Competitive Reactions and Modes of Competitive Reasoning: Down-Playing the Unpredictable?

Competitive Reactions and Modes of Competitive Reasoning: Down-Playing the Unpredictable?

By Joel E. Urbany, David Bruce Montgomery, Marian Moore
2001Working Paper No. 1707

Although prescriptive models of strategic decision-making abound, little is known about how managers actually reason about competitors when they make decisions. Recent empirical research describes how/why rivals react to a firms past actions, but stops short of examining whether managers attempt to predict such reactions. We suggest that when managers factor competitors into a decision made at time t, three generic modes of competitive reasoning are available to them: they may (1) ignore competitors, (2) extrapolate competitors most recent behavior into the future, or (3) try to anticipate future competitive reactions to their own move. Our focus is on the third type of competitive reasoning, which we expect to be rare. We examine competitive reasoning in two settings, with managers providing open-ended accounts of past and/or future decisions. The results suggest that the incidence of anticipatory or strategic thinking is surprisingly low. A follow-up assessment of these results by experienced managers (including competitive intelligence experts) suggests that any type of competitive reasoning is limited by the difficulty of obtaining competitive information and the attendant uncertainty in predicting competitor behavior. More importantly, limited anticipatory thinking about competitors is attributed to the dominance of more quantifiable, justifiable (typically internal) factors in decision-making. Further, perceptions of low returns to competitive anticipation were found to substantially dominate perceptions of cost financial, cognitive, and time- as reasons why managers rarely utilize strategic competitor thinking.