• The Four Arenas Price / Quality[edit] In his book Competitive Strategy, Michael Porter stated that there are only two basic competitive advantages, and thus only two main
    generic strategies: cost leadership and differentiation, and further, that attempts to achieve both at once will result in doing neither well.

  • It also pays when firms have the resources to generate a series of many temporary advantages at a rapid pace, relentlessly rolling out new products, price cuts, marketing
    campaigns, or similar actions designed to create superior value for customers, confuse rivals, and disrupt, destroy or neutralize the core competency of an opponent.

  • “For instance, competitors can use mergers and acquisitions to develop equally-matched or even deeper-pockets… Alternatively, franchise and partnership arrangements can neutralize
    the [deep pocket] advantages… And, large firms always face the potential of an anti-competitive government legal action.

  • [9] According to D’Aveni’s model, competition unfolds in a series of dynamic strategic interactions in four arena’s: cost/quality, timing and know-how, strongholds, and deep

  • If any firm takes significant market share in a specific geo-product position, it has created a stronghold which it will attempt to protect using its own barriers to entry.

  • [22] The nature of competitive advantage[edit] National oligopolies and their long-term sustainable advantages were destroyed by foreign competition, an influx of technology
    and other disruptive forces that made it difficult to sustain competitive advantage.

  • Conventional views say that large firms have several deep pocket advantages including a wider margin for error, global or national reach, political power, market power, and
    financial clout.

  • Even though many of these timing and know-how advantages appear in Porter’s five forces as static barriers to entry, hypercompetition urges potential entrants to use these
    advantages to destroy, neutralize or moot the strengths of rivals.

  • [14][13] Competition in the first arena, price/quality, occurs via seven dynamic strategic interactions: price wars, quality and price positioning, “the middle path”, “cover
    all niches”, outflanking and niching, the move toward an ultimate value marketplace, and escaping from the ultimate value marketplace by restarting the cycle.

  • For example, Hypercompetition includes undermining the core competence of industry leaders, building off of one’s weaknesses to create surprise, and to circumvent entry barriers,
    making them moot.

  • “[14][failed verification] Starting with the conventional view, D’Aveni suggests that firms can derive advantage through a larger resource base and superior concentration
    of focus to crush a smaller competitor through brute force.

  • In addition, the knowledge may be the know-how associated with a new method of doing business that allows the firm to create an entirely new product, market, service or business

  • [26][27][28] Market share erosion and dethronement of market leaders have been found to be more frequent over time, indicating that even the most established and profitable
    players are experiencing a loss of competitive advantage.

  • By plotting price vs. quality for various marketing strategies, it is possible to plot the movements of different firms, creating a multidimensional view of the overall market.

  • The competitive advantage of established industry leaders has become shorter over time and more likely to erode in several studies.

  • [8] In D’Aveni’s conceptualization of hypercompetition, the only source of a truly sustainable competitive advantage is a company’s ability to string together a sequence of
    temporary advantages.

  • The traditional approach leaves a rival intact and manages competition to keep its level down to a slower speed and reduce the aggressiveness of rivals, behaviors which support
    existing oligopolies.

  • [13][14] D’Aveni’s price-quality mapping not only subsumes Porter’s strategic groups, allowing not only for “within-segment positioning” but also “between-segment position”,
    where nearby clusters can begin to directly or indirectly compete with firms that previously were not direct competitors.

  • Firms manage their dynamic strategic interactions with competitors by means of frequent movements and counter-movements that maintain a relative position of strength in each
    of four arenas.

  • They include the many significant benefits of a competitive aggressive approach.

  • D’Aveni’s strategic interactions, on the other hand, posit strategies for jumping over or slipping under or going around entry barriers, so that even in the presence of strong
    entry barriers, incumbent firms should not feel safe.

  • [22] L. G Thomas found evidence that over time, the within-industry variance of profits increased, suggesting that the positive relationship between rivalry and industry performance
    is partially due to a few firms that have the resources to master the art of hypercompetition.

  • In Porter’s concept of “five forces””, entry barriers are present or not, and if present, reduce the threat of new entrants coming into the industry to increase competition.

