What role does rivalry play in the industry and what firms can do about it?
Firms strive for a competitive advantage over competitors or rivals. If rivalry in industry is low, it’s considered to be disciplined. Sometimes this results in collusion though explicit collusion generally is illegal and not an option; in low-rivalry industries, competitive moves must be constrained informally. Though this is true firms seeking a competitive advantage can displace the disciplined market.
The intensity of rivalry can be referred to as being cutthroat, intense, moderate, or weak, based on the firms’ aggressiveness in gaining competitive advantage.
Thus to gain advantage firms can:
- Changing prices – raising or lowering prices to gain a temporary advantage.
- Improving product differentiation – improving features, implementing innovations in the manufacturing process and in the product itself.
- Creatively using channels of distribution – using vertical integration or using a distribution channel that is novel to the industry.
- Exploiting relationships with suppliers
The intensity of rivalry is influenced by the following industry characteristics:
- A larger number of firms
- Slow market growth
- High fixed costs.
- High storage costs or highly perishable products
- Low switching costs.
- Low levels of product differentiation
- Strategic stakes are high.
- High exit barriers
- A diversity of rivals
- Industry Shakeout.