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Chapter 5 Competitive Moves A central characteristic of competition is that firms are inter-dependent. The outcome of a move by one firm depends to some extent on the reactions of its rivals. Bad or irrational moves can often make good strategic moves unsuccessful. Firms face a dilemma Pursue the interest of the industry as a whole or behave in its narrow self interests and risk touching of retaliation. Industry Instability the first question a firm has to ask when considering an offensive or defensive move is how stable is the industry. Each industry is unique in how careful you must be. If rivalry is high, then generally moves are very risky. A history of competing or continuity of interaction promotes stability. Multiple bargaining areas, more than one competitive arena, promote stability. Structure sets the basic parameters within which competitive moves are made. It influences the position of the competitors, the pressures on them, and the degree to which their interests are likely to conflict. Competitive Moves The goal of the firm is to avoid destabilizing and costly warfare while still outperforming other firms. One approach is to use superior resources to force an outcome. Often called the brute force approach, it involves overcoming and outlasting retaliation. Cooperative or non-threatening moves can be made based off of an analysis of the competitors goals and assumptions and does not threaten or reduce the performance of the competitor. Three categories of moves 1. Improve both the firms and competitors positions even if the competitor does not match. Involves the least risk. 2. Improves both the firms and the competitors position only if a certain number match them. More common, has two steps. Assessing the impact of the move on all competitors Assessing the pressures on all to forgo the benefits by breaking rank 3. Improves the firms position because competitors will not match them. This is because either competitors do not notice the moves, will not be concerned because of self-perceptions or assumptions, or their performance is impaired little if at all. Executing moves so as to improve everyones performance requires that competitors understand that the move is not threatening. Active market signaling through announcements, public commentary is one way to indicate benign intentions. Threatening Moves key to success is predicting and influencing retaliation Key questions are: How likely is retaliation? How soon will they retaliate? How effective will their retaliation be? How tough will retaliation be? How can retaliation be influenced? Lags in retaliation Other things being equal, the firm will want to make the move that gives it the most time before its competitors can effectively retaliate. Stem from four sources: 1. perceptual lags (the move was kept secret or low profile) 2. lags in mounting a retaliatory strategy (years to match product) 3. inability to pinpoint retaliation, raises short-run costs 4. lags caused by conflicting goals or mixed motives Defensive Moves the most effective defensive move is to prevent the battle altogether. Discipline as a form of defense competitors moves are swiftly retaliated against Denying a base no place for the competitor to meet its goals. Worth paying a substantial short-run price if market share is threatened. Commitment the most important concept in planning and executing defensive/offensive competitive moves. It can guarantee the likelihood, speed, and vigor of retaliation to offensive moves. Communicating commitment reduces uncertainty. Three types: 1. a firm is unequivocally sticking with a move 2. a firm will retaliate if a competitor makes a certain move 3. a firm will take no action or forgo action

Communicating commitment the building blocks are: Assets, resources, and other mechanisms to carry out the commitment quickly A clear intention to carry out the commitment Inability to back down or perceived resolve not to back down Ability to detect compliance to the terms referred to (smell cheating). Trust as a commitment Focal Points a resting place on which the competitive process can converge its expectations. The power of focal points resides in the need and desire of competitors to mutually achieve some stable outcome to avoid difficult and unsettling moves. Three implications: 1. Firms should seek to identify a desirable focal point as early as possible 2. industry prices or other decision variable may be simplified so that a focal point can be identified 3. it is in the firms best interest to set up the game to make the focal point that is best for it to seem to emerge.