Not responding to another firm’s competitive advantage
3 important questions on Not responding to another firm’s competitive advantage
What are some reasons a firm might not respond to another's competitive advantage?
Several factors may influence this decision:
- Own competitive advantage: Responding could compromise its own sources.
- Resource limitations: Lack of resources and capabilities to respond.
- Reducing rivalry: Engaging in tacit cooperation to minimize competition without direct communication.
What is tacit cooperation and how can it affect rivalry in an industry?
Tacit cooperation involves actions taken to reduce rivalry without direct communication. Benefits include:
- Minimized competition: Firms work together subtly.
- Improved outcomes: Can lead to supply reduction and price increases, known as tacit collusion.
What conditions must exist for tacit cooperation to be effective in an industry?
Effective tacit cooperation requires:
- Small number of firms: Easier coordination among competitors.
- Homogeneous products: Similar offerings create common interests.
- Market-share lead: Having a dominant position helps influence outcomes.
- High barriers to entry: Prevents new competitors from disrupting stability.
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