Managing Global Competitive Dynamics

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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







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





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 Barriers
• Some entry barriers include: Patents (eg: Intel
vs. Nextgen), R&D, Cost advantage, sunk costs,
excess capacity, trade restrictions, etc.
• Industry with high entry barrier allows easy
collusion
• New entrant is possible with less homogeneous
products with new technologies (Nokia,
SonyEricsson, Siemens, vs. New smart phones).

Industry-based Considerations
Market Commonality
• Degree of overlap between two
competitors’ markets.
• High commonality lead to collusion
• Following each other is a good choice that
create mutual forbearance.
• Repeated interaction leads to familiarity
and mutual respect.

Industry-based Considerations
• Product homogeneity
Q: What are some industries that are likely
product homogeneity?
Q: How to compete in such industries?

Industry-based Considerations
• Product homogeneity
Gas Station

Regular

Gas Station

Regular

Speedway

$3.58

BP

$3.58

BP

$3.90

Marathon

$3.66

Circle K

$3.54

Circle K

$3.63

Circle K

$3.59

Circle K

$3.58

Circle K

$3.49

Duchess

$3.58

Circle K

$3.55

BP

$3.50

Sunoco

$3.70

Circle K

$3.48

Sunoco

$3.60

Speedway

$3.459

Speedway

$3.48

Circle K

$3.47

Comprehensive Model of
Global Competitive Dynamics

Q: How to differentiate in the gas
industry?

Resource-based Considerations
D rive decisions and actions associated
w ith competitive dynamics
Value
Rarity
Imitability
Organization

Resource-based Considerations
VRIO Framework
Value Rarity

Cost to Imitate

Organization

Competitive Implications

Performance

Low

Easy

Competitive Disadvantage

Below Average

High Common

Hard

Competitive Parity

Normal

High

Rare

Cheap

Easy

High

Rare

Cheap

Hard

High

Rare

Expensive

Hard

Temporary Competitive
Advantage
Sustainable Competitive
Advantage
Sustainable Competitive
Advantage

Temporarily Above...
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