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What is meant by hit and run competition?

A-Level, IB
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 4 Sept 2023

Hit-and-run competition is an aggressive strategy used by some firms to enter a market, undercut competitors, and then leave once they have achieved their goal. It's like a stealth attack!

Firms that use this strategy typically have a short-term focus and are willing to take risks to quickly gain market share. They may offer lower prices or better quality than established firms, but their long-term viability is often uncertain. This type of competition can lead to price wars, decreased profits, and increased market volatility

Hit and run entry is associated with highly contestable markets.

The idea of a contestable market is that it's one that is easy to enter and exit, so firms can engage in hit-and-run competition without incurring significant costs. Here are a few examples:

  • Ride-hailing services like Uber: These companies were able to quickly enter markets and disrupt the traditional taxi industry by offering lower prices and better service.
  • Online food delivery services like Deliveroo: They were able to enter markets quickly and compete with traditional takeout restaurants by offering convenient delivery and a wider range of options.

Hit-and-run competition is a term used in economics to describe a short-term, aggressive competitive strategy where a firm enters a market, typically with the intention of capturing a portion of the market share or exploiting temporary profit opportunities, and then exits the market once its objectives are achieved or market conditions change.

This strategy involves a brief but intense period of competition, often characterized by aggressive pricing, marketing, or promotional tactics.

Key characteristics of hit-and-run competition include:

  1. Short-Term Focus: Firms engaging in hit-and-run competition are primarily interested in short-term gains. They may not have a long-term commitment to the market and do not intend to establish a permanent presence.
  2. Aggressive Pricing: Hit-and-run competitors often use aggressive pricing strategies, such as offering deep discounts, to quickly gain market share or attract customers. These tactics can put pressure on incumbent firms in the market.
  3. Quick Entry and Exit: Hit-and-run competitors enter the market swiftly to take advantage of specific opportunities, such as a temporary supply shortage or a high-demand period. Once their goals are met or market conditions change unfavourably, they exit the market just as quickly.
  4. Limited Investment: These firms typically do not make significant investments in infrastructure, branding, or long-term relationships with customers or suppliers. Their goal is to maximise short-term profit without committing substantial resources.

Examples of hit-and-run competition include:

  • Seasonal Retail Sales: Retailers may offer significant discounts and promotions during seasonal sales events, attracting customers for a limited time. Once the sale period ends, prices return to normal.
  • Limited-Time Product Releases: Companies may release a new product with a marketing campaign and special offers for a short period to generate excitement and sales. After the initial launch, the product may be less aggressively marketed.
  • Temporary Supply Shortages: Firms may enter a market during times of supply shortages (e.g., natural disasters, product recalls) to take advantage of increased demand and higher prices. Once supply normalises, they may exit.

Pop-up shops are a prime example of hit-and-run entry. They’re temporary retail spaces that can appear quickly, target a specific market or niche, and then disappear just as quickly. They’re often used by new or small businesses to test new products or markets, and by established businesses to generate buzz or create a temporary presence in a new location. The appeal of pop-up shops is that they require a lower investment than traditional storefronts, and they allow businesses to be nimble and adaptable to changes in demand. It's like guerrilla warfare for retail!

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