I. RivalryIn the traditional economic model, competition between rival firms drives profits to zero. But competition is not perfect and companies are not passive, simple price takers. Rather, companies seek to gain a competitive advantage over their competitors. The intensity of rivalry between firms varies across industries, and strategic analysts are interested in these differences. Economists measure rivalry using indicators of industrial concentration. Concentration ratio (CR) is one such measure. The Bureau of Census periodically reports CR for the major Standard Industrial Classifications (SICs). The CR indicates the percentage of market share held by the four largest companies (the CRs of the 8th, 25th and 50 largest companies in an industry are also available). A high concentration rate indicates that a high concentration of market share is held by the largest companies - the industry is concentrated. With only a few companies holding a significant market share, the competitive landscape is less competitive (closer to a monopoly). A low concentration rate indicates that the industry is characterized by many competitors, none of which has a significant market share. These fragmented markets are called competitive. The concentration ratio is not the only measurement available; the tendency is to define industries in terms that convey more information than market share distribution. If rivalry between companies in an industry is low, it is considered disciplined. This discipline may result from the competitive history of the industry, the role of a leading company, or informal adherence to a generally understood code of conduct. Explicit collusion is generally illegal and not an option; in sectors with low rivalry, competitive movements must be limited informally. However, a maverick company seeking a competitive advantage can displace an otherwise disciplined market. When a rival acts in a way that elicits a counter-response from other companies, the rivalry intensifies. The intensity of rivalry is commonly referred to as fierce, intense, moderate, or weak, depending on how aggressive the firms are in trying to gain an advantage. In seeking an advantage over rivals, a company can choose from several competitive actions: * Change prices: raise or lower prices to gain a temporary advantage. * Improve product differentiation: improve features, implement innovations in the manufacturing process and in the product itself. *Creatively use distribution channels: use vertical integration or use a distribution channel that is new to the industry.