QS Study

Sources of Industry Rivalry among Established Companies

Industry rivalry or rivalry among existing firms – is one of Porter’s five forces used to determine the intensity of competition in an industry. If rivalry is fierce, then competitors are trying to steal profit and market share from one another.

Industry rivalry usually takes the form of jockeying for a position using various tactics (for example, price competition, advertising battles, and product introductions). A high intensity of competitive rivalry can make an industry more competitive and decrease profit potential for the existing firms. This rivalry tends to increase in intensity when companies either feel competitive pressure or see an opportunity to improve their position. In comparison, low intensity of competitive rivalry makes an industry less competitive. It also increases the profit potential for the existing firms.

In most industries, one company’s competitive moves will have a noticeable impact on the competition, which will then retaliate to counter those efforts. Customers, suppliers, potential entrants, and substitute products are all competitors that may be more or less prominent or active depending on the industry. Companies are mutually dependent, so the pattern of action and reaction may harm all companies and the industry.

Some types of competition (for example, price competition) are very unstable and negatively influence industry profitability. It is the nature of competition that firms will strive for advantage over their rivals. Other tactics (for example, advertising battles) may positively influence the industry, as they increase demand or enhance product differentiation.