Competitive Escalation Paradigm

Competitive Escalation Paradigm
Competitive escalation occurs frequently in managerial environments when decisions made create sunk cost as managers compete under time pressure. The competitive escalation paradigm affects most people, even the experienced managers, where they lose money by bidding more than the worth of what they get. Competitive escalation paradigm leads to biased information processing which leads to poor decisions within a business. Managers are often blinded by potential financial gain if a decision turns out right and high costs of ending a project, thus leading to escalation of commitment to a decision. A good example of competitive escalation is during the biding process where managers make the decisions to bid at higher prices than the value to avoid losing competitive advantage. If a bid starts at $1, there is a probability of it rising to $15-$16, thus leaving only two highest bidders. If one bidder offers $18, then the other either has to bid $19 or accept the loss of the bid ($15). Due to time pressure, they do not think over their choice as uncertain bidding option seems more attractive than the current state of loss (Hafenbrädl and Woike).

Competitive traps put a business at the mercy of a competitors pace. Competition creates a scarcity mindset, and managers get too busy to concentrate on what the competitors are up to. The traps rob a business of its potential. To avoid the competition traps, firms must focus on their processes and what they are doing other than what the competition is doing. Focusing on the competition makes businesses look sideways instead of forward, being more tuned in to competitor than to their clients. Businesses lose their initiative and innovation potentials when they play the game of their competitors. Businesses should not want to succeed to beat someone else but for the sake of achieving their set goals and objectives. An excellent example of a commodity trap is in the cell phone industry where Apple reduced its prices though offering higher quality products to consumers. Other companies would also be forced to reduce their prices to meet competitor or produce high-quality phones at lower prices than the competitor. It creates a competitive trap as the later focuses on what the competitor does forgo the objectives it might have on set revenue goals.

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