Competition Theories Compete

OUTLINE

INTRODUCTION:

Competition Theories Compete

It is never doubted by academic circles and business environments that the strength of competitive analysis, if not the top, is one of the most important critical success factors in creating and managing marketing strategies. The way a business adapts to competitive environments, characteristic of its focus being self-centered, competitor-centered, customer-driven or market driven (Day and Nebugandi, 1994), will define its place in the complex marketing arena.

However, different theories of competition seem to compete in offering better explanations for key macro and micro phenomena. In this paper, we attempt to review the different perspectives on The Comparative Advantage Theory of Competition by Hunt & Morgan. As well as the new light that the theory brings to competition environment and its differences from the neoclassical competition theory, the limitations of the proposition will be discussed.

A NEW APPROACH TO COMPETITION:

Comparative Advantage Theory of Competition (CATC)

Hunt and Morgan’s CATC is drawn on the evolving resource-based theory of competition, the studies on marketing and industrial organization economics, the theory of competitive rationality form Austrian economists and the theory of differential advantage from marketing and economics. (Hunt, Morgan, 1995) The theory claims to bring a new explanation to the relationship between marketing strategies and economical theories.

The theory underlines the fact that the markets are always dynamic and suggests that there will be no economic growth if the market equilibrium is reached. Disequilibrium is accepted as a norm for CATC, as a result of which, continuous innovation and higher high quality of goods & services are produced. Firms struggle to achieve comparative advantages by optimizing their tangible and intangible resources in order to gain competitive advantage. In CATC-defined market, consumers’ preferences, products and resources are all unique and therefore firms have to adapt to different marketing strategies and compete with different competitors. Thus, firms observe competitive advantages and disadvantages, where the parity state belonging to static command markets are never observed.

As seen in Figure 1, CATC suggests that, firms have to manage and optimize resources, tangible and intangible, in order to gain comparative advantage over their competitors. Comparative advantage provides the firms to gain market positions that

possess competitive advantage which will aid the firms in reaching their absolute goal: superior financial performance. The arrows depict a continuous marketing management process that fit with the dynamic nature of CATC competition.

A COMPARISON:

CATC & Neoclassical Theory of Perfect Competition (NTPC)

One might summarize that CATC differentiates itself from the classical view by the following four qualifiers: innovative, bountiful, high quality and rich diversity. Table 1 illustrates the differences between the two theories according to ten major variables. The only similarities between CATC and NTPC are that they both accept the firms as input combiners and humans as motivated by self-interest. (Deligцnьl and Зavuюgil, 1997)

As the neoclassical theory translates as perfect competition with homogeneous firms, resources, consumer preferences and products, the firms’ objective is to maximize profit and the role of management is to only implement the production function. In this static market, the resources are only tangible and consumer information is perfect and costless. Therefore, the concept of competition in NTPC only covers quantity adjustment.

However, CATC, with its dynamic market definition, covers various competitive perspectives: resource-based view, market-based view, knowledge-based view, and relational-view etc. Resources are heterogeneous and include intangible assets like information and relations. Products