What is Dog Eat Dog
Dog eat dog refers to intense competition in a market. Dog eat dog competition most commonly arises in markets where products or services have become commoditized. In this case, no company can create a competitive advantage in any way other than competing on price. Such intense competition often results in very low profit margins. One synonym of dog eat dog competition is "cutthroat" competition.
Breaking Down Dog Eat Dog
A dog eat dog market refers to such a high level of competition that competitors run a great risk of compromising their ideals or engaging in unethical or even illegal behavior in the name of making more sales. The term comes from the behavior of two hungry dogs and how intensely they can compete for a scrap of meat, even to the point of one dog killing its competitor. One behavior that may be related to dog eat dog competition is a price war.
Under dog eat dog competition, competing companies may operate under the assumption that every sale their competitors make is one they have lost (and vice versa), and that the goal of such competition is the destruction of a competitor. Such behavior is indicative of a zero-sum game and ignores the fact that competing companies should focus on serving customers with the best-possible product and maximizing their own productivity and efficiency.
Dog Eat Dog Competition and Capitalism
Such a high level of competition is often used by anti-capitalism activists to illustrate why the capitalistic economic system does not serve its participants. They argue that dog eat dog competition leads to destructive behavior, and in the end, monopolies. There is some evidence to support this claim; the Interstate Commerce Act of 1887 was enacted in large part due to regulate unfettered capitalism. In the Great Depression of the 1930s, President Theodore Roosevelt and J.P. Morgan' s "House of Morgan" entered into gentlemen's agreements that sought to shore up failing businesses (and acquiring healthy ones) by creating cartels and monopolies to limit competition, otherwise known as "morganization."
Dog Eat Dog Competition and Investing
Investors should generally try to avoid firms which face such intense competition. For example, the airline industry has faced price wars and poor profitability throughout most of its recent history, which is why such companies are often far from the most popular stocks with individual as well as institutional investors.
Dog Eat Dog Competition Defenses
The best firms build an economic moat around their products, preserving their pricing power. A firm can create barriers to entry to its industry through heavy advertising, creating customer loyalty, securing important intellectual property and other means.