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Chapter 05 - Competitive Rivalry and Competitive Dynamics

True / False

1. Firms operating in the same market, offering similar products, and targeting similar customers are competitors.
a. True
b. False
ANSWER: True

2. Competitive rivalry is the contest to be the first mover in an international market.

a. True
b. False
ANSWER: False

3. Competitive rivalry is the ongoing set of competitive actions and competitive responses that occur among firms as they
maneuver for an advantageous market position.
a. True
b. False
ANSWER: True

4. Competitive dynamics indicates that firms and their strategic actions are independent.
a. True
b. False
ANSWER: False

5. 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 anticipates and responds to its competitors' initial actions.
a. True
b. False
ANSWER: True

6. Firms with high market commonality and highly similar resources are direct and mutually acknowledged competitors.
a. True
b. False
ANSWER: True

7. 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.
a. True
b. False
ANSWER: True

8. Coca-Cola and PepsiCo compete across a number of products (e.g., soft drinks, bottled water) and geographic markets
(U.S. and foreign markets) indicating that both companies have market commonality.
a. True
b. False
ANSWER: True

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9. Research suggests that a firm with greater multimarket contact is less likely to initiate an attack, but more likely to
respond aggressively when attacked.
a. True
b. False
ANSWER: True

10. Extensive market commonality guarantees intense competition in an industry.

a. True
b. False
ANSWER: False

11. Bayou Belle Water sells water drawn only from a single artesian well in southern Louisiana. It has a loyal following in
its region. Because Bayou Belle markets the water, just as Coca-Cola, Nestle, and PepsiCo do, Bayou Belle has high
resource similarity with these international firms.
a. True
b. False
ANSWER: False

12. Two firms, such as Fed Ex and UPS, that have similar resources and common markets would be direct and mutually
acknowledged competitors.
a. True
b. False
ANSWER: True

13. Two firms, such as a small local, family-owned Italian restaurant and Olive Garden, share few markets and have little
similarity in resources, but are nonetheless direct and mutually acknowledged competitors.
a. True
b. False
ANSWER: False

14. Awareness tends to be greatest when firms have highly similar resources and compete in multiple markets.
a. True
b. False
ANSWER: True

15. Under the framework of competitive action and response, "ability" refers to an attacking or responding firm's
knowledge of the competitive market characteristics.
a. True
b. False
ANSWER: False

16. Walmart recently opened a store in Alsatia, Missouri. Several local small retailers have decided that choosing not to
respond to Walmart's competitive actions is a viable long-term option, because although the companies have high market
commonality they have little resource similarity. These small retailers are correct in their decision.
a. True
b. False
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ANSWER: False

17. A tactical competitive action involves a significant commitment of specific and distinctive organizational resources.
a. True
b. False
ANSWER: False

18. Boeing's decision to commit the resources required to build the super-efficient 787 midsized jetliner is an example of a
tactical action.
a. True
b. False
ANSWER: False

19. Walmart's aggressive pricing strategy is a strategic action that plays a major role in how it competes.
a. True
b. False
ANSWER: False

20. First movers can gain a sustained competitive advantage when they reduce their costs through reverse engineering.
a. True
b. False
ANSWER: False

21. To be a first mover, the firm must have readily available resources to significantly invest in R&D as well as to rapidly
and successfully produce and market a stream of innovative products.
a. True
b. False
ANSWER: True

22. Organizational slack makes it possible for firms to have the ability to be first movers.
a. True
b. False
ANSWER: True

23. Mighty Mike's, a manufacturer of power tools for the home hobbyist, has seen its main competitor, MyTools,
introduce a line of power tools that are smaller sized, lighter weight, and suitable for women and older hobbyists who
have weaker hands than the typical male workshop hobbyist. Mighty Mike’s is waiting to see whether MyTools' new line
is a success. Mighty Mike’s could be classified as a second mover.
a. True
b. False
ANSWER: True

