The Many Faces of Competition

Abstract

Despite a great deal of theoretical research on competition, there has been limited empirical work assessing the type of competitive interaction that actually exists in the marketplace. The empirical work that has been conducted has suggested that there is significant variation in the type of competitive interaction across categories and across marketing instruments. Consequently, the central objective of this paper is descriptive in nature—what does competition look like? Focusing on the competition that exists across strategic groups (Porter 1985), we categorize competitive interaction between private labels and national brands for each of 58 categories and four marketing instruments. Specifically, we look at five types of competitive interaction. Three, cooperative, non-cooperative, and independent (Nash) are symmetric in nature, while two, leader-follower (Stackelberg) and dominant/fringe-firm, are asymmetric. The empirical results suggest that general comments or assumptions about competitive interaction can produce very misleading conclusions. There is no consistent pattern of competition that exists between private labels and national brands across categories. Further, the pattern of interaction is quite complex, while there is likely to be a significant variation across instruments within a category. National brand leadership is the most common form of interaction for each marketing mix variable. However, it characterizes only 19 out of 58 categories for regular price, and 16, 19, and 15 out of 58 categories for temporary price reduction, feature and display, respectively. Further, the interaction is idiosyncratic to the category, depending heavily upon the demand and competitive characteristics of the category. Implications for both game theorists and for managers are explored.