Competitor Orientation and the Evolution of Business Markets

Competitor orientation, i.e., the focus on beating the competition rather than maximizing profits, seems to thrive in business situations despite being, by definition, suboptimal for profit-maximizing firms. Our research explains how a competitor orientation can persist and even thrive in equilibrium in markets that reward only profits. We apply evolutionary game theory to business markets where reputation matters. We use three games that represent classic interactions in business marketing: Chicken to illustrate competition for product adoption, the Battle of the Sexes channel negotiations, and the Prisoners' Dilemma pricing battles. Initial populations are assumed to have both profit-maximizing managers and competitor-oriented managers i.e., those who gain additional utility from beating others. We demonstrate that a competitor orientation can survive in equilibrium despite selection that is based solely on profits. Using Chicken, we show that a competitor orientation thrives and can even overrun the population. We use the Battle of the Sexes to show that a competitor orientation will overrun one population in a two-sided negotiation e.g., all retailers in a retailer/manufacturer dyad. Last, using the Prisoners' Dilemma, we show that competitor orientation is not selected against. We conclude that evolutionary profit-driven selection pressures cannot be assumed to eliminate nonprofit-maximizing behavior even when selection is based purely on profitability.