Operating under the radar in spheres of influence: Taking advantage of industry leaders’ market domains

Abstract

Industry leaders enact mutual forbearance by establishing spheres of influence where the dominant industry leader is bestowed market dominance in exchange for similar treatment in the spheres of the other industry leaders. Because of this, spheres of influence are markets with lower rivalry levels. Accordingly, non-dominant firms operating within them benefit from their favorable competitive conditions. The extent to which a non-dominant firm benefits from its location in spheres of influence varies according to the competitive tension perceived by the industry leader that dominates the sphere. Large and fast-growing non-dominant firms will generate competition tension. Consequently, the industry leader of the sphere could direct its hostility toward them, reducing the potential returns that they may obtain from operating in spheres of influence. Our analyses in the Spanish retail banking sector show that non-dominant firms operating under the radar of industry leaders benefit more from their presence within spheres of influence.