Cut-throat competition is defined as the situation where competitors try to eliminate others from the business by using destructive practices. Take the example of current e-commerce industry. Almost every company is burning its cash pile just to attract customers and deprive other companies from business. For this, they offer heavy discounts, put up prices well below the cost thus compensating sellers from their pocket.
This is unsustainable in the long run and cannot be achieved infinitely. But, for the time being, this is the cut-throat competition going on in the e-commerce industry. This situation arises where there are too many sellers offering similar products and targeting same segment of customers. Hence, the only option for these companies is to eliminate others. Hence, they follow destructive or unfair practices.
Reasons for cut-throat competition
There may be several reasons for the companies to employ cut-throat competition. Some are mentioned here:
i. When there are seasonal drop in demand, then companies have to fight hard to retain their profit level. So, they predate on the business of other companies and engage in cut-throat competition.
ii. When there is persistent drop in demand due to change in technology or regulatory policy, companies often lose business which they haven’t thought of. Hence, they got no other option but to gather whatever is left from the market.
iii. When the entry barriers are low in the market, a new player with loads of investor’s money or disruptive innovation may enter which intimidate existing players. If the new player decides to play aggressive, then the result is often cut-throat competition
iv. When the supply exceeds in the market, then every player tries to clear its inventory and sell its products at very low prices which may also lead to cut-throat competition.
Hence, this concludes the definition of Cut-Throat Competition along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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