will respond to your next move, evaluate the situation in their terms-notyours.

To understand how competitors

PredictingYour Competitor's Reaction

by Kevin
P Coyne and

John Horn

F x

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Any executive will tell you that understanding how competitors will respond to your actions should be a critical component of strategic decision making. But ask that same person how seriously her company actualy assesses competitor reaction, and she will probably roll her eyes. In a recent survey conducted by McKinsey & Company, twothirds of strategic
planners expressed a strongbeliefthat companies should incorporate e4pected competitor

game theory models become unwieldy when a competitor has many options, when the strategistis unzure which metrics his rival will use to

evaluate them, or when there are multiple competitors, each of whom might react differ-

ently. But when strategists instead use ad hoc predictions or war-gaming exercises, the
analysis can become alrnost entirely arbitrary. The number of qualitative considerations that enter the predicrion proces-personal biases and hidden agendas, for example-risk rendering the results suspect and make senior management more likely to reject counterintuitive results.

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reactions into strategic decisions. Yet in a suwey conducted by David B. Montgomery Marian Chapman Moore, andJoel E. Urbany

(published

in

zoo5

in

Marketing Science),

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I

fewer than one in ro managers recalled having done so, and fewer than one in five expected

over the past few years, as we have led McKinse/s efforts on modeling competitive
behavior, we have worked with many companies to predict lftely reactions to their strate' gic moves. Through that work, and through a

to in the future.
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This disconnect arises because the only rigorous framework for explaining rivals'
behavior-game theory-often becomes unmanageable in the real world. For a start" most game theory models presume that oll players use the basic principles of game theory-an aszumption that is manifestly false. Further,

t
o
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o

survey of senior executives we conducted in 2oo8, we have developed a practical approach to preclicting competitive behavior that stays close to the theoretical rigor and accuracy of game theory but is as easy to apply as most

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