Rivalry among
established firms
Five
factors play a role for nature & intensity
of competition between established firms :
1.
Concentration of established
firms
2.
Diversity of competitors : The
ability to avoid price competition depends
on the similarities of the firms in terms
of origins, objective, costs & strategies
(OPEP)
3.
Product differentiation : The
more similar the offerings among rival firms,
the more willing the customers are to substitute
and the greater the incentive for firms to
cut prices to increase sales. If the product
is a commodity (indistinguisable) the price
is the sole basis for competition.If highly
differenciated products, price competition
tends to be weak.
4.
Excess capacity & exit barriers :
during a recession, barriers to exit are costs
associated with capacity leaving an industry.
5.
Cost conditions :
scale economies and the ratio of fixed to
variable costs. When excess capacity causes
price competition, how low prices go ? The
key factor is cost structure (Fixed costs
/ Variable costs)
Scale economies may also encourage
companies to compete aggressively on price
in order to gain the cost benefits of greater
volume (in automobile the cost benefits of
market leadership are powerfull drivers of
inter-firm competition.
Source :
Contemporary Strategic Analysis, Robert M. Grant, 3th edition, Blackwell, 1998p. 51-
65