Lecture 5: Competitive Strategy

Question 1

Business Strategy

Answer 1

How firms can position themselves, build good resource position, while considering competitive forces.

Question 2

Competitive Strategy

Answer 2

How strategic initiatives of companies relate to competitive reactions.
Assumption:
“Any competitively meaningful action will provoke a reaction”

Focus on what is considered rational behaviour, considering interdependencies in other party behaviours.
Great rule to follow: “look forward and reason back”

Question 3

2 main types of competition

Answer 3

1. Diffused competition
   usually dresses the competition, work following generic strategy.
   *add differentiators
   *improve quality
   *cut costs
   *focus on niche segment
2. Focused competition
   directly address the competition and fight it by using competitive strategy.
   *price war
   *sue competitor
   *patent contest
   *lure away competitor’s talent
   *diplomacy and lobbying

Question 4

Dualities in competitive strategy

Answer 4

Tensions arising from firm trying to achieve 2+ contradictory goals at the same time. Such as competition and cooperation.

Whilst still competing, can also provide great benefits.

Ex. Apple and Samsung- competitors but both have the same chip developer. Reducing chip developer’s market power is beneficial for both.

Ex. Pepsi & Coke –>policy initiatives

Models like five forces have a flaw: they all view relationships as purely competitive, not cooperative.

Question 5

Game theory and it’s assumptions

Answer 5

Analyses situations where parties/players are make independent decisions. Following assumptions:
*Actions provoke a reaction:
decisions parties make influence each other.
*Reasons prevail:
parties will act rationally and improve their position.
*Partial control:
neither party has final control over result of a situation–> parties are interdependent.
*Empathy:
necessary to put yourself in shoes of others to be able to foresee that the actions of others influence you.

Question 6

Important questions in game theory

Answer 6

*Who are the players?
*What goals do players have?
*Which options do players have?
*What is the games time structure?
*What are the sources of profit for trading?
*Can players make credible commitments?
*What is the games information structure?

Question 7

Game theory in companies.

Answer 7

Firms have to understand that they cannot only benefit from CONFLICT but also from COOPERATION, should try to achieve “profit from trading”.

*Weighting risks to predict hurtful actions.
*Using information strategically can help send credible signals and interpret signals of others.
*Trying to gain bargaining power and designing contracts and inccentives

Question 8

Payoff Matrix

Answer 8

Game theory tool
How players interact in strategic decisions, situations characterised by interdependent decision matrix.

See example of Unilever and Henkel

Question 9

Game-changing moves

Answer 9

1. Shadow of the future
   idea: easier for companies to achieve co-operation when the game changes from one-time-game to repeated game.
2. Deterrence
   deter (put-off) strategies of competitors that will create a lose/lose scenario. Principle is to enforce the costs on the other players for undesirable actions.
3. Signalling
   Companies signal their quality to potential investors to reduce information asymmetry. Usually signal quality to reputable banks, insurers, venture capitalists, auditors. By being considered credible by these reputable parties the company gains very advantageous position in market.
   ex. pre-IPO signalling
4. Hostages
   companies want to cooperate with competitors–>keep competitor motivated to collaborate (mutual interests)
5. Commitment
   Companies commit to certain action indicating to competitors that they are willing to soften the competition.