Recent research on multimarket contact — the partial overlap of two firms’ geographic or product markets — has stimulated new thinking about how and why firms put pressure on each other.1 Not surprisingly, overlaps put pressure on competitors and escalate the rivalry between firms in chess-like matches for control.2 But under certain conditions, overlapping markets can also create reciprocal threats that cause firms to reduce their rival-rous behavior.3 By exchanging footholds (moderate market share positions) in one another’s important markets, two firms can create “mutual forbearance” — a lesser propensity to attack each other with aggressive price, advertising or innovation wars for fear of damaging counterattacks in other important markets — and a greater inclination to seek growth in nonoverlapping markets.4
Most firms don’t do a good job of managing, through competitor and market selection, the pressure they experience. All organizations sense pressure intuitively, but it is often difficult to see the overall pressure system — a complex, shifting pattern of overlapping contacts among rivals that continually alters the climate of an industry by changing the incentives for players to compete, mutually forbear or even formally cooperate. Fortunately, these systems can be mapped and, unlike weather pressure systems, controlled to a significant extent if they are understood well enough.
Typically, the competitive pressure within... To read the complete article, login or sign-up using the form below.
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