  • Firms can establish détente using oligopolistic behaviors with a select group of competitors so that they can free up resources to hypercompete against different rivals or
    to grow into new markets.

  • The first mover then adopts a strategy of leapfrogging innovations, building on large technological advantages that require entirely new resources and know-how.

  • [10] D’Aveni’s model about spheres of influence and the balance of power explore a whole new level of competition.

  • The third level is hypercompetition’s contribution to knowledge-based theories of competitive advantage.

  • Consistent with L.G Thomas’ within-industry findings, competitive aggressiveness pays for firms with the proper resources – such as technological know-how, and dense networks
    of reliable partners and suppliers.

  • Hypercompetition, a term first coined in business strategy by Richard D’Aveni,[1][2] describes a dynamic competitive world in which no action or advantage can be sustained
    for long.

  • [9] The strongholds arena offers a substantive set of options for addressing the entry barriers once capable of providing long-term competitive advantages.

  • This graph illustrates many of the dynamic principles in hypercompetition including movement towards the ultimate value (lower right hand corner), and how Apple built momentum
    toward it.

  • “[21] The strategic interactions in this arena include “drive ’em out,” using the courts or Congress to derail the deep-pocketed firm, large firm thwarting the antitrust suit,
    small firms neutralizing the advantage of the deep pocket, and the rise of a countervailing power.

  • Stakeholder strategy[edit] The Five Forces Model/oligopoly theory of strategy promotes friendly relations with rivals to prevent competition or slow it down.

  • For example, in the 1990s, the American car companies generally did not compete aggressively against each other so that they could focus on competition against Asian rivals.

  • [31] Firms that are flexible and able to bear the costs of aggressive actions become winners but the costs of aggressiveness can increase as the pace of competition intensifies.

  • [14] This arena also implies that all knowledge, even the skills to invent a new business model and the skills needed to be a first-mover or follower, erodes with hypercompetitive

  • It is a state in which the rate of change in the competitive rules of the game are in such flux that only the most adaptive, fleet, and nimble organizations will survive.

  • Knowledge/know-how is commoditizing faster and first-mover advantages are eroding more quickly as well.

  • [4][13][15] Because different segments of a market may view primary quality differently, it is sometimes best to perform price/quality analyses for different segments.

  • [29][30] The relationship between rivalry and performance[edit] Hypercompetition suggests that increased rivalry leads to higher performance while oligopoly theory / The Five
    Forces Model suggest that decreased rivalry is associated with higher performance.

  • [3] Often a hypercompetitive market is triggered by new technologies, new offerings, and falling entry barriers that cause market leaders to be dethroned, causing standards
    and rules to be in flux.

  • [9] A knowledge advantage includes the technology underlying the product, knowledge about customers, the skills that underlie each stage of a firm’s value-added chain, as
    well as the specialized knowledge that underlies culture, and expert knowledge of physical and digital assets.

  • [5] In later work studying the technology sector in particular, the same authors suggest that hypercompetition may be linked to the industry life cycle.

  • Porter’s model represents established firms on the defense.D’Aveni’s model represents outsiders seeking to get in or to grow their positions.

  • An aggressive series of actions also delays rival responses and creates temporary monopolistic positions, allowing firms to charge premium prices and earn higher profit margins.

  • Hypercompetitive markets are also characterized by a “quick-strike mentality” to disrupt, neutralize, or moot the competitive advantage of market leaders and important rivals.

  • Other definitions of quality are considered secondary qualities which can be used to redefine the primary quality and create a new playing field.

  • [21] Hypercompetition vs traditional strategy Hypercompetitive strategy differs from The Five Forces Model/oligopoly theory of strategy in at least four distinctive ways.

  • Primary quality is determined by what is most important to consumers.

  • The winning companies are the ones that successfully move up the ladder of escalating competition, not the ones that lock into a fixed position.

  • The best entry barrier, he argues, is maintaining the initiative, not mounting a defensive attempt to exclude new entrants.


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Photo credit: https://www.flickr.com/photos/photographybycolby/14166797345/’]