Rivalry Among Existing Firms
Rivalry refers to the degree to which firms respond to competitive moves of the other firms in the industry. Rivalry among existing firms may manifest itself in a number of ways- price competition, new products, increased levels of customer service, warranties and guarantees, advertising, better networks of wholesale distributors, and so on.
The degree of rivalry in and industry is a function of a number of interacting structural features:
- Rivalry tends to intensify as the number of competitors increases and as they firms become more equal in size and capability.
- Market rivalry is usually stronger when demand for the product is growing slowly.
- Competition is more intense when rival firms are tempted to use price cuts or other marketing tactics to boost unit volume.
- Rivalry is stronger when the costs incurred by customers to switch their purchases from one brand to another are low.
- Market rivalry increases in proportion to the size of the payoff from a successful strategic move.
- Market rivalry tends to be more vigorous when it costs more to get out of a business than to stay in and compete.
- Rivalry becomes more volatile and unpredictable the more diverse competitors are in terms of their strategies, their personalities, their corporate priorities, their resources, and their countries of origin.
- Rivalry increases when strong companies outside the industry acquire weak firms in the industry and lunch aggressive, well-funded moves to transform their newly-acquired firms into major market contenders.
Two principles of competitive rivalry are particularly important: (1) a powerful competitive strategy used by one company intensifies competitive pressures on the other companies, and (2) the manner in which rivals employ various competitive weapons to try to outmanoeuvre one another shapes "the rules of competition" in the industry and determines the requirements for competitive success.