Rivalry between established competitors

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From the course by Copenhagen Business School

Strategy Formulation

803 оценки

Copenhagen Business School

Strategy Formulation

803 оценки

Course 2 of 4 in the Specialization Strategic Management and Innovation

The purpose of this course is to present, analyze and discuss the different facets of business strategy formulation. Emphasizing that strategy can be seen as a unified theme that provides coherence and direction to the actions and decisions of a firm, we will cover a variety of business strategy topics concerned with firm positioning in the context of different markets, industries and locations. At the end of the course, you will be able to: - Identify why a strong strategy is essential for the future business success - Formulate a business strategy that suits the needs and visions of your organization - Explain why managers too often formulate sub-optimal strategies - Extrapolate measures to optimize current business strategies Workload: 2-4 hours per week.

From the lesson

Industry analysis

Building on the insights generated in the first session, in the second module we explore different industrial organization frameworks and discuss the importance of industry effects on firm performance. Keywords of this module include competition, industry attractiveness, and the ‘Five forces’-framework.

Competition from substitutes3:11

Threat of entry3:38

Rivalry between established competitors2:39

Bargaining power of buyers3:52

Bargaining power of suppliers2:02

Meet the Instructors

Marcus Møller Larsen
Assistant Professor, Strategic Management and Globalization
Department of Strategic Management and Globalization

In this lesson, we'll turn to a key factor in explaining industry profitability,

namely that of rivalry between established competitors.

Now, what does rivalry between established competitors actually mean?

Well, in simple terms, it deals with the question

of how intensely firms within an industry compete with each other.

So for example, in some industries, firms compete fiercely against each other,

to the extent that prices are pushed below the level of cost,

where everybody ends up losing money.

An important question in this regard is of course to understand

which factors drive competition among established firms.

We will go through two essential factors driving competition now.

First of all, a key factor driving competition is the concentration of firms.

In basic terms, the more firms there are in a given industry,

the more pressure is being put on the prices, and less profit is generated.

In contrast, in an industry which is dominated by very few firms,

in other words, monopolistic industries such as school and the Internet search

industry, the firms have much more autonomy in setting the prices themselves,

and can therefore appropriate a much higher degree of value and profit.

Therefore, the higher the concentration of firms in an industry,

the more likely it is that competition is tough and industry profitability lower.

Second of all, another important factor driving rivalry between

established competitors is the diversity of competitors and

the products that they sell.

So, if all the firms in an industry offer a product which is more or

less identical, then it becomes very difficult to differentiate yourself, and

therefore more pressure is put on the prices.

As a result, industry profitability goes down.

In contrast, if you have an industry where differentiation is possible, again,

think about Apple and the Macbook and the personal computer industry,

then it's definitely possible to appropriate a high degree of value.

And what you will see is that industry becomes more profitable.

So, while a number of factors may drive competition besides the one that we've

talked about, it is, in all circumstances, highly important to consider

the level of competition and rivalry among established firms when determining

the attractiveness of your industry, or the industry that you wanna study.

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