Market Commonality vs. Resource Similarity
Market commonality has to do with the number of different markets that the firm and the competitors are jointly involved with. It also pertains to the degree of importance of the individual markets to each. There are many firms competing against one another in many markets and this engages them in multimarket competition. Firms with more multimarket contacts is less likely to initiate an attack, but more likely to respond aggressively when they are attacked. The degree of multimarket contact between two firms determines whether they are direct and immediate competitors. Resource similarity refers to how comparable the firm’s tangible and intangible resources are to a competitor’s in terms of both types and amounts. Firms with similar types and amounts of resources are likely to have similar strengths, similar weaknesses, and use similar strategies. Assessing resource similarity can be difficult if critical resources are intangible rather than tangible. Two firms will recognize their competitive relationship if they compete in the same markets and develop comparable market personalities. In a competitive situation, a firm has to be motivated to act or react, regardless of its capability (Chen, 2004). Motivation is a necessary condition and prereq for behavior, and is a more direct predictor of interfirm rivalry than is capability (Chen, 2004). These two concepts are the building blocks for a competitor’s analysis. This analysis is used to help firms understand their competitors. The firm will study the competitor’s future objectives and current strategies. By doing the competitor analysis, firms are able to predict the competitor’s behaviors when forming their competitive actions and response. If you line the two side by side, market commonality and resource similarity coincides with one another when putting a competitor analysis together. Traits from both area allow all necessary information to be analyzed and compiled into a complete analysis.