Gause’s Competitive Exclusion Principle and Mimicry in Business

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Gause's Competitive Exclusion Principle - Imitation and Mimicry in Business

Chameleons in business

We trace the principle behind competitive exclusion, its implications for industry dynamics and strategy, and a misconception about imitation and mimicry in business.

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Gause’s principle of competitive exclusion

Gause’s principle of competitive exclusion is a powerful and alluring insight, not only for biologists and ecologists, but for economists too. To borrow Garrett Hardin’s definition, it states, in brief, that “complete competitors cannot coexist”. That is, if two species come to “occupy precisely the same ecological niche… [and] the same geographic territory”, the species with the slightest advantage in environmental fitness will “completely displace” the other over geologic time (assuming all else remains unchanged). Put another way, “ecological differentiation is the necessary condition for coexistence”. The principle brings crowding-out to attention as different species compete for scarce resources.

As Charles Darwin put it in the Origin of Species:

“It should be remembered that the competition will generally be most severe between those forms which are most nearly related to each other in habits, constitution, and structure.”

Charles Darwin. (1859). On the Origin of Species.

Extinction, differentiation and complete competitors

Competitive exclusion may provide some clues into the dynamics of industry. Rarely, do we expect near-identical companies to coexist in the same economic territory for an indefinite period of time. Scorched-earth competition tends to generate a mix of failure and extinction, mergers and coalition, renewal and differentiation. Sometimes, with enough time and structural conditions, we see monopolies rise from the hotbed of competition.

I should emphasise that competitive exclusion is only a principle, and a deliberately ambiguous one at that. As Hardin puts it, “we still do not comprehend the exact limits of the principle”. What does it mean exactly to be a “complete competitor” or something close to one? While two species might share similarities, they’re likely to differ in genetic markers and/or environmental circumstance. Can we really expect to find complete competitors in biology or economics?

Competition and coexistence

Of course, similar companies can coexist in the sense that they’re separated by geography. This was especially true in the days before modern communications, transportation, and logistics. Yet, many enterprises and small businesses that remain in head-to-head competition appear to coexist as well.

A good example of this, I think, are the wall-to-wall dumpling houses in every city’s Chinatown. Indeed, competition is tough. When restaurants close shop, whether due to hardship, retirement, or a change of scenery, they’re swiftly replaced by promising newcomers. But the relative advantages of each restaurant remains small. And most of them lack the capital to expand beyond their initial remit. The resulting competition and coexistence appears remarkably stable.

It’s also true that each restaurant, no matter how similar, occupies its own ecological niche. I might prefer restaurant A because their staff is friendlier, and they make my favorite dish. You might prefer restaurant B for its ambience and larger sitting capacity. What’s more, their conglomeration adds to the culture and attraction of Chinatown. In this way, they’re not complete competitors, much in the same way luxury brands congregate amongst themselves in shopping districts.

Your most dangerous competitors

What’s more, economies are diverse. They generate plenty of niches for businesses to fill. After all, people have many wants. And there are many ways to meet those wants. Even K-Mart, Sears and Walmart differ in their segments and localities. As Professor Bruce Henderson sees it in The Origin of Strategy, “they may look alike, but they are different species”. That’s not to say there’s no competition between them. Rather, strategic and investment analysis requires an appreciation for “the complex web” of competition.

Henderson goes on to say that “your most dangerous competitors are those that are most like you”. He adds that “unless a business has a unique advantage…, it has no reason to exist”.  The professor highlights Texas Instruments as one example, which struggled in personal computing despite its prior leadership in semiconductors, integrated circuits and related instrumentation. Indeed, this is the prevailing view in most competition textbooks, that unique advantages are necessary for enduring value creation. In Good Strategy / Bad Strategy, Richard Rumelt attributes IKEA’s dominance, for example, to its unique chain-link system that other furniture retailers, designers, and manufacturers couldn’t replicate collectively.

Imitation, mimicry, and replication

A reading of Henderson’s paper may give the impression that imitation and mimicry is always undesirable. In many cases, this is true. Your company might commit millions to an incredible marketing campaign to differentiate its brand. But much of it is for naught if everybody else does the same. This is the Prisoner’s Dilemma of competition.

Where imitation is unhealthy, businesses must work hard to survive. A deeper, longstanding relationship with your customers, for example, might yield an advantage over customization and service delivery. Credible signals, like performance contracts and customer guarantees, can separate the good players from the bad.

Ultimately, though, success in imitable businesses depends on your company’s ability to execute consistently on temporary advantages, and to reach sufficient economies of scale before everyone else can.

Escaping the Prisoner’s Dilemma

But it’s wrong, I think, to assume that all imitable strategies are bad for business. Contrary to popular belief, some strategies actually become more effective if more competitors imitate it. Loyalty programs are one such example, as game theorists Adam Brandenburger and Barry Nalebuff elucidate in Co-opetition.

Yes, loyalty programs are expensive and uncomplicated. Anybody can do them. But when such programs are in play, each company now finds it more expensive to pry customers away from one another. In this way, imitation can raise customer switching costs, reduce incentives for price wars, and promote overall price stability. This in turn might allow management to focus more on product, experience, logistics and other modes of competition.

Loyalty programs, in a sense, allow competitors to divvy up the market. The ease of imitation allows businesses to circumvent the exclusion principle through differentiation on loyalty. Airliners and insurers, for example, use loyalty schemes to moderate success (although price competition on other fronts tend to destroy their earnings).

Optionality and redundancy

Another argument for healthy imitation is in the value of redundancy and optionality to customers. In contrast to biological systems, economic systems display greater aptitude for foresight and planning. Customers, enterprises and governments, for example, don’t want to be beholden to some monopolistic supplier or sole contractor in the future.

It follows that redundancy and alternatives are sometimes valuable to buyers. It’s not uncommon for purchasers to finance new suppliers as to promote their own bargaining power over the long run. From this vantage point, being a ‘complete competitor’ has some value in of itself. Second sourcing in manufacturing, for example, may give customers the confidence to trial your innovation, knowing they have a fallback should things go awry.

As Brandenburger and Nalebuff point out, not all imitation is harmful. Replication and mimicry can, under special circumstances, help to preserve stability and coexistence. What does this mean for Gause’s principle? Hardin’s reflection, I think, provides the right directive on the matter:

“To assert the truth of the competitive exclusion principle is not to say that nature is and always must be, everywhere, “red in tooth and claw.” Rather, it is to point out that every instance of apparent coexistence must be accounted for.”

Garrett Hardin. (1960). The Competitive Exclusion Principle.

References

  • Hardin, Garrett. (1960). The Competitive Exclusion Principle. Science, Vol. 131, No. 3409, pp. 1292-1297. Available at < http://faculty.washington.edu/stevehar/hardin1960science.pdf >
  • Henderson, Bruce. (1989). The Origin of Strategy. Harvard Business Review. Available at < https://hbr.org/1989/11/the-origin-of-strategy >
  • Brandenburger, Adam., & Nalebuff, Barry. (1996). Coopetition.
  • Rumelt, Richard. (2011). Good Strategy/Bad Strategy: The Difference and Why It Matters.
  • Darwin, Charles. (1859). On the Origins of Species. < Available online at https://www.gutenberg.org/files/1228/1228-h/1228-h.htm >

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