Bitter: Competition and Price War
Questions for Bitter Competition Case 1) As the Holland Sweetener Company, how do you expect NutraSweet to respond to your entering the European and Canadian markets? Is it more likely to be an accommodating response (normal competition) or aggressive response (price war)? In considering your response, you should list both the reasons for NutraSweet to adopt an accommodating response (normal competition) AND an aggressive response (price war). * Nutra Sweet is already well established and can enter the market quite easily and is able to set up high economies of scale
Normal competition: * Disadvantage: you open barriers to entry by being accommodating (e.g. you sell for 30 cents, and competitor sells for 30 cents but you DON’T drop your price) * Nutra sweet might want to be accommodating because HSC and potentially OTHER competitors can eat at Nutra sweet’s profits and then nutra sweet can let HSC have the little consumers whilst nutra sweet can focus on capturing coke and pepsi market * Nutra sweet could rather focus on investing in its own company and making it better rather than focusing all money on driving someone out
Aggressive competition: * Advantage: cost of goods sold decreased thus Nutra Sweet can AFFORD to drop prices * Advantage: Monsanto has a lot of money to be able to lower prices * Disadvantages: costs and time are high for price war * Want to maintain exclusivity with pepsi and coke so would want to engage in price war * Need to look at if in the short temr Nutra Sweet could ACTUALLY benefit from a price war * Might be good for Nutra Sweet to engage in price war they have a huge profit margin, first mover advantage and HSC is just a small company
2) Specifically, how could an aggressive response (price war) affect competition? * Results in lower prices (good for consumer) * Media attention increases for those companies involved in the price war * Contracts involved with retailers
Normal competition: * Disadvantage: you open barriers to entry by being accommodating (e.g. you sell for 30 cents, and competitor sells for 30 cents but you DON’T drop your price) * Nutra sweet might want to be accommodating because HSC and potentially OTHER competitors can eat at Nutra sweet’s profits and then nutra sweet can let HSC have the little consumers whilst nutra sweet can focus on capturing coke and pepsi market * Nutra sweet could rather focus on investing in its own company and making it better rather than focusing all money on driving someone out
Aggressive competition: * Advantage: cost of goods sold decreased thus Nutra Sweet can AFFORD to drop prices * Advantage: Monsanto has a lot of money to be able to lower prices * Disadvantages: costs and time are high for price war * Want to maintain exclusivity with pepsi and coke so would want to engage in price war * Need to look at if in the short temr Nutra Sweet could ACTUALLY benefit from a price war * Might be good for Nutra Sweet to engage in price war they have a huge profit margin, first mover advantage and HSC is just a small company
2) Specifically, how could an aggressive response (price war) affect competition? * Results in lower prices (good for consumer) * Media attention increases for those companies involved in the price war * Contracts involved with retailers