24. Firms that are typically late movers usually have little organizational slack.
a. True
b. False

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ANSWER: True

25. Large firms with significant slack resources (i.e., are able to launch a greater number of competitive actions) but that
remain flexible and act like small firms (i.e., are able to launch a variety of actions) will be more successful against rivals.
a. True
b. False
ANSWER: True

26. The need for quality products and services is so high that quality alone can assure a firm that it will achieve strategic
competitiveness and earn above-average returns.
a. True
b. False
ANSWER: False

27. Quality begins in marketing an organization where employees must create a perceived value of quality.
a. True
b. False
ANSWER: False

28. A firm can predict that a competitor whose products suffer from poor quality is likely to be less aggressive in its
competitive actions until those quality problems are corrected.
a. True
b. False
ANSWER: True

29. In general, strategic actions elicit fewer total competitive responses than do tactical actions.
a. True
b. False
ANSWER: True

30. Even if the effects of a competitor's strategic action on the focal firm are significant (e.g., loss of market share), little
response is likely from that firm.
a. True
b. False
ANSWER: False

31. It is more likely that locally owned, one-location cafes in a small town will respond more rapidly to tactical actions by
each other than they will to strategic actions by the Burger King franchise that has recently moved to their town.
a. True
b. False
ANSWER: True

32. A firm with a reputation as a price predator (an actor that frequently reduces prices to gain or maintain market share)
generates few responses to its pricing tactical actions.
a. True

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b. False
ANSWER: True

33. Firms are likely to imitate the actions of a competitor that is noted for risky, complex, and unpredictable behavior
because this is a way to imitate unobservable core competencies.
a. True
b. False
ANSWER: False

34. The more dependent a firm is on its market, the more aggressively it will defend it from another competitor.
a. True
b. False
ANSWER: True

35. Disney is an example of a firm in a slow-cycle market because its animated characters are shielded from imitation by
copyrights and trademarks.
a. True
b. False
ANSWER: True

36. Patent laws and regulatory requirements in the United States requiring FDA (Food and Drug Administration) approval
to launch new products shield pharmaceutical companies' positions.
a. True
b. False
ANSWER: True

37. Carl has just graduated with a management degree. He has a good understanding of his personal strengths and
weaknesses and knows he would fit best in a stable organizational environment. In his job search, Carl should target firms
in slow-cycle markets.
a. True
b. False
ANSWER: True

38. The satellite dish at Faye's weekend home has malfunctioned. When she calls to have the dish repaired, the service
representative tells her that the dish is obsolete and that parts for it are no longer made. Faye must replace the old dish
with a new dish. This is an example of lack of firm loyalty to a product in a fast-cycle market.
a. True
b. False
ANSWER: True

39. Unlike fast-cycle markets, the struggle for market share in standard-cycle markets is moderate.
a. True
b. False
ANSWER: False

Multiple Choice
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40. Competitive rivalry has more effect on a firm's __________ strategies than the firm's other strategies.
a. business-level
b. corporate-level
c. acquisition
d. international
ANSWER: a

41. Multimarket competition occurs when firms:

a. sell different products to the same customer.
b. have a high level of awareness of their competitors' strategic intent.
c. simultaneously enter into an attack strategy.
d. compete against each other in several geographic or product markets.
ANSWER: d

42. Competitive dynamics refers to the:

a. circumstances in which competitors are aware of the degree of their mutual interdependence resulting from
market commonality and resource similarity.
b. set of competitive actions and competitive responses the firm takes to build or defend its competitive
advantages and to improve its market position.
c. ongoing actions and responses among all firms competing within a market for advantageous positions.
d. ongoing set of competitive actions and competitive responses between competitors as they maneuver for
advantageous market position.
ANSWER: c

43. Intensified rivalry within an industry results in:

a. increased hiring across the industry.
b. increased total revenues across the industry.
c. decreased average profitability across the industry.
d. increased entries into the industry.
ANSWER: c

