A Novel Method for Identifying Competitors Using a Financial Transaction Network

Abstract

Identifying competitors is an essential first step in creating a competitive advantage to generate superior business performance. Diverse methods for competitor identification have been introduced in the literature, but financial transactions are overlooked in these models even though such transactions among firms, as the basic economic unit of interfirm business activities, contain critical information. This article proposes a novel method for the identification of firm-level competitors using a network constructed from financial transactions among firms.We propose network-theoretic similarity measures to quantify the resource similarity and market commonality between firms by considering both direct and indirect transactions in a transaction network. Then, based on the two dimensions, three types of competitors are identified with respect toafocalfirm:direct,potential,andindirect competitors. The proposed method is applied to toy network data and a real-world case that includes the financial transactions of firms in Korea in 2014.