Competitive Intensity

by

Claudio Giachetti

• LAST REVIEWED: 22 August 2023
• LAST MODIFIED: 22 August 2023
• DOI: 10.1093/obo/9780199846740-0217

Introduction

Competitive intensity refers to the extent to which firms exert pressure on one another within a given industry, by attacking each other’s competitive position to increase their own performance at the expense of others’ performance. The competitive intensity among existing firms in an industry may manifest in a variety of forms, like price discounting, new product introductions, aggressive advertising campaigns, the offering of an increasing number of complementary services, among others. The intensity of competition can have a positive effect on an economic system as a whole, since a higher intensity forces firms to do better than their rivals, for example by introducing better innovations, with the aim to maximize their performance within the competitive environment. As a result, such a phenomenon usually leads to better products and services for consumers. However, the intensity of competition among firms in an industry could undermine their ability to generate profits, and highly competitive industries might discourage new firms to enter. Understanding the intensity of competition within an industry is important for many stakeholders. For example, it is crucial for new firms that are considering entering the industry and need to assess its attractiveness in terms of profit potential. It is also important for industry incumbents who may have to decide whether to increase their resources to sustain their performance or divest and enter into new industries. Furthermore, it is essential for national authorities and regulators, who are responsible for avoiding collusive behaviors among dominant players that could undermine consumers’ purchasing power. The purpose of this article is to present key themes that aid in understanding competitive intensity and to summarize relevant research works published on this topic, primarily in the management literature. In this way, it aims to assist students and academics in navigating this subject more effectively while developing their research work. Specifically, this bibliography is organized as follows. First, it discusses how the concept of competitive intensity has been examined across various streams of literature. It is worth noting that the focus of this article is on the competitive intensity among firms within an industry, rather than among a firm’s organizational units, subsidiaries, or employees. Second, it discusses the main antecedents of competitive intensity (i.e., those factors affecting the extent to which firms compete aggressively) presented by studies in the extant literature. Third, it discusses the main outcomes of competitive intensity explored so far in the literature in terms of firms’ performance and strategic responses to competition. Finally, it presents the main measurements of competitive intensity used by scholars to examine this construct empirically.

Competitive Intensity from Different Theoretical Perspectives

The concept of competitive intensity has been discussed across various streams of literature. The analysis below focuses on how competitive intensity has been examined the industrial organization (IO), strategic positioning, and competitive dynamics literatures. It is worth noting that, despite strategy scholars have often used the words competition and rivalry as synonyms, a growing literature distinguishes rivalry from competition, with a focus on the psychological factors of rival firms. For example, Kilduff, et al. 2010 argues that, while in models of competition, competitiveness is determined by the objective threat or the degree to which firms’ goals are in opposition (such that the gain of one firm comes at the loss of others), rivalry represents a subjective competitive relationship between two actors, involving heightened psychological engagement and perceived competition stakes for the focal actor. This subjective dimension of rivalry exists independently of the objective characteristics of the situation. Therefore, this understanding of rivalry captures the relational aspect of competition. However, in this bibliography, the distinction between the intensity of competition and the intensity of rivalry will not be emphasized. Instead, either term will be used depending on the prevalent wording used in the reviewed articles.

• Kilduff, G. J., H. A. Elfenbein, and B. M. Staw. “The Psychology of Rivalry: A Relationally Dependent Analysis of Competition.” Academy of Management Journal 53.5 (2010): 943–969.

  DOI: 10.5465/amj.2010.54533171

  This article distinguishes between structural competition and relational rivalry, both theoretically and empirically. Structural competition refers to a point in time where the significance of competitors is determined by the objective threat they pose to the focal actor’s goals. On the other hand, relational rivalry involves a specific opponent with whom the focal actor has a subjective relationship, independent of the current situation. It is a historical and ongoing relationship influenced by prior interactions, making it impossible to fully understand by solely examining the current situation.