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Multipoint Competition An Overview of Enterprises Competing in The Multiple Markets

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					Top Ten Management on Multipoint
Competition: An Overview of Enterprises
Competing in The Multiple Markets

Introduction
        A big issue that firms face these days is multipoint competition. Multipoint competition
occurs when two or more enterprises encounter each other in different markets. In many instances,
firms choose to cooperate with their rival firms simply because this is the smartest and safest
approach. By cooperating, firms can hold each other in check and not allow one firm to gain a
competitive advantage over other. If a firm chooses not to cooperate with their rival firm, several of
their own markets may be affected in a negative way. The short term gains may be good, but in the
end, the long term effects will be costly.
The Idea in a Nutshell
Multipoint competition, also known as multimarket competition, occurs when firms meet the same
rivals in multiple markets. It is widely theorized that this will affect the intensity of competition,
ultimately leading to cooperation or mutual forbearance between both competitors. The idea that
firms will be less competitive if they meet in multiple markets is attributed to Simmel (1950) and
Edwards (1955). Multipoint competition occurs widely throughout the business world. The most
common markets multipoint competition occurs in are airlines, hospitals, banks, hotels, and
computer software companies. In spite of the evidence that multimarket competition leads to mutual
forbearance, it is still not totally conclusive. Research is continually being done each and every day
to prove this relationship.
The Top Ten Things You Need to Know About Multipoint Competition
1.        The automotive industry is a good industry to measure the effects of multipoint
competition. The industry has consolidated to 12 major independent producers which operate
across a number of different geographical markets. The auto industry consistently encounters
competitors in the same market so this gives economist ample amounts of data to study.
2.       Many of the top economists consider multipoint competition to be a negative thing.
However, studies are not conclusive that multipoint competition hurts the competitiveness of the
market that both firms engage in.
3.       One of the negatives that may arise from multipoint competition is a theory known as
mutual forbearance. Mutual forbearance is when firms support collusion across a range of markets
because they recognize their interdependence.
4.      A leading economist on multipoint competition was a man by the name of Corwin D.
Edwards. Edwards wrote many books and also is credited for helping write a principles textbook
named Economic Behavior.
5.        A main reason why firms tend to be less aggressive in multipoint competition is because if
a firm retaliates in one market, retaliation may occur in all the markets in which the firms
simultaneously compete. Basically, it is just smarter to play it safe sometimes rather than to risk the
well being of many markets at one time.
6.       One thing a firm must take into consideration when engaging in multipoint competition is
whether or not to cooperate in all the markets in which it simultaneously participates with its
competitor or to go against them. Firms must consider the short term gains as well as look at the
long term gains. Many times cooperation is the safest action.
7.        Many people would think that the state of the economy would have a huge influence on
whether or not firms decide to cooperate with one another in the same market. However, studies
have shown that the state of the market has little influence on whether firms decide to cooperate or
not. This is still being widely debated though.
8.       In certain cases, multimarket contact can increase the level of competition between firms.
A firm’s strength in one market may hurt the other firms business in another market. This
consequently leaves the other firm no choice but to compete or suffer huge losses.
9.       In order for firms to engage in multimarket interactions, they must be aware of
multimarket interdependency and have the motivation to do so. This means that firms must be
aware of each other’s companies activities and then managers can make a decision from there to
cooperate or not.
10.         In certain organizations, cooperation is more likely to occur in multipoint competition.
One such organization is hospitals. Most of the time hospitals cooperate with one another because
this effectively is better for the hospitals as well as the people it serves each day.
The Video Lounge
http://www.youtube.com/watch?v=Lgz8ZVp4lT4
This is a short video on why competition is important in all aspects of life including the business
world.
My Take
        Multipoint competition is becoming a widely talked about topic today simply due to the fact
that firms are continually competing with each other in various markets more than ever. All of the
major industries engage in multipoint competition and they all handle it differently. I believe that
the smartest way to handle multipoint competition is to simply cooperate with rival firms. The long
term gains outweigh the short term gains. Not cooperating is simply just too risky. Many firms these
days have wisely adopted this approach. Others argue that competition is necessary to the growth
and development of certain markets. I feel that there is room for both approaches in the business
world and it all really just depends on the situation.
References
(6/28/2010). Multimarket contact. 9/29/10. http://en.wikipedia.org/wiki/Multimarket_contact
Jaime Gomez. (04/06/2006). Multimarket competition, foothold strategies and performance.
10/01/10. http://www.ivie.es/downloads/ws/bf/2006/04/06/ponencia01.pdf
John Stephan. (July-Aug 2003). Bringing managers into theories of multimarket competition.
10/2/10. http://orgsci.journal.informs.org/cgi/content/abstract/14/4/403
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
This overview of Multipoint Competition was prepared by Seth Bourgeois while an Accounting
major in the College of Business at Southeastern Louisiana University.To contact the author of “Top
Ten Management on Multipoint Competition: An Overview of Enterprises Competing in the
Multiple Markets,” please email Seth Bourgeois at Seth.Bourgeois@selu.edu.
This document has been initially released under Creative Commons licence by David C. Wyld
(dwyld.kwu@gmail.com), Professor of Management at Southeastern Louisiana University in
Hammond, Louisiana. For details on the licensing terms click here:
http://creativecommons.org/licenses/by-sa/3.0/

				
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