Competition Demystified

Bruce Greenwald
Strategies are those plans that specifically focus on the actions and responses of competitors.
Operational efficiency is a tactical matter, not a strategic one.
Ch. 1 Strategy, Markets, and Competition
Strategic decision involve competitors. Tactical ones involve isolation.
The valuable resource is management attention, especially at high level management.
Strategic Choices
1. Arena of competition, the market it engages
2. Management of external agents, anticipate and control external agents
Differentiated products are not a barrier to entry, it will not protect you from the ravages of a highly
competitive market.
The market that Walmart first dominated was not discount retailing, but discount retailing within a
clearly circumscribed region.
Advantages are local and specific, not general or diffuse.
The key imperative in market selection is to think locally.
3 kinds of genuine competitive advantage
1. Supply: cost advantages, prop tech, patents
2. Demand: customer captivity, cost of switching
3. Economies of Scale
Two straightforward tests for competitive advantage:
1. Market share stability
2. High Returns on Capital
Ch. 2 Competitive Advantages I
Differentiation as a strategy doesnt work to escape competition
Its not lack of differentiation, but the absence of barriers to entry
With differentiated products, efficiency is a matter of production cost control and effectiveness in all
functions that underlie successful marketing.
A company in a differentiated market has to manage product devoplement, advertising, distribution,
sales, and do it all without wasting money.
If barriers to entry exist, then firms within the barriers must be able to do things that potential entrants
cannot, no matter how much money they spend or what they do.

As any family with children know, its far easier to buy kittens and puppies than drown them later.
Periods of oversupply last longer than periods in which demand exceeds capacity.
Production advantages are the weakest barrier to entry, and economies of scale with some customer
capitivity are the strongest.
In the long run everything is a toaster.
Captivity:
Habit, Switching Costs. Whenever a supplier has to learn a great deal about the lives, needs, and
preferences of a new customer, there is a switching cost involved for the customer, who has to provide
it, and well as a burden on the supplier to master it.
Search Costs
It is easier to upgrade with a current vendor even when not totally satisfied, because finding a better
one is costly and risky.
Chapter 3 Competitive Advantages II
Its not the absolute size of the firm, but the size relative to the rivals = market share. If average costs pre
unit decline as the firm produces more, smaller competitors will not be able to match the costs of the
large firm.
Its important for incumbents understand their competitive advantages and make sure their strategies
defend them.
The relevant market is the area geographic or otherwise-in which the fixed costs stay fixed.
The appropriate measure of economies of scale is comparative fixed costs within the relevant network.
The growth of a market is generally the enemy of competitive advantage based on economies of scale,
not a friend. The strength of this advantage is directly related to the importance of fixed costs. As the
market grows, fixed costs remain fixed. Variable costs, increase at least as fast as the market itself. The
inevitable results is that fixed costs decline as a proportion of total cost. This reduces the competitive
advantage provided by greater incumbent scale.
The auto market is no longer bounded by economies of scale once a manufacturer has a small
percentage of the market.
Most economies of scale are found in local and niche markets.
Amplifying switching costs is usually a matter of extending and deepening the range of services offered.