Forecasting the development of a pursuit race between competitors

Abstract

PurposeThe purpose of this paper is to present a method of forecasting the development of the market shares of competitors in a pursuit race.Design/methodology/approachThe statistical concept of co‐integration is applied to a state space model in order to operationalize the pursuit race in competition. Two time series served as data input for the designed model. They document the development of the monthly market shares of German savings banks and German cooperative banks with respect to the end‐of‐month volume of non‐bank deposits.FindingsThe analysis of the competition between the two bank groups proves that the development of their market shares is co‐integrated in the shape of a long lasting pursuit race. Therefore, the forecasts of the changes in market shares are very accurate and reliable.Practical implicationsWith the help of such a statistical analysis, a competitor is able to monitor the development of competition effectively to forecast the changes that are to be expected. Thus, the method described here helps the firm to react in time to the movements of its competitors.Originality/valueThis paper is an important contribution to gain insight in the quantitative dynamics of competition according to co‐integration by the parameters of state space model.