Managing Global Competitive Dynamics

Managing Global
Competitive Dinamics

Sethykun Hong
Michael Shimp
Tatyana Andreyeva

Strategy as Action
• In 2004 P&G cut prices of Ariel and Tide by 25%-50%.
Hindustan Lever(HUL) responded in similar price cut.
• In 1934, Pepsi cut price and introduced 12-ounce bottle against Coke’s 6-ounce.
• Samsung’s Galaxy vs. Apple’s iPhone.
• High speed trains and planes in China’s price war
• Mac vs. PC campaign.
• Amazon vs. Wal-Mart (http://www.youtube.com/watch?v=5FOcE9kpzus)

Prisoners’ Dilemma
Airline A
Action 1
Action 2
A keeps
A drops price at $500 price to $300

Action 1
B keeps price at $500

(Cell 1)
A: $50,000
B: $50,000

(Cell 2)
A:$60,000
B:0

(Cell 3)
A:0
B: $60,000

(Cell 4)
A: $30,000
B:$30,000

Airline B
Action 2
B drops price to $300

Model of Global Competitive
Dynamics
Industry-based considerations Resource-based considerations Competitive Dynamics:
Attack/ Counterattack/ Cooperation

Institution-based considerations Industry-based Considerations

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Concentration
Industry price leader
Entry barriers
Market commonality with rivals
Product homogeneity

Industry-based Considerations
Concentration
• Combined percentage of sales from top 4, 8 or more firms. • Easy to organize collusion; but, can lead to duopoly, oligopoly, cartels and could face antitrust laws.
• Colluding firms force customers to pay more. Ex:
Banana comes to U.S from 3 companies—Dole, Del
Monte, and Chiquita.
• Firms avoid ‘tit-for-tat’, or industry goes downward spiral.
• Many rivals: price competition is the norm. e.g: Airlines.

Industry-based Considerations
Industry price leader
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Leader has dominant market share.
Signal the industry about price behavior.
Leader maintain order and stability for collusion.
Leader can punish cheaters with deep discounts. • No defection is allowed or collusion collapses.
• No price leader, more chaotic industry.

Entry