Cut-throat competition

Throat competition refers to the tendency of dominant companies and oligopolies to displace weaker competitors out of the market.

Demarcation

From cutthroat competition of the substitution is to be deferred, which is triggered by innovations. This displacement power to exercise the new products or services in the market place, is seen positively by economic agents in general. A recent example of a substitution competition in the sense of creative destruction is the progressive replacement of landline phone through the mobile phone.

Strategies

The strategy of a dominant firm in a cutthroat competition may consist of a price policy under cost ( dumping ) to prevent entry by other competitors or discourage participation in the competition.

Unlike in the cut-throat competition to expand their market position in a cut-throat competition one or more larger companies without their own risk. Particularly vulnerable to a cut-throat competition are industries where due to strong positive economies of scale - the threshold of market entry for new entrants is high - for example due to high fixed costs. In such situations, companies may reach a well-established monopoly position by predatory competition finally.

Examples

A well-known example of a cut-throat competition is the successful implementation of Internet Explorer from Microsoft against the then market leader Netscape Communications with its Netscape Navigator. The events in the years 1995-1998 are presented in the article browser war.