Strategic Behavior
Unit IV – Research Paper
Strategic behavior entails ascertaining what firms are likely to do in a specific situation, and then following tactics that maximize the firms’ gain or minimize any harm to the firms. In oligopolies, strategic behavior is the rule. When making the decisions, the firms must to predict how their competitors would respond. Even when the decision is not related to price, strategic behavior still comes to play. In this research paper, real cases in Vietnam would be analyzed for purpose of understanding how oligopolistic competitors make strategic decisions in order to compete to other peers.
An oligopoly is known as a market structure in which a few large firms dominate. The high set-up costs is a constraint for potential rivals when entering the market because many costs are sunk costs which cannot be recovered when the firm leaves a market such as marketing and advertising costs and some fixed costs. For examples, in the Vietnam’s milk industry, local dairy giants such as TH True Milk and Vinamilk have unveiled huge investment plans on pastures and dairy cow stock. Vinamilk, a leading dairy company based in Vietnam, now possesses a total asset worth nearly US$ 757.12 million while TH True Milk, the new competitor, has to invest US$1.2 billion in order to import 10,000 cows from New Zealand, Uruguay and Canada and to buy equipment and advanced technology from Israel. It is clear that high research and development cost is also a signal of that the firm has large financial reserves. For the purpose of competition, new entrants will have to match, or exceed, this level of spending in order to compete in the future.
Aparting from around 3,000 illegal taxies outside the authority’s control, the taxi industry in Ho Chi Minh City might be considered to be an example of an oligopoly. Although there are approximately 12,400 taxies which belongs to around 15 companies, Mai Linh and Vinasun which are two leading taxi companies accounts for 70
Strategic behavior entails ascertaining what firms are likely to do in a specific situation, and then following tactics that maximize the firms’ gain or minimize any harm to the firms. In oligopolies, strategic behavior is the rule. When making the decisions, the firms must to predict how their competitors would respond. Even when the decision is not related to price, strategic behavior still comes to play. In this research paper, real cases in Vietnam would be analyzed for purpose of understanding how oligopolistic competitors make strategic decisions in order to compete to other peers.
An oligopoly is known as a market structure in which a few large firms dominate. The high set-up costs is a constraint for potential rivals when entering the market because many costs are sunk costs which cannot be recovered when the firm leaves a market such as marketing and advertising costs and some fixed costs. For examples, in the Vietnam’s milk industry, local dairy giants such as TH True Milk and Vinamilk have unveiled huge investment plans on pastures and dairy cow stock. Vinamilk, a leading dairy company based in Vietnam, now possesses a total asset worth nearly US$ 757.12 million while TH True Milk, the new competitor, has to invest US$1.2 billion in order to import 10,000 cows from New Zealand, Uruguay and Canada and to buy equipment and advanced technology from Israel. It is clear that high research and development cost is also a signal of that the firm has large financial reserves. For the purpose of competition, new entrants will have to match, or exceed, this level of spending in order to compete in the future.
Aparting from around 3,000 illegal taxies outside the authority’s control, the taxi industry in Ho Chi Minh City might be considered to be an example of an oligopoly. Although there are approximately 12,400 taxies which belongs to around 15 companies, Mai Linh and Vinasun which are two leading taxi companies accounts for 70
References: 10. R. S. Khemani and D. M. Shapiro., Glossary of Industrial Organisation Economics and Competition Law, commissioned by the Directorate for Financial, Fiscal and Enterprise Affairs, OECD, 1993.