Hypercompetition

Hypercompetition is a relatively new term in strategic management, coined by Richard D’Aveni, professor of business strategy at the Amos Tuck School at Dartmouth College, in his book “Hypercompetition: Managing the Dynamics of Strategic Maneuvering.” In this book he defines hypercompetition as;

“an environment characterized by intense and rapid competitive moves, in which competitors must move quickly to build advantage and erode the advantage of their rivals.” Richard D’Aveni (1994: 217-218)

Hypercompetition results from the dynamics of strategic maneuvering among global and innovative combatants. It is a condition of rapidly escalating competition based on price-quality positioning, competition to create new know-how and establish first-mover advantage, competition to protect or invade established product or geographic markets, and competition based on deep pockets and the creating of even deeper pockets dalliances. In hypercompetitions the frequency, boldness, and aggressiveness of dynamic movement by the players accelerates to create a condition of constant disequilibrium and change. Market stability is threatened by short product life cycles, short product design cycles, new technologies, frequent entry by unexpected outsiders, repositioning by incumbents, and radical redefinitions of market boundaries as diverse industries merge. In other words, environments escalate toward higher and higher levels of uncertainty, dynamism, heterogeneity of the players, and hostility. Hypercompetitive behavior is the process of continuously generating new competitive advantages and destroying, obsoleting, or neutralizing the opponent’s competitive advantage.

Hypercompetition

It is not just fast-moving, high-tech industries, such as computers, or industries shaken by deregulation, such as the airlines, that are facing this aggressive competition. There is evidence that competition is heating up across the board, even in what once seemed the most sedate industries. From software to soft drinks, from microchips to corn chips, from package delivery services, there are few industries that have escaped hypercompetition.

As Jack Welch, CEO of General Electric, commented, “It’s going to be brutal. When I said a while back that the 1980s were going to be a white-knuckle decade and the 1990s would be even tougher, I may have understated how hard it’s going to get.”

There are few industries and companies that have escaped this shift in competitiveness. American corporations have traditionally sought established markets wherein sustainable profits were attainable. They have done so by looking for low or moderate levels of competition. Low and moderate-intensity competition occurs if a company has a monopoly (or quasi monopoly protected by entry barriers) or if competitors implicitly or explicitly collude, allowing each other to “sustain” an advantage in one or more industries or market segments. Collusion’s or cooperation, while it can be useful in limiting aggressiveness, is limited because there in incentive to cheat on the collusive agreement and gain advantage. Entry and mobility barriers are destroyed by firms seeking the profit potential of industries or segments with low or moderate levels of competition. Gentlemanly agreements to stay out of each others turf fall apart as firms learn how to break the barriers inexpensively. As competition shifts toward higher intensity, companies begin to develop new advantages rapidly and attempt to destroy competitors’ advantages. This leads to a further escalation of competitions into hypercompetition, at which stage companies actively work t string together a series of temporary movers that undermine competitors in an endless cycle of jockeying for position. Just one hypercompetitive player  (often from abroad) is enough to trigger this cycle.

At each point firms press forward to gain new advantages or tear down those of their rivals. This movement, however, takes the industry to faster and more intense levels of competition. The most interesting aspect of this movement is that, as firms maneuver and outmaneuver each other, they are constantly pushing toward perfect competition, where no one has an advantage. However, while firms push toward perfect competition, they must attempt to avoid it because abnormal profits are not at all possible in perfectly competitive markets.  In hypercompetitive markets it is possible to make temporary profits. Thus, even though perfect competition is treated as the “equilibrium” state in static economic models, it is neither a desired nor a sustainable state from the perspective f corporations seeking profits. They would prefer low and moderate levels of competition but often settle for hypercompetitive markers because the presence of a small number of aggressive foreign corporations won’t cooperate enough to allow the old, more genteel levels of competition that existed in the past.

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