Ecological Model of Competition

There have been many efforts to understand the market and find analogies to come up with new and improved strategies. People have tried their hand with Warfare theories and Art of War, relating with creatures like Dolphins, defining markets as Oceans and many more. Another such attempt is Ecological Model of Competition. It is important to understand market and its forces better to gain a perspective which finally facilitates us devise new and effective strategies.

The ecological model of competition is essentially a reassessment of the nature of competition in the economy. Traditional economics models the economy on the principles of physics (force, equilibrium, inertia, momentum, and linear relationships). This can be seen in the economics lexicon: terms like labor force, market equilibrium, capital flows, and price elasticity. This is probably due to historical coincidence. Classical Newtonian physics was the state of the art in science when Adam Smith was formulating the first principles of economics in the 18th century.

According to the ecological model, it is more appropriate to model the economy on biology (growth, change, death, evolution, survival of the fittest, complex inter-relationships, and non-linear relationships). Businesses operate in a complex environment with interlinked sets of determinants. Companies co-evolve: they influence, and are influenced by, competitors, customers, governments, investors, suppliers, unions, distributors, banks, and others. We should look at this business environment as a business ecosystem that both sustains, and threatens the firm. A company that is not well matched to its environment might not survive. Companies those are able to develop a successful business model and turn a core competency into a sustainable competitive advantage will thrive and grow. Very successful firms may come to dominate their industry (referred to as category killers).

This model can be used for better explanation and better understanding.