Why competition is often less fierce in growing markets

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In fast-growing markets, the pie is growing - everyone can grow

The competition between firms – and particularly price-based competition, where firms undercut each other’s prices – is often less in growing industries. In growing industries, all firms can acquire customers, potentially quicker than they are able to handle. Thus, there is no need to try and lure customers away from competitors so strongly – rather, all firms are often able to grow their customer base without intent price-based competition. 

In economics, this is referred to as the market being munificent – growing with new customers to be acquired. 

In stagnant or decline markets, companies fight over customers

The opposite case is true in stagnant or declining markets. In such instances there are no new customers to acquire – rather, you are looking to take customers away from your rivals. No firm wants to be on the decline, so there is constant pressure to obtain new customers. 

In such cases, competition is often a lot more fierce – and often involves price-cutting. You need to convince a customer to make the switch to your firm, and to do so likely involves providing a better or cheaper product than your competitors are offering.

But, recognize that there are situations where competition may be just as fierce in emerging markets

While it is often the case that competition is less in growing markets, it is not always the case. Particularly if it is seen that the market will likely ultimately be a winner takes all, where often due to strong network effects, only the largest firm survives, competition may be very fierce. In such cases, firms are fighting over the customers, not only to acquire that customer but because having that customer will make it easier to acquire the next ten or a hundred customers.

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