44. Hilliard Pharmaceuticals and Ahrens Vitamins, Inc., have high market commonality, both geographically and in the
market segments in which they compete. Hilliard, the number two firm in the industry, has undertaken a major strategic
attack upon Ahrens, the market leader. Which of the following statements is MOST likely to be true?
a. Ahrens will not respond aggressively since this is a strategic move and not a tactical action.
b. As the market leader, Ahrens has little to fear from an attack by Hilliard and will not expend organizational
slack on a major response.
c. Ahrens will respond aggressively because of the high multimarket contact between Hilliard and Ahrens.
d. Ahrens will respond after a long delay as the nutrition supplement industry is a slow-cycle industry.
ANSWER: c

45. In general, compared with firms that compete in only one market, among firms that face one another in multiple
markets there is:
a. similar competitive rivalry.
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b. less competitive rivalry.
c. more competitive rivalry.
d. no competitive rivalry.
ANSWER: b

46. Research suggests that a firm with greater multimarket contact is __________ likely to initiate an attack, but
__________ likely to respond aggressively when attacked.
a. more; more
b. less; more
c. less; less
d. more; less
ANSWER: b

47. Which pair of firms has the LEAST resource similarity?

a. Small, family-owned Italian restaurant; Olive Garden
b. Target; Walmart
c. HP; Dell
d. FedEx; UPS
ANSWER: a

48. Rapid-Built Homes specializes in low-cost prefabricated, modular homes that can be erected in a matter of days
anywhere in the country. Rapid-Built focuses on entire subdivisions of homes developed by real estate speculators.
ModernModular Homes (ModMod) specializes in modular homes designed by architects, which can be built anywhere in
the country. The buyers usually build the home themselves from kits on their own lots. ModMod sells fewer than 100
house kits per year. ModMod is run by two professors of architecture as a sideline business. According to the framework
of competitive analysis, Rapid-Built and ModMod:
a. are direct mutually acknowledged competitors.
b. have high resource similarity.
c. have high market commonality.
d. are probably not engaged in intense competitive rivalry.
ANSWER: d

49. Firms with __________ market commonality and __________ resource similarity are direct and mutually
acknowledged competitors.
a. low; high
b. low; low
c. high; high
d. high; low
ANSWER: c

50. In general, firms are more aware of competitors that have similar resources and that:
a. have low market dependence.
b. are late movers.
c. have low market commonality.
d. compete against the firm in multiple markets.
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ANSWER: d

51. __________ and __________ describe the situation in which organizations are direct competitors and are fully aware
of the competition.
a. High market commonality; high resource similarity
b. High market commonality; low resource similarity
c. Low market commonality; high resource similarity
d. Low market commonality; low resource similarity
ANSWER: a

52. Firms with few competitive resources are more likely to:
a. not respond to competitive actions.
b. respond quickly to competitive actions.
c. delay responding to competitive actions.
d. respond to strategic actions, but not to tactical actions.
ANSWER: c

53. __________ relates to the gains or losses a firm will experience if it attacks a rival or responds to an attack by a rival.
a. Motivation
b. Awareness
c. Responsiveness
d. Ability
ANSWER: a

54. Both __________ and __________ affect the awareness and motivation of a firm to undertake actions and responses.
a. first-mover advantages; corporate size
b. market commonality; resource similarity
c. management capabilities; competitive analysis
d. speed of management decisions; management actions
ANSWER: b

55. The larger the resources of a firm taking a competitive action compared with the resources of the other firms in the
industry, the __________ the response will be of these other firms.
a. more fragmented
b. slower
c. larger
d. more tactical
ANSWER: b

56. Walmart initially used a focused cost leadership strategy to compete only in small communities by using sophisticated
logistics systems and efficient purchasing practices to gain a competitive advantage. The response of local competitors
was __________ because they __________.
a. rapid; were nimble and flexible
b. slow; lacked the ability to marshal resources

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c. rapid; perceived gains from responding to Walmart's attack
d. rapid; had the resources and flexibility to compete against Walmart
ANSWER: b

