In any industry there are groups of firms with relatively similar competitive strategies and market niches. Categorizing the dimensions of competition is one way of analyzing the structure and competitive forces within the industry. A firm’s competitive profile may differ along any of a number of dimensions:
• Participation in and share of various market segments
• Breadth of product line
• Quality of products and services
• Other differentiating characteristics of products, such as customer services, the nature of the distribution system, etc.
• Degree of vertical integration
• Financial structure
• Corporate goals and objectives
• Corporate diversification into related or unrelated businesses
• Customer base
The firms’ differences along these dimensions will affect their behavior, their costs, and their profitability. These characteristics thus provide a basis for understanding the market’s competitive structure and predicting the most likely direction of any future change. The following segment explains the various dimensions of competition as they apply to the investment banking industry.
Components of competition in services offered by investment banks
In investment banking industry or more specifically in the corporate negotiated public underwriting market, firms perform several relatively distinct services:
Origination: Originating and managing a new financing issue involve determining the security’s issue price, timing the issue, and recruiting the firms that will distribute the securities. Closely related to issue management is the provision of corporate financial services, ranging from consulting on corporate capital structure to advice on mergers and acquisitions.
Underwriting: underwriting involves absorption of the risk assumed when the underwriter...