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Definition: Competitive Dynamics
Competitive dynamics is a term used to describe a gamut of actions and reactions of firms taking part in a competitive business environment. Individual competitive action becomes the key indicator of competitive dynamics as each firm enacts these actions in order to enhance its competitive advantage as compared to its competitors. The main motivation for studying this stems from the fact that strategy cannot be static which is something that Porter’s model often makes one believe given the importance given to industry forces determining the performance of firms. However it is often agreed now that business factors matter as much, if not more in determining how firms perform in any industry condition. Each firm takes certain actions which elicit responses from competitors which are then again countered leading to the competitive dynamics field. However competitive dynamics needs to be differentiated from competitive rivalry which exists when two or more firms try and garner favorable market position.
Competitive dynamics is often analyzed by understanding one’s competition. The most accepted model is to start with is the AMC (Awareness, Motivation and Capability) where awareness indicates managers’ understanding of competition followed by motivation to take on the competition and whether capability to implement counter strategy exists or not.
One of the best examples to study competitive dynamics is the current smartphone industry where the life cycle of products have become very less and each competitor is pushed to take competitive actions in response to others or become irrelevant in the market place. The AMC model is knowingly or unknowingly followed by each manufacturer as they determine the positioning of the phones.