Strategizing with Competitive Asymmetry

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  • Competitive Dynamics Course Technical Note Winter 2016

    1

    Strategizing with Competitive Asymmetry

    Ramon Serrallonga

    Darden School of Business MBA Exchange Program

    ESADE Business School MBA

    Introduction

    In competitive dynamics field inside business strategy discipline, MCRS (Market Commonality - Resource

    Similarity) and AMC (Awareness - Motivation - Capability) frameworks help managers defining their

    competitive strategy. Both request several inputs to depict a firms competitive scenario according to the

    framework in order to make visible the key questions that managers have to ask. But they do not give

    managers any suggestion on what to do. The responsibility runs on their shoulders. The aim of this

    technical note is to make one more twist to the frameworks in order to get the optimal strategy to

    undertake in the presence of competitive asymmetry.

    Competitive Asymmetry

    Competitive asymmetry is the phenomenon where two competitors do not coincide in its competitive

    standpoint between each other. Company 1 could have company 2 as its main rival while company 2 could

    have company 1 as a secondary competitor. If both companies coincided, e.g. main rival versus main rival,

    then there would be competitive symmetry.

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    Awareness

    In this technical note awareness is taken as information symmetry/asymmetry. The focal firm will have

    complete information regarding itself and the competitor so with both standpoints. If the competitor has

    incomplete information, so the competitor is assuming competitive symmetry, then this competitor will

    be deemed unaware. While if the competitor also has complete information from both standpoints, it will

    be deemed an aware competitor.

    Motivation

    In this technical note motivation will be the best movement given the standpoints dyad coming from the

    MCRS framework. Due to competitive asymmetry, each of the 4 possible categories for the competitor

    from the focal firm standpoint could be paired with any of them from the competitors standpoint. So

    giving 16 possible combinations or dyads.

    Capability

    In this technical note both the focal firm and the competitor will be deemed capable of attacking or

    retaliating. The lack of this assumption would make competitive asymmetry just irrelevant.

    Actions

    The set of possible actions undertaken by a firm will be to ignore (passive), retaliate (reactive) or attack

    (proactive).

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    MCRS

    A competitor can fall in one of the 4 possible categories. To define the implications for the focal firm,

    MCRS framework needs to be pushed a bit further.

    Source: Academy of Management Review, 1996, Vol. 21, No. 1, 100-134.

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    Source: Academy of Management Review, 1996, Vol. 21, No. 1, 100-134.

    Quadrant I represents a competitor with high market commonality and high resource similarity from the

    focal firm standpoint. Simplifying but without loss of generality, the focal firm and the competitor are

    competing in the same markets with similar products to satisfy the same need. Hence competition

    between them can only be in price and competition brings margins down. This quadrant will be called

    Mutual Forbearance and the competitor in it twin. A focal firm with the competitor in this quadrant

    will not want to attack the competitor but will retaliate if the competitor attacks.

    Quadrant II represents a competitor with high market commonality and low resource similarity from the

    focal firm standpoint. Simplifying but without loss of generality, the focal firm and the competitor are

    competing in the same markets with different products to satisfy the same need. Hence competition

    between them is about different value propositions. This quadrant will be called Differentiation and the

    competitor in it different. A focal firm with the competitor in this quadrant will want to attack the

    competitor.

    Quadrant III represents a competitor with low market commonality and low resource similarity from the

    focal firm standpoint. Simplifying but without loss of generality, the focal firm and the competitor are

    competing in different markets with different products to satisfy the same need. Hence any action

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    undertaken by them is not deemed a threat or a direct attack. This quadrant will be called Perfect

    Competition and the competitor in it common. A focal firm with the competitor in this quadrant will

    neither want to attack the competitor nor retaliate for any action the competitor undertakes.

    Quadrant IV represents a competitor with low market commonality and high resource similarity from the

    focal firm standpoint. Simplifying but without loss of generality, the focal firm and the competitor are

    competing in different markets with similar products to satisfy the same need. Hence competition

    between them is deemed as a threat or a direct attack since the competitor could easily enter focal firms

    markets. The same way that the focal firm could enter the competitors markets. This quadrant will be

    called Ocean and the competitor in it future. A focal firm with the competitor in this quadrant will

    want to attack the competitor.

    Dyads

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    The initial analysis is done assuming the competitor is unaware. So from the competitors standpoint there

    is only competitive symmetry. While for the focal firm there is competitive asymmetry. The focal firm will

    accommodate its ideal action to the optimal one given the expected action from the competitor.

    Dyad Focal sees

    competitor as

    Competitor

    sees focal as

    Optimal focal firm action

    1 Twin Twin Retaliate

    The competitor does not want to attack but will

    retaliate if attacked

    The focal firm keeps a reactive position

    2 Twin Different Retaliate

    The competitor wants to attack

    The focal firm keeps a reactive position to delay

    competition as much as possible

    3 Twin Common Ignore

    The competitor does not want to attack and will not

    retaliate if attacked

    The focal firm keeps a passive position

    4 Twin Future Retaliate

    The competitor wants to attack

    The focal firm keeps a reactive position to delay

    competition as much as possible

    5 Different Twin Attack

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    The competitor does not want to attack but will

    retaliate if attacked

    The focal firm keeps a proactive position and

    manages the timing of competition

    6 Different Different Attack

    The competitor wants to attack

    The focal firm keeps a proactive position but does not

    manage the timing of competition

    7 Different Common Attack

    The competitor does not want to attack and will not

    retaliate if attacked

    The focal firm keeps a proactive position and

    manages the timing of competition

    8 Different Future Attack

    The competitor wants to attack

    The focal firm keeps a proactive position but does not

    manage the timing of competition

    9 Common Twin Retaliate

    The competitor does not want to attack but will

    retaliate if attacked

    The focal firm keeps a reactive position

    10 Common Different Retaliate

    The competitor wants to attack

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    The focal firm keeps a reactive position to delay

    competition as much as possible

    11 Common Common Ignore

    The competitor does not want to attack and will not

    retaliate if attacked

    The focal firm keeps a passive position

    12 Common Future Retaliate

    The competitor wants to attack

    The focal firm keeps a reactive position to delay

    competition as much as possible

    13 Future Twin Attack

    The competitor does not want to attack but will

    retaliate if attacked

    The focal firm keeps a proactive position and

    manages the timing of competition

    14 Future Different Attack

    The competitor wants to attack

    The focal firm keeps a proactive position but does not

    manage the timing of competition

    15 Future Common Attack

    The competitor does not want to attack and will not

    retaliate if attacked

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    The focal firm keeps a proactive position and

    manages the timing of competition

    16 Future Future Attack

    The competitor wants to attack

    The focal firm keeps a proactive position but does not

    manage the timing of competition

    Optimal Actions Map

    The graphic representation of the optimal focal firm actions is shown below. The quadrant represents

    focal firms standpoint of its competitor and the arrow points to the quadrant representing competitors

    standpoint.

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    50% of actions trigger competition, 38% of actions respond to a threat and the remaining 12% will not

    compete at all. Since financial an