How do you measure rivalry intensity among competitors?

Q: How do you measure rivalry intensity among competitors?

Key rivalry indicators:\n\n1. **Market share volatility**: Sum of absolute year-over-year share changes across top players. High = intense rivalry.\n2. **Industry HHI**: Lower HHI (more fragmented) tends to correlate with fiercer rivalry, though not always.\n3. **Price dispersion**: Wide price gaps for similar products indicate aggressive discounting.\n4. **Advertising intensity (A/S ratio)**: Rising ad spend as % of sales indicates competition for attention.\n5. **Capacity utilization**: Low utilization pushes firms to cut prices to fill plants.\n6. **Exit barriers**: Specialized assets, labor contracts, regulatory wind-down costs keep zombie competitors in the market.\n7. **Fixed cost intensity**: High fixed costs create pressure to cut prices to cover overheads.\n\nExample: Boreal Airways analyzes North Atlantic route competition. Market share volatility = 9.8% (high). Capacity utilization = 76% (below industry breakeven ~82%). A/S ratio rose from 2.1% to 3.4%. Three carriers have announced exits, but labor contracts and fleet lease commitments delay departures. Price dispersion for economy NYC-LHR = +/- 42% around median.\n\nAll signals point to intense rivalry — this is a value-destroying industry structure. Implication: discount the industry's historical ROIC as unsustainable; assume fade to cost of capital.\n\nContrast: premium whiskey distilling has low volatility, high utilization (aged inventory), low A/S (brand heritage does the work), and high exit barriers but through natural supply tightness rather than distress. Rivalry is benign and ROIC is sustained at 20%+.

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AcadiFi · Accepted Answer

Key rivalry indicators:

1. **Market share volatility**: Sum of absolute year-over-year share changes across top players. High = intense rivalry.
2. **Industry HHI**: Lower HHI (more fragmented) tends to correlate with fiercer rivalry, though not always.
3. **Price dispersion**: Wide price gaps for similar products indicate aggressive discounting.
4. **Advertising intensity (A/S ratio)**: Rising ad spend as % of sales indicates competition for attention.
5. **Capacity utilization**: Low utilization pushes firms to cut prices to fill plants.
6. **Exit barriers**: Specialized assets, labor contracts, regulatory wind-down costs keep zombie competitors in the market.
7. **Fixed cost intensity**: High fixed costs create pressure to cut prices to cover overheads.

Example: Boreal Airways analyzes North Atlantic route competition. Market share volatility = 9.8% (high). Capacity utilization = 76% (below industry breakeven ~82%). A/S ratio rose from 2.1% to 3.4%. Three carriers have announced exits, but labor contracts and fleet lease commitments delay departures. Price dispersion for economy NYC-LHR = +/- 42% around median.

All signals point to intense rivalry — this is a value-destroying industry structure. Implication: discount the industry's historical ROIC as unsustainable; assume fade to cost of capital.

Contrast: premium whiskey distilling has low volatility, high utilization (aged inventory), low A/S (brand heritage does the work), and high exit barriers but through natural supply tightness rather than distress. Rivalry is benign and ROIC is sustained at 20%+.

How do you measure rivalry intensity among competitors?

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