Chapter 11 Learning Objectives

1. Chapter 11 Learning Objectives After studying this chapter, you should be able to: • Understand the industry conditions conducive to cooperation and collusion • Outline how antitrust and antidumping laws affect domestic and international competition • Articulate how resources and capabilities influence competitive dynamics • Identify the drivers for attacks, counterattacks, and signaling • Discuss how local firms fight multinational enterprises (MNEs) • Participate in two leading debates concerning competitive dynamics • Draw implications for action

2. COMPETITIVE DYNAMICS competitive dynamics -actions and responses undertaken by competing firms competitor analysis -process of anticipating a rivals’ actions in order to revise a firm’s plan and prepare to deal with rivals’ responses

3. COMPETITION, COOPERATION, AND COLLUSION collusion - collective attempts between competing firms to reduce competition tacit collusion - firms indirectly coordinating actions by signaling their intention to reduce output and maintain pricing above competitive levels explicit collusion - firms directly negotiating output and pricing and dividing markets cartel - entity that engages in output- and price-fixing involving multiple competitors antitrust laws - laws attempting to curtail anