Strategizing with Competitive Asymmetry

Competitive Dynamics Course Technical Note Winter 2016

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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 firm’s 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 competitor’s 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


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


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


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 firm’s

markets. The same way that the focal firm could enter the competitor’s 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 competitor’s 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


The focal firm keeps a passive position

4 Twin Future Retaliate




5 Different Twin Attack


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The focal firm keeps a proactive position and

manages the timing of competition

6 Different Different Attack


The focal firm keeps a proactive position but does not

manage the timing of competition

7 Different Common Attack





8 Different Future Attack




9 Common Twin Retaliate



The focal firm keeps a reactive position

10 Common Different Retaliate



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11 Common Common Ignore



The focal firm keeps a passive position

12 Common Future Retaliate




13 Future Twin Attack





14 Future Different Attack




15 Future Common Attack




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16 Future Future Attack




Optimal Actions Map

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

focal firm’s standpoint of its competitor and the arrow points to the quadrant representing competitor’s

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 and material resources are scarce there has to be a priority order between

attack actions. The criterion to determine this priority order will be as follows:

1st. Intra-quadrant war: this is the case of competitive symmetry. War within a group of equals

(so within a quadrant) tends to be harder than between groups of equals (so between

quadrants).

2nd. Inter-quadrant war: if there is a quadrant that wants to attack and another one that does not,

the quadrant that wants to attack has priority.

3rd. Attacking a quadrant where the competitor will not retaliate.

4th. Attacking a quadrant where the competitor will retaliate with sparse resources.

5th. Attacking a quadrant where the competitor will retaliate with plenty of resources.


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The highest probability to observe competition is between companies that find one of the two dimensions

high and the other low. And the lowest probability to observe competition is between companies around

Mutual Forbearance quadrant.

Symmetric information

If the competitor is fully aware, then the information is symmetric. Hence in the optimal actions map each

pair of counter posed arrows represents the optimal actions of both the focal firm and the aware

competitor. So both firms can see what the intentions of the other are in each dyad. This changes the

optimal actions map to the following:

Perfect information releases competitive tension in dyads 3 & 9 (PC-MF) turning this pair of arrows to

Ignore-Ignore. The firm seeing the competitor as “common” knows that the competitor wants to ignore

any action taken by the competitor, so there is not any need to retaliate any longer. And the firm seeing


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the competitor as “twin” prefers an Ignore-Ignore situation than a Retaliate-Retaliate one, because it

would release resources for other battles.

It also introduces competitive tension in dyads 7 & 10 (PC-D) and 12 & 15 (PC-O). Now the firms know that

attacking bears retaliation everywhere.

With this new status quo, the possible fronts in Perfect Competition quadrant are reduced but the ones

in Mutual Forbearance quadrant are kept. Making the latter more likely to have resources dispersed

among all the fronts. Hence more vulnerable in relative terms. This switches the interest of possible

attacks from Perfect Competition to Mutual Forbearance quadrant. Following the attack priority criterion,

the priority between Perfect Competition and Mutual Forbearance quadrants is interchanged.

This outcome is aligned with the common practice in competitive dynamics to exclude companies in

quadrant III (with low market commonality and low resource similarity) from the set of significant

competitors. Usually competition is framed inside the quadrants I, II and IV area. Inside the competition

area, it still holds that the lowest probability to observe competition is between companies around Mutual

Forbearance quadrant.

Leadership & Management

Strategizing with Competitive Asymmetry