57. A competitive action can be one of two types, either __________ or __________.
a. aggressive; defensive
b. quality-based; cost-based
c. strategic; tactical
d. market-based; resource-based
ANSWER: c

58. Which of the following is an example of a strategic action?

a. A "two movies for the price of one" campaign by Redbox
b. Use of product coupons by a local grocer
c. Entry into the European market by Home Depot
d. Fare increases by Southwest Airlines
ANSWER: c

59. Which of the following is an example of a tactical action?

a. Walmart's launch of Sam's Club stores
b. Continental Airlines' exit from a hub airport in Denver
c. Netflix beginning to offer music in addition to movies
d. Dell's launch of a new line of high performance, custom-made PCs
ANSWER: c

60. Which of the following is the MOST strategic action by Walmart?

a. Aggressive pricing to ensure it is a price leader
b. Aggressively pricing toys and electronics during the holiday season
c. Aggressively pricing school-related items in the back-to-school season
d. Entering a new foreign market
ANSWER: d

61. On the whole, there are more competitive responses to:

a. strategic actions than to tactical actions.
b. tactical actions than to strategic actions.
c. buyer pressures than to supplier pressures.
d. the demands of the top management team than to industry structural pressures.
ANSWER: b

62. First movers are:

a. entrepreneurs who lead in the establishment of new industries.
b. firms that are first to exit a declining industry.
c. firms that take an initial competitive action.
d. individuals who move frequently as employment opportunities change in a locale.
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ANSWER: c

63. The chief disadvantage of being a first mover is the:

a. high degree of risk.
b. high level of competition in the new marketplace.
c. inability to earn above-average returns unless the production process is very efficient.
d. difficulty of obtaining new customers.
ANSWER: a

64. Which of the following statements is false?

a. First movers tend to take higher risks than second and later movers.
b. First movers tend to have significantly higher revenues than second movers.
c. First movers have lower survival rates than second and late movers.
d. First movers tend to have more organizational slack than later movers.
ANSWER: c

65. A second mover:

a. is typically ineffective in its response to a first mover.
b. attempts to provide a product with greater customer value than the first mover's product.
c. usually incurs higher expenses than the first mover since it must engage in reverse engineering.
d. typically has a higher survival rate than first movers which typically take greater risks.
ANSWER: b

66. Late movers are those firms that:

a. respond to a competitive action a significant amount of time after the first mover's action and the second
mover's response.
b. respond to a first mover's competitive action often through imitation or a move designed to counter the effects
of the action.
c. take an initial competitive action (either strategic or tactical).
d. typically achieve higher-than-average returns because they can imitate the most efficient actor.
ANSWER: a

67. Bubble-Up, Inc., is a small manufacturer of educational toys for children under age 10. It has co-existed with three
other competitors in the educational toy industry for over 20 years, each of them maintaining a stable market share. There
is a widespread rumor that Mega-Toy, Inc., the market leader in the broad children's toy market, has decided to target
educational toys. Which of the following statements is MOST likely true?
a. The owners of Bubble-Up are unconcerned about Mega-Toy's entry to the market because of the resource
dissimilarity between the firms.
b. Bubble-Up's greater organizational slack will allow it to aggressively attack Mega-Toy.
c. Bubble-Up's smaller size may make it more flexible in introducing innovations than Mega-Toy.
d. Competitive rivalry will not increase for Bubble-Up because Mega-Toy is not dependent on the educational
toy market.
ANSWER: c

68. A firm that is LEAST likely to launch competitive actions is one that has:
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a. organizational slack.
b. advanced research and development.
c. recently improved the quality of its products.
d. large size.
ANSWER: d

69. All competitive advantages do not accrue to large-sized firms. A major advantage of smaller firms is that they:
a. are more likely to have organizational slack.
b. can launch competitive actions more quickly.
c. have more loyal and diverse workforces.
d. can wait for larger firms to make mistakes in introducing innovative products.
ANSWER: b

