The core idea
Competition between a few large rivals is a sequence of moves. The moves that matter are commitments — investments in capacity, technology or position that are costly to undo and visible to rivals. A credible commitment shifts the game by changing your rival's best response: it can deter entry, pre-empt capacity, or force accommodation. Read every major move by asking what it locks in, what it signals, and how the rival will rationally counter. — after Ghemawat
The hero diagram
Reading a Rival Move
Walk any major competitive move — yours or theirs — through these gates before you commit capital.
Is the move reversible?
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Yes — easy to undo
Tactical move only — price tweak, promotion, talk. It signals intent but does not change the game. Watch, do not react with capital.
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No — sunk and visible
Does it change the rival's best response?
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Yes — alters their payoff
What is the commitment doing?
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Pre-empting capacity or position
Will the rival accommodate or fight? Accommodate if your commitment makes their entry or expansion unprofitable; fight if they have deeper pockets, sunk assets of their own, or strategic stakes that make retreat costlier than war.
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Raising rival's cost to compete
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Signalling toughness or softness
Is the signal credible? A signal is only credible when backed by something irreversible — capacity built, contracts signed, reputation staked. Cheap talk is ignored by rational rivals.
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No — symbolic
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Frameworks in this module
Named ideas to remember.
How to apply
Before committing capital in a concentrated market.
- Ask: is this reversible? If yes, it is tactics. If no, it is a strategic move that deserves the full analysis.
- Map the rival's payoffs. How does this move change what your rival will rationally do? Draw the game tree.
- Check credibility. Can you actually follow through on the implied threat or commitment? If not, the rival will call the bluff.
- Estimate the rival's sunk assets. A rival with large sunk investments may fight even when accommodation is rational on paper.
- Decide: deter or accommodate? Deterrence destroys value if it triggers a war. Accommodation can be rational if it preserves a profit pool.
Key reading · Casadesus-Masanell et al. · HBS Case 707-447
Airbus vs. Boeing (A).
The Airbus-Boeing duopoly from 1992 illustrates strategic commitment: capacity investments of $4-20 billion are irreversible, visible, and change each rival's best response for a decade. The case shows how to read whether to go alone (pre-empt the super-jumbo market) or collaborate, and how divergent beliefs about market size drive asymmetric commitments.
In a duopoly, every capital decision is a message to the rival. Make sure it says what you intend.