Week 5 Flashcards
What is competitive strategy?
Focuses on how the strategic initiatives of companies relate to their competitive reactions.
It focuses on rational behavior, considering the interdependencies in other parties behavior. Companies should assume competitor behavior and adjust plans.
Diffused competition:
Addresses competition and works on it by following a generic strategy. Done by: adding differentiators, improving quality, cutting costs, improving customer services, or focusing on some niche segment.
Focused competition:
Directly addresses competition and fights it by following a competitive strategy. Typical actions: price war, suing your competitor, starting a patent contest, luring away talent, or using diplomacy and lobbying.
Dualities in competitive strategy:
Tensions which arise when a firm tries to achieve two or more contradictory goals at the same time such as competition and cooperation.
Competitive/cooperative dualities or co-opetition:
When competing firms decide to cooperate.
Game theory:
Analyses situations in which parties/players make decisions which are interdependent.
Assumptions:
1) Actions provoke reactions
2) Reasons prevail - act rationally and will try to improve position
3) Partial control - in reality, neither party has complete control over the final result, which means parties are interdependent
4) Empathy - it is necessary to “put yourself in the shoes of the other”, to be able to foresee that the actions of others influence you.
Game theory in companies:
Firms should understand they can not only benefit from conflict but also cooperation, “profit from trading”.
Weighing risks is also highly important as it helps companies to predict the possibility of hurtful actions.
Using information strategically helps firms to send credible signals as well as interpret the signals of others.
Trying to gain bargaining power can help companies understand their fallback options.
Designing contracts and incentives that reward other players for choosing actions that benefit both players.
Payoff matrix:
Core instrument in game theory.
A tool often represented in a matrix form that defines how two players interact in strategic decision situations, characterized by interdependent decision making.
Questions:
Who are the players?
What options do players have?
What goals do the players have?
What are the sources of profit from trading?
Can any of the players make credible commitments?
What is the game’s time structure?
What is the game’s information structure?
Game-changing moves:
Shadow of the future: based on the idea that it is easier for companies to achieve co-opetition when the game changes from a one-time game to a repeated game.
Deterrence: means deterring the strategies of competitors which would probably create a lose/lose scenario in the game. The principle is to enforce costs on the other player for undesirable actions.
Signalling: companies signal their quality to potential investors to reduce asymmetry.
Hostages: used for companies which want to cooperate with competitors and find a way to always keep competitors motivated to cooperate, usually with mutual interests.
Commitment: strategy is based on companies committing to a particular action and indicating to competitors that it is willing to soften competition.
Value net analysis:
Displays company’s external dependencies to show otherwise hidden sources of its competitive advantage.
Main goal to establish strategic alliances, as it allows to identify cooperation benefits. Tries to find a balance in duality of competition and cooperation.
Competitor:
Someone who has products which customers value more than your products/services. Customers value your product less if there is competitor’s offering.
Complementor:
Someone whose offerings make customers value your product more.
Value net analysis application:
Value is crated in an intricate network around companies, including also competitors, who also can be complementors. It states that value can be created even with competitors if companies look for it intrinsically enough in the value net.