70. Which of the following is true of Walmart?

a. Walmart has an unusual amount of flexibility for a large firm.
b. Walmart's success is largely due to the fact that it has little market commonality with other industry firms.
c. Decision-making responsibility is centered at its Arkansas headquarters, which allows the firm to respond
quickly to competitive attacks.
d. Walmart's advantage lies in its ability to "think big."
ANSWER: a

71. Which of the following is true of Southwest Airlines?

a. Southwest has an unusually low amount of flexibility for a large firm.
b. Southwest's success is largely due to the fact that it has little market commonality with other airlines.
c. Decision-making responsibility is centered at its Dallas headquarters, which allows the firm to respond quickly
to competitive attacks.
d. Southwest's advantage lies in its ability to "think small."
ANSWER: d

72. Without quality, the firm's products:

a. can compete effectively on the basis of low price.
b. lack credibility among customers.
c. must be exported to developing countries, because they are not competitive in the United States or developed
countries.
d. are associated with predatory competition.
ANSWER: b

73. Quality is:

a. meeting or exceeding customer expectations in the goods and/or services offered.
b. only a major factor in the production of luxury goods, such as BMW cars.
c. an assured way to gain competitive advantage.
d. a viable trade-off with product cost in gaining a competitive advantage.
ANSWER: a

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74. Quality affects competitive rivalry because a competitor whose products suffer from poor quality likely will
__________ until __________.
a. initiate more competitive actions; the firm returns to profitability
b. initiate fewer competitive actions; the quality problems are corrected
c. initiate more competitive actions; the quality problems are corrected
d. advertise more; customers believe the quality has improved
ANSWER: b

75. Competitors are more likely to respond to strategic or tactical actions when they are taken by:
a. differentiators.
b. larger companies.
c. first movers.
d. market leaders.
ANSWER: d

76. A firm is likely to respond to an attack by a competitor in all of the following situations EXCEPT when the attack:
a. is by a price predator.
b. makes the firm's market position less defensible.
c. damages the firm's ability to use its capabilities.
d. improves the competitor's market position.
ANSWER: a

77. Which of the following companies committed significant resources to enter the information service market and, given
its success, was imitated by other competitors?
a. Compaq
b. IBM
c. HP
d. Dell
ANSWER: b

78. Akamai Technologies is a dominant player in the content delivery network (CDN) market. Akamai is not very
diversified (i.e., is dependent on the CDN market). If rival CDN providers such as Limelight Networks and Level 3
Communications lower their basic CDN service prices, which of the following would Akamai likely do?
a. Raise its prices
b. Do nothing since it is the market leader
c. Exit the industry
d. Lower its prices
ANSWER: d

79. Lobelia's Nursery and Garden Resource Center has long provided high-quality, typical types of seasonal bedding
plants to customers in the Mobile, Alabama, metropolitan area. It has traditionally competed with the other plant nurseries
within a 50-mile radius of Mobile. Recently, Lobelia has opened a branch in Fairfax, Virginia. Lobelia's research shows
that most Fairfax nurseries have only one location. Lobelia can expect the local Fairfax nurseries to:
a. be unmotivated to respond because their market position is not threatened by a new competitor from out of
town.
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b. respond with fierce attacks because of resource dissimilarity.
c. respond aggressively because of high market dependence.
d. take no competitive response because of the lack of mutual interdependence among the nurseries.
ANSWER: c

80. Which of the following organizations has the highest market dependence?
a. Chain of rapid-service oil change shops
b. Manufacturer of chemicals for the international pharmaceutical industry
c. Regional department store having 26 locations in the Northwest
d. Company that specializes in making replacement tiles for the space shuttle
ANSWER: d

81. Sustained competitive advantage is most achievable in a __________ market.

a. slow-cycle
b. medium-cycle
c. standard-cycle
d. fast-cycle
ANSWER: a

82. Walt Disney's focus on __________ is typical of a slow-cycle market.

a. innovation
b. total quality
c. proprietary rights
d. economies of scale
ANSWER: c

