Interfirm Rivalry: Likelihood of Attack and Response
Multipoint competition tends to reduce competitive interactions, but increases the likelihood of response where interaction occurs
Competitor Analysis
Do firms compete with each other in multiple markets?
Market Commonality
For example, airlines price flights similarly, but respond quickly when competitors introduce promotional prices
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14. Model of Interfirm Rivalry: Likelihood of Attack and Response
Competitor Analysis
Do competitors possess similar types or amounts of resources?
Resource Similarity
Firms are less inclined to attack a firm that is likely to retaliate
Firms with similar resources are more likely to be aware of each other’s competitive moves
Firms with dissimilar resources are more likely to attack
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15. Market Commonality and Resource Similarity
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16. Multimarket Contact and Intensity of Competition: A Contingency Model
Organizational structure of competing firms
Seller concentration
Degree of multimarket contact
Intensity of competition
Spheres of influence
Resource similarity
Ref.: Jayachandran et al., 1999
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17. Model of Interfirm Rivalry: Likelihood of Attack and Response
Attack & Response
Likelihood of Attack
Firm Mover advantage can be substantial
First Mover Incentives
Likelihood of Response
Type of Competitive Action
Actor’s Reputation
Dependence on the Market
Resource Availability
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18. First Mover Firms that take an initial competitive action
Generally possess the resources and capabilities that enable them to be pioneers in new products, new markets or new technologies
Can earn above average profits until competitors respond
Gain customer loyalty, helping to create a barrier to entry by competitors
Advantage depends upon difficulty of imitation
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Ref.: Lieberman and Montgomery, 1988

19. Second Mover Firms that respond to a First Mover’s actions
Second Movers frequently imitate First Movers
Speed of response often dictates success
Should evaluate customers’ response before moving
“Fast” Second Movers can capture some of initial customers and develop some brand loyalty
Avoid some of the risks associated with First Move
Must possess necessary capabilities to imitate
Session 9 © Furrer
Ref.: Lieberman and Montgomery, 1988

20. Model of Interfirm Rivalry: Likelihood of Attack and Response
Attack & Response
Likelihood of Attack
First Mover Incentives
Likelihood of Response
Type of Competitive Action
Whether a competitor is likely to respond depends on several key factors
Actor’s Reputation
Dependence on the Market
Resource Availability
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21. Types of Competitive Actions
Significant commitments of specific & distinctive organizational resources
Strategic Actions
Difficult to implement
Difficult to reverse
Example
Major Acquisition
Tactical
Actions
Undertaken to “fine tune” strategy
Relatively easy to implement
Relatively easy to reverse
Example
Price cut
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22. Ref.: Karnani and Wernerfelt, 1985
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Ref.: Karnani and Wernerfelt, 1985

23. Ref.: Smith and Wilson, 1995
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24. Gauging the Likelihood of Response
Type of Competitive Action -Tactical or Strategic
Easier to respond to
Require fewer resources to mount a response
Actor’s Reputation
Market leaders are more likely to be copied
“Risk taking” firms are less likely to be copied
“Price Predators” are less likely to be copied
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25. Gauging the Likelihood of Response
Market Dependence
Firms that are more dependent on a single industry are more likely to respond than are multimarket firms
Industry dependent firms will likely respond to either strategic or tactical actions
Competitor Resources
Smaller firms are more likely to respond to tactical actions
Limited resources may lead to alternatives such as Strategic Alliances
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26. Model of Interfirm Rivalry: Likelihood of Attack and Response
Ability for Action and Response
Firm size can have opposing effects on competitive dynamics
Relative Size
Speed
Large firms may exert market power over rivals and erect barriers to entry against smaller competitors
Innovation
Quality
However, smaller competitors may be more nimble and innovative
Session 9 © Furrer