Predicting Your Competitor's Reaction

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Predicting Your Competitor’s Reaction

To understand how competitors will respond to your next move, evaluate the situation in their terms – not yours.

Reaction by Kevin P. Coyne and John Horn

Predicting Your Competitor’s

will tell you that understanding how competitors will respond to your actions should be a critical component of strategic decision making. But ask that same person how seriously her company actually assesses competitor reaction, and she will probably roll her eyes. In a recent survey conducted by McKinsey & Company, two-thirds of strategic planners expressed a strong belief that companies should incorporate expected competitor reactions into strategic decisions. Yet in a survey conducted by David B. Montgomery, Marian Chapman Moore, and Joel E. Urbany (published in 2005 in Marketing Science), fewer than one in 10 managers recalled having done so, and fewer than one in five expected to in the future.

90 Harvard Business Review


April 2009


Alex Nabaum Art Credit


February 2009


Harvard Business Review 91

Predicting Your Competitor’s Reaction

and the result was a turnaround in the This disconnect arises because the IN BRIEF fortunes of the entire industry. We also only rigorous framework for explainwatched from the sidelines as a telecom ing rivals’ behavior – game theory – » Research shows that few compacompany failed to understand its rivals often becomes unmanageable in the nies actually undertake competitor and so paid too much for a new telecom real world. For a start, most game theanalysis seriously. That’s because license – a mistake that cost the comory models presume that all players use they find most approaches suspect pany $1 billion and contributed to its the basic principles of game theory – an or too complicated. bankruptcy within a few years. assumption that is manifestly false. Fur»…...

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