83. The CEO of the Wholesome Food retail grocery chain, which specializes in organic and natural produce and meat, has
stated, "The key to success is to find your niche and focus on it, regardless of what anyone else does." The CEO:
a. realizes that he must understand competitors in order to predict their competitive actions and responses.
b. understands that he is the market leader in his niche and thus has a sustainable competitive advantage.
c. believes that he has placed his firm in a slow-cycle industry where concerns about protecting unique
competencies dominate concerns about market share.
d. realizes that his firm has such lower resources than other competitors that his chain is "competitively invisible"
to them.
ANSWER: c

84. The ability of Disney to maintain its competitive advantage through proprietary rights to its characters would be
severely weakened if:
a. theme parks with alternative cartoon characters were built in large numbers.
b. numerous lawsuits against copyright thieves tainted the reputation of the company.
c. Disney attempted to move beyond its traditional industry.
d. Disney's cartoon characters became widely perceived as old-fashioned and unappealing.
ANSWER: d

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85. Lawsuits over patent and copyright infringements are more common and intense in:
a. fast-cycle markets because the market is innovation-driven.
b. standard-cycle markets because the firm's brand name is such an important competitive advantage.
c. slow-cycle markets because of the ability to shelter the company from imitation of its competitive advantage.
d. standard-cycle markets because innovation is rare, which gives the innovating firm a significant competitive
advantage.
ANSWER: c

86. Traditionally, the music industry signed multi-year contracts with artists and sold copyright-protected music through
established distribution channels. A shift to the digital format and the rise of Internet technology have resulted in the
sharing of music over peer-to-peer networks, a practice the industry calls "piracy." In recent years, the music industry has
seen a rapid decline in the number of CDs sold. At the same time, the ownership of the distribution rights of musical
content under copyright laws remains clear. Attempts at innovation by individual record labels to offer music as direct
downloads to consumer are quickly copied by other labels. Based on these factors, the best assessment is that the music
industry has shifted from a __________ to a __________ cycle market.
a. slow-; fast-
b. slow-; standard-
c. standard-; slow-
d. standard-; slow-
ANSWER: d

87. Which of the following industries can be LEAST described as a slow-cycle market?
a. Freight railroads
b. Pharmaceuticals
c. Cell phone providers
d. Private ownership of highways and bridges
ANSWER: c

88. Reverse engineering is characteristic of:

a. first movers.
b. fast-cycle markets.
c. market leaders.
d. price predators.
ANSWER: b

89. Companies in fast-cycle markets need to profit quickly from an innovative product for all of the following reasons
EXCEPT:
a. the technology used is not proprietary.
b. the prices of component parts tend to rise rapidly.
c. product prices fall quickly in fast-cycle markets.
d. counterattacks from rivals come quickly.
ANSWER: b

90. A company in a __________ industry is LEAST likely to make heavy use of patents and copyrights.
a. slow-cycle
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b. medium-cycle
c. standard-cycle
d. fast-cycle
ANSWER: d

91. __________ markets are often described as volatile and innovative.

a. Slow-cycle
b. Fast-cycle
c. Standard-cycle
d. Sheltered
ANSWER: b

92. An organization's loyalty to its own product is a competitive disadvantage in a(n) __________ market.
a. slow-cycle
b. standard cycle
c. intermediate-cycle
d. fast-cycle
ANSWER: d

93. Because Coca-Cola, Nestlé, and PepsiCo all sell a product (bottled water) that is essentially the same and all three
giant companies are engaged in battles for market share using incremental changes in their products and seeking loyalty to
brand names, it is MOST likely that the bottled water market is a(n):
a. slow-cycle market.
b. standard-cycle market.
c. fast-cycle market.
d. intermediate-cycle market.
ANSWER: b

