Syndicated financial markets, such as reinsurance, tend to adopt a relational approach to competition, contrary to the widespread perception of negative competition that sees companies fight to win at all costs, according to a new study.
The new study, Toward a Social Practice Theory of Relational Competing, was authored by Cass Business School Professor Paula Jarzabkowski, and Dr. Rebecca Bednarek, Birkbeck, University of London, and explores the perception of “war-like competitiveness” in global syndicated markets.
According to the report, research shows that companies within syndicated financial markets, such as reinsurance, are as likely to adopt a relational approach to competition, which includes the incorporation of collaboration and reciprocity.
According to a report on the new paper on the City University of London website, Jarzabkowski, said; “The relational element in the competitive dynamics of the reinsurance industry is interesting. Reinsurance is a $260 billion financial syndicated market with large scale competition. But multiple competitors take shares in a deal at the same price and syndication is a way to share the risk and increase the chances that all competitors might survive any particularly large-scale catastrophic loss.
“Syndication generates a relational incentive for competitors, by keeping the price on a deal high through their individual quotes, which informs the eventual single market price, for the benefit of all competitors.”
Essentially, the report finds that the goal is not to beat a rival, but more for all parties to perform well for the better of the overall marketplace, which in turn creates value for all in the market, rivals or not.
“A primary goal within pricing is to provide a good quality playing field for all competitors rather than necessarily to beat a rival. However, syndication does not equate to a lack of competition. As our study shows, market players remain highly competitive in also wanting a share of the best deals.
“Importantly, while not often considered in studies of competitive markets, individuals in relational markets will not engage in a race to the bottom, but rather make decisions that support the long term health of the overall market, which may include the long-term survival of competitors,” said Jarzabkowski.
It’s an interesting thought, and one that debunks perceptions of companies doing all they can to beat competitors, regardless of the impact on the wider marketplace, ultimately underlining the increased sophistication and maturity of global, syndicated financial markets, like reinsurance.
