Types of Market Signals

Market signals can have two fundamentally different functions: they can be truthful indications of a competitor’s motives, inten-tions, or goals or they can be bluffs. Bluffs are signals designed to mislead other firms into taking or not taking an action to benefit the signaler. Discerning the difference between a bluff and a true signal

The Use of History in Identifying Market Signals

Studying the historical relationship between a firm‘s announce–ments and its moves, or between other varieties of potential signals and the subsequent outcomes, can greatly improve one‘s ability to read signals accurately. Searching for signs a competitor may have inadvertently given before making changes in the past can also help to uncover new types of

Can Attention to Market Signals Be a Distraction?

Given the subtlety of interpreting market signals, one can take the view that too much attention to them can be a counterproductive distraction. Rather than getting all tangled up second-guessing com-petitors’ words and actions, holds this view, companies should focus their time and energy on competing. Although situations might be imagined in which top

Industry Instability: The Likelihood of Competitive Warfare

The first question for the firm in considering offensive or defen-sive moves is the general degree of instability in the industry or the industry-wide conditions that may mean a move will touch off wide-spread warfare. Some industries require much softer treading than others. The underlying structure of an industry, discussed in Chapter 1, determines

Competitive Moves

Because in an oligopoly a firm is partly dependent on the behav-ior of its rivals, selecting the right competitive move involves finding one whose outcome is quickly determined (no protracted or serious battle takes place) and also skewed as much as possible toward the firm‘s own interests. That is, the goal for the firm

Competitive Moves: Commitment

Perhaps the single most important concept in planning and exe-cuting offensive or defensive competitive moves is the concept of commitment. Commitment can guarantee the likelihood, speed, and vigor of retaliation to offensive moves and can be the cornerstone of defensive strategy. Commitments influence the way competitors per-ceive their positions and those of rivals. Establishing

Competitive Moves: Focal Points

A problem leading to instability in oligopoly is in coordinating the expectations of competitors about what the eventual market out-come will be. To the extent that competitors have divergent expecta-tions, jockeying will continue to occur and the prospect of outbreaks of warfare is likely. Thomas Schelling’s work on game theory” sug-gests that an important

Competitive Moves: A Note on Information and Secrecy

In part because of the proliferation of the business press and in-creased requirements for public filings, companies are disclosing more and more about themselves. Although some of this is legally required, much of what is written in annual reports, stated in inter-views or speeches, or comes out via other means is not statutorily re-quired.

Strategy toward buyers: Buyer Selection

Most industries sell their products or services not to a single buyer but to a range of different buyers. The bargaining power of this group of buyers, viewed in aggregate terms, is one of the key competitive forces determining the potential profitability of an in-dustry. Chapter 1 has examined some of the structural conditions

Strategy toward suppliers: Purchasing Strategy

The analysis of suppliers’ power in Chapter 1 coupled with a re-verse application of the principles of buyer selection can help a firm in formulating purchasing strategy. Although there are many aspects of purchasing strategy, procedures, and organization that go well beyond the scope of this book, some issues can be usefully examined by

Dimensions of Competitive Strategy

Companies’ strategies for competing in an industry can differ in a wide variety of ways. However, the following strategic dimensions usually capture the possible differences among a company’s strategic options in a given industry: specialization: the degree to which it focuses its efforts in terms of the width of its line, the target customer

Structural analysis within industries: Strategic Groups

The first step in structural analysis within industries is to char-acterize the strategies of all significant competitors along these di-mensions. This activity then allows for the mapping of the industry into strategic groups. A strategic group is the group of firms in an in-dustry following the same or a similar strategy along the strategic

Strategic Groups and a Firm’s Profitability

We have seen that differing strategic groups can have varying situations with respect to each and every competitive force acting on an industry. We are now in a position to answer the question posed earlier; namely, what factors determine the market power and hence profit potential of individual firms in an industry, and how

Strategic Groups: Implications for Formulation of Strategy

Formulating competitive strategy in an industry can be viewed as the choice of which strategic group to compete in. This choice may involve selecting the existing group that involves the best trade-off between profit potential and the firm’s costs of entering it, or it may involve the creation of an entirely new strategic group.

The Strategic Group Map as an Analytical Tool

We are now in a position to return to a discussion of the strate-gic group map as an analytical tool. The map is a very useful way to graphically display competition in an industry and to see how indus-try changes or how trends might affect it. It is a map of “strategy space,” instead

Basic Concepts in Industry Evolution

The starting point for analyzing industry evolution is the frame-work of structural analysis in Chapter 1. Industry changes will carry strategic significance if they promise to affect the underlying sources of the five competitive forces; otherwise changes are important only in a tactical sense. The simplest approach to analyzing evolution is to ask the

Evolutionary Processes of Industry

Although initial structure, structural potential, and particular firms’ investment decisions will be industry-specific, we can general-ize about what are the important evolutionary processes. There are some predictable (and interacting) dynamic processes that occur in every industry in one form or another, though their speed and direc-tion will differ from industry to industry: long-run changes

Key Relationships in Industry Evolution

In the context of this analysis, how do industries change? They do not change in a piecemeal fashion, because an industry is an inter-related system. Change in one element of an industry’s structure tends to trigger changes in other areas. For example, an innovation in marketing might develop a new buyer segment, but serving

Generic Industry Environments

Industries are fragmented for a wide variety of reasons, with greatly differing implications for competing in them. Some indus-tries are fragmented for historical reasons—because of the resources or abilities of the firms historically in them—and there is no funda-mental economic basis for fragmentation. However, in many indus-tries there are underlying economic causes, and the

What Makes an Industry Fragmented?

Industries are fragmented for a wide variety of reasons, with greatly differing implications for competing in them. Some indus-tries are fragmented for historical reasons—because of the resources or abilities of the firms historically in them—and there is no funda-mental economic basis for fragmentation. However, in many indus-tries there are underlying economic causes, and the