94. Competition between candy makers (e.g., Hershey, Mars, Cadbury, Nestlé, and Godiva) where firms compete in
package design (including package downsizing) and ease of availability is characteristic of a(n):
a. slow-cycle market.
b. standard-cycle market.
c. fast-cycle market.
d. intermediate-cycle market.
ANSWER: b

95. Goods or services in standard-cycle markets reflect:

a. organizations that serve a mass market.
b. numerous first-mover advantages.
c. an inability to sustain a competitive advantage except for brief periods of time.
d. competitive advantages that are shielded from imitation.
ANSWER: a

96. The competitive actions and responses in __________ markets are designed to seek large market shares, to gain
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customer loyalty through brand names, and to carefully control the firm's operations in order to consistently provide the
same positive experience for customers.
a. standard-cycle
b. fast-cycle
c. slow-cycle
d. intermediate-cycle
ANSWER: a

97. The flat-panel television market where prices have come down and competition has become more stable is best
characterized as:
a. standard-cycle.
b. fast-cycle.
c. slow-cycle.
d. competitive rivalry.
ANSWER: a

98. Consumer goods producers are innovating in terms of healthy products. This type of incremental innovation is typical
of:
a. fast-cycle markets.
b. standard-cycle markets.
c. incremental-cycle markets.
d. slow-cycle markets.
ANSWER: b

99. In order to compete effectively, standard-cycle firms need all of the following EXCEPT:
a. large market share.
b. customer loyalty through brand name.
c. careful control of operations to preserve consistency for customers.
d. rapid and continuous product introductions.
ANSWER: d

Essay

100. Define competitors, competitive rivalry, competitive behavior, and competitive dynamics.
ANSWER: 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 that occur
among firms as they maneuver for an advantageous market position. The set of competitive actions and
responses a firm takes to build or defend its competitive advantages and to improve its market position is
called competitive behavior. Competitive dynamics is the set of actions and responses taken by all firms
competing within a market.

101. What is market commonality? What is resource similarity? How are these concepts combined to identify the level of
competition between two firms?
ANSWER: 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. When firms produce similar
products and compete for the same customers, the competitive rivalry is likely to be high. Firms competing
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Chapter 05 - Competitive Rivalry and Competitive Dynamics

against one another in several or many markets engage in multimarket competition. Research suggests that a
firm with greater multimarket contact is less likely to initiate an attack, but more likely to respond when
attacked. In general, multimarket competition reduces competitive rivalry but some firms will still compete
when the potential rewards (e.g., potential market share gain) are high.
Resource similarity is the extent to which the firm's tangible and intangible resources are comparable to a
competitor's in terms of both type and amount. Firms with resource similarity are likely to have similar
strengths and weaknesses and to use similar strategies.
The combination of high or low market commonality and high or low resource similarity identifies whether
firms are competitors. Firms having both high market commonality and high resource similarity are direct and
mutually acknowledged competitors. If firms share few markets and have little similarity in resources they are
not direct and mutually acknowledged competitors.

102. Define awareness, motivation, and ability in reference to competitive behavior.

ANSWER: Awareness, motivation, and ability are the drivers of competitive behavior. They influence the firm's actions
toward and responses to competitors. Awareness is the extent to which competitors recognize the degree of
their mutual interdependence that results from market commonality and resource similarity. Awareness affects
the extent to which the firm understands the consequences of its competitive actions and responses. Awareness
is greatest when firms have highly similar resources. Motivation concerns the firm's incentive to take action or
to respond to a competitor's attack. If the firm does not believe that attacking its competitors will improve its
position, it will not act. If the firm does not believe a competitor's action will result in losses for it, it will not
have motivation to respond. High market commonality gives firms more motivation to attack and to respond to
competitors' actions than when market commonality is low. Ability relates to each firm's resources and the
flexibility these resources provide. When a firm faces a competitor with similar resources, careful study of a
possible attack is essential because a competitor with similar resources is likely to respond to competitive
attack. When the resources between two competitors are very dissimilar, the weaker firm will delay in
responding to an attack by the stronger firm.

