Multiple market competition and competitive signaling
This paper is the pre-assignment number 5 for course TU-91.2040 Global Strategic Management. The task was to answer three questions based on articles by Karnani, A. & Wenerfelt B. (Multiple Point Competition, 1985) and Heil, O. & Robertson, T. (Toward a Theory of Competitive Market Signaling: A Research Agenda, 1991). The questions are as follows:
1) How would you define multiple market competition?
2) What are pros and cons of the four alternatives to respond to a competitive attack? 3) Why engage in competitive signaling?
Multiple market competition means a situation where two companies compete with each other not only in one place with one product but in several locations and possibly with similar products which are substitutes to each other. A simple example would be two companies of the same industry operating in two countries with the same products. As Karnani and Wenerfelt put it: “The more obvious examples of multiple point competition refer to situations where firms compete simultaneously in different product markets or in different geographical markets for the same product.”
Multiple market competition is characterized by four different situations: peace, limited war, mutual foothold and total war. Total peace is extremely rare if two companies operate in the same market. The more likely situation is limited competition where two companies for example suppress the prices of a single product but do not challenge the competitors on other areas, leading the competition to being limited and not total. Mutual foothold equilibrium means a situation where both companies have a small market share on each other’s home/core markets but their core markets are separate and they are not in a total war situation. Total war means a competition in (nearly) every market. This is often a result of an escalation from mutual...