Competition

competition
New answer on Jul 14, 2020
8 Answers
1.6 k Views
Anonymous A asked on Jul 13, 2020

Hello community,

Why is a fragmented competitive landscape usually prefered over a concentrated one?

(edited)

Overview of answers

Upvotes
  • Upvotes
  • Date ascending
  • Date descending
Best answer
Sidi
Expert
updated an answer on Jul 13, 2020
McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 350+ candidates secure MBB offers

Hi!

I'm no sure I agree with the basic premise of your question ("a fragmented market structure is usually preferred over a concentrated one").

The question is how easily an entrant could reach a strong market position. Usually, it is easier to grab a sizable chunk of the market demand if there are fewer competitors (especially when you have a clear USP), and it is harder if the competitive intensity is very high and there are many granular players. It is much easier to get, say, 5% market share if you only have 2 or 3 players in the market, as opposed to a situation with dozens of competitors, where 5% market share would be equivalent to becoming a leading player immediately (usually not very realistic). However the context might also reverse that rationale. One thing you have to check for example is whether there is an Oligopoly structure which has erected market entry barriers (e.g., created lock-in effects for the customers). In this case it might become very hard to break this Oligopoly.

So in summary – if there are fewer competitors and there are no fundamental entry barriers, then this is a much better scenario then a granular market with dozens of competitors.

Cheers, Sidi

(edited)

Was this answer helpful?
Anonymous replied on Jul 13, 2020

Hi,

It highly depends on the constraints that your client has.

Competitive market with numerous players would usually signal that the entry barriers are not high but it will be more difficult to reach a high market share.

Concentrated market would usually signal that there are high entry barriers but once you manage to overcome it you can get a higher share.

Conclusion: without understanding of a particular client situation any piece of advice is useless.

Best,

Anton

Was this answer helpful?
6
Robert
Expert
Content Creator
replied on Jul 13, 2020
McKinsey offers w/o final round interviews - 100% risk-free - 10+ years MBB coaching experience - Multiple book author

Hi Anonymous,

Tactically speaking from thousands of cases I saw in my life, in a simplified case interview world a fragmented competitive landscape is usually preferred because it's easier to enter a market without well-established dominent players who can easily force you out of the game.

Howerver, above is just tactical advice valid for most interview cases - but in reality you need to think and analyse the landscape in more detail to understand whether a fragmented or concentraed landscape is preferred. Let's just think of a simple scenario in which you have a couple of huge well-established players, however with an outdated business model from previous century - if for example you can fundamentally change your competitive position with technology, it might be easier to handle a few big competitors and attack them on their weak points, than many small ones. Just one example - so don't use general statements but rather push yourself to think about the specific situation at hand!

Hope that helps - if so, please be so kind and give it a thumbs-up with the green upvote button below!

Robert

Was this answer helpful?
Clara
Expert
Content Creator
replied on Jul 13, 2020
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

First of all, it´s a big dangerous, without other context, to state something like that in general terms.

However, it´s true that, in most cases, fragmented markets are easier to penetrate (e.g., groth cases, new product launch, etc.) than concentrated ones.

When there is one/two big big players that dominate the industry, they are very well stablished and it´s more difficult to gain access. However, when they are many many little/smaller players, "enemy" is divided and it´s easier to find the entry way.

Hope it helps!

Cheers,

Clara

Was this answer helpful?
Anonymous replied on Jul 13, 2020

Fragmented usually means there is no clear market leader, which is most likely the case if the Competitive landscape is concentrated.

It also implies any one competitor cannot influence market pricing.

There is room for consolidation between players to become more efficient.

Was this answer helpful?
2
Francesco
Expert
Content Creator
replied on Jul 14, 2020
#1 Coach for Sessions (4.500+) | 1.500+ 5-Star Reviews | Proven Success (➡ interviewoffers.com) | Ex BCG | 10Y+ Coaching

Hi there,

There are several reasons why you may want to target a fragmented market. You would have:

  • Weaker reaction of competitors - think about the probability of starting a price war in a fragmented market vs concentrated
  • Lower barriers to entry - at least most of the time
  • More space to get market share from weak players - which by definition are fewer in a concentrated market
  • Higher likelihood to find niches where you can expand – offering future growth opportunities

This doesn’t mean a fragmented market is always better though. You could have

  • Continuous competition due to the low barriers (eg restaurant industry)
  • Weak direct competition but strong substitutes (eg apartment owners vs hotels chains)

Also, if your product is extremely innovative, a concentrated market could be better. You could attack the big player directly and steal most of its market share through its weak points (eg digital banking vs traditional banking). However, extremely innovative products are not the standard. Moreover, the competitors' reaction could kill the profits of the market – or you!

Best,

Francesco

Was this answer helpful?
Anonymous replied on Jul 14, 2020

Dear A,

Fragmented competitive landscape is preferred over a concentrated, because there are more smaller players, the competition is mre fare and you could easily increase marketure in this segment compare to the concentrated one, where companies are in a sort of oligopoly. Therefore it's better to have fragmented competitive landscape.

Best,

André

Was this answer helpful?
0
Axel
Expert
Content Creator
replied on Jul 14, 2020
Bain Consultant | Interviewer for 3 years at Bain |Passionate about coaching |I will make you a case interview Rockstar

Hi

If I were to generalize:

1. Fragmented markets:

- More competitive, lower profitability

- Low barriers to entry

2. Consolidated markets

- Less competitive pressure, higher profitability

- Typically high barriers to enter

If you are already in the market, you would prefer to be in a consolidated one because you will be more profitable all things equal and you are protected from the competitive pressure of new entrants. If you want to enter a market, a more fragmented market may be more preferable assuming you have a feasible way to consolidate the market / gain market share.

-A

Was this answer helpful?
Sidi gave the best answer

Sidi

McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 350+ candidates secure MBB offers
429
Meetings
5,823
Q&A Upvotes
78
Awards
5.0
134 Reviews
How likely are you to recommend us to a friend or fellow student?
0
1
2
3
4
5
6
7
8
9
10
0 = Not likely
10 = Very likely