103. Define competitive actions and responses and explain the two types of competitive actions and responses.
ANSWER: 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 strategic response is a
market-based move that involves a significant commitment of organizational resources and is difficult to
implement or 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. Strategic actions tend to
receive strategic responses. Tactical actions tend to receive tactical responses because they are easy to put into
place. Strategic actions elicit fewer total competitive responses than do tactical actions. Responses to strategic
actions will be slower than will responses to tactical actions because competitors need time to observe whether
the strategic action will be successful. If a competitor's action threatens a large number of a firm's customers,
the firm will react strongly regardless of whether the competitor's action is strategic or tactical.

104. What are the advantages and disadvantages of being a first mover, second mover, and late mover?
ANSWER: First movers can gain market share, customer loyalty, and high revenues by being the first in the market. But,
first movers also take more risk because it is difficult to judge the returns the firm will earn from product
innovations. Moreover, if the first mover is successful, other firms will enter its arena. First movers tend to
have a significant amount of organizational slack to fund research and development. Second movers imitate
the first movers, after they have studied the first movers’ successes and mistakes. Consequently, second
movers can develop more efficient processes and technologies than first movers, which results in lower costs.
Late movers react to the first and second movers' actions after a long delay. A late mover may be able to earn
average returns if it has learned how to create at least as much value for customers as the value created by the
first and second movers. In general, late movers are relatively ineffective.

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Chapter 05 - Competitive Rivalry and Competitive Dynamics

105. What factors contribute to the likelihood of a response to a competitive action?
ANSWER: In general, a firm is more likely to respond to a competitive action if: (1) the action leads to better use of the
competitor's capabilities to develop a stronger competitive advantage or an improvement in its market
position, (2) the action damages the firm's ability to use its competencies to create or maintain an advantage,
or (3) the firm's market position becomes harder to defend. In addition, a firm is more likely to respond to a
competitor's tactical action, rather than to a competitor's strategic action. Strategic actions involve a significant
commitment of resources and are difficult to implement and reverse, as well as requiring time to put into
place. In contrast, tactical actions can be implemented quickly, are quickly reversed, and are relatively less
costly than strategic actions. A firm is also more likely to respond to a competitor's action when the competitor
is the market leader—a firm that has the reputation for above-average returns. Successful actions by
competitors are likely to be quickly imitated, even if not initiated by a market leader. Actions by price
predators are usually not responded to, nor are actions by firms with reputations for risky, complex, and
unpredictable behavior. Finally, competitors with high market dependence are likely to respond strongly to
attacks threatening their market position.

106. Define slow-, fast-, and standard-cycle markets.

ANSWER: In slow-cycle markets, the firm's competitive advantages are shielded from imitation, commonly for long
periods of time, and where imitation is costly. Competitive advantages are sustainable in slow-cycle markets.
Successful firms in slow-cycle markets have difficult-to-understand and costly-to-imitate advantages resulting
from unique historical conditions, causal ambiguity, and/or social complexity. These conditions can include
copyrights, patents, and ownership of an information resource. Firms in slow-cycle markets focus on
protecting their competitive advantages and exploiting them as long as possible. In fast-cycle markets,
imitation happens quickly. Competitive advantages are not sustainable. Reverse engineering and quick
technology diffusion facilitate rapid imitation. In fast-cycle markets, innovation is critical and firms avoid
"loyalty" to any product. Firms must focus on rapidly and continuously developing new competitive
advantages, because prices fall quickly and firms need to profit rapidly from innovations, and move on to the
next product. Fast-cycle markets are volatile and the pace of innovation is frenzied. In standard-cycle markets,
the firm's competitive advantages are partially shielded from imitation, and 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 capabilities making its competitive advantage dynamic. Typically,
these markets have large firms seeking high market share, striving for customer brand loyalty, and controlling
their operations to give customers consistent experiences. Economies of scale are necessary for survival.
Competition for market share is intense and is often based on incremental innovation in a product rather than
radical innovation.

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