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Who are My Competitors? - Let the Customer Decide

35 Pages Posted: 17 Sep 2012  

Jun Li

University of Michigan, Stephen M. Ross School of Business

Serguei Netessine

The Wharton School, University of Pennsylvania

Date Written: September 17, 2012

Abstract

Many competitive industries find it challenging to identify their competition set, and despite the widely accepted importance of competition set to strategy development and daily operations, few data-driven approaches have been developed to address this challenge. In this paper, we propose a simple and intuitive methodology to identify true competitors from the customer perspective using online search and click-stream data. We use data from the hotel industry to build two competition networks: one based on our customer-centric approach, and the other based on price-matching patterns from the hotelier perspective. The customer-based competition network has an average degree of six to eight, consistent with the average number of competitors found in hotel managers surveys. Our approach also reveals a property of the competition network in hotel industry | small degree of separation. A hotel is connected with another within three steps of competitive links, which has important implications for how price perturbations travel through competitive links. Comparing the two networks, we find a 50% mismatch, with hoteliers tending to ignore independent and distant hotels while over-emphasizing branded and nearby hotels. This result is robust to many alternative measures of competition. Finally, this proposed methodology can easily be applied to many other industries to aid businesses in identifying their key competitors and to enrich our understanding of networked competition.

Suggested Citation

Li, Jun and Netessine, Serguei, Who are My Competitors? - Let the Customer Decide (September 17, 2012). INSEAD Working Paper No. 2012/84/TOM. Available at SSRN: https://ssrn.com/abstract=2147638 or http://dx.doi.org/10.2139/ssrn.2147638

Jun Li

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Serguei Netessine (Contact Author)

The Wharton School, University of Pennsylvania ( email )

3730 Walnut Street
Philadelphia, PA 19104-6367
United States
(215) 573 3571 (Phone)

HOME PAGE: http://www.netessine.com

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