Youre well informed about the dynamics of competition response and the evolution of markets, but have you ever thought about how the two might affect each other?
In this chapter, Hubert Gatignon, the Claude Janssen Chaired Professor of Business Administration and Professor of Marketing at INSEAD, and David Soberman, Assistant Professor of Marketing at INSEAD, do just that, reviewing the major areas of research relating to competitive response and market evolution and developing a conceptual framework that considers the interactions between the two.
Marketing literature, they find, has two streams of researching concerning competitive dynamics: the first stream is population ecology, which examines the exit and entry of competitors and provides explanations for market evolution drawn from a supply side perspective. The second stream considers competitive reactions between firms and brands competing in single or multiple markets.
The authors analyze existing work in the field. They first focus on research analyzing the decisions made by firms that either increase or reduce competition, placing emphasis on the impact of firm entries and exits over time. Then, they examine the characterization of competitive reaction patterns. Past research has primarily examined competitive response by studying how firms react to initial actions (product, price or marketing mix) taken by competitors. In general, this research has focused on well-established markets.
Next, Professors Gatignon and Soberman turn to the literature concerned with market evolution. Much of this work considers the evolution of markets as primarily predetermined by demand and it focuses on the diffusion and growth approach or on the analysis of market structure. Little reflection has been given to how the strategic decisions of firms shape the development of markets and vice versa.
Finally, Professors Gatignon and Soberman look at work done on the interactions between competitive responses and market evolution, initially discussing how some competitive actions can explain the evolution of markets, then evaluating how these competitive responses depend on market evolution itself. They also examine literature that considers how environmental or exogenous factors (such as regulation and technology) can affect both market evolution and competitive dynamics.
This chapter, a part of Barton A. Weitz and Robin Wensleys Handbook of Marketing (London: Sage Publications), offers a cogent review of literature in the field and identifies directions for future research. It will be invaluable in classroom and thought provoking for the marketing professional.
Sage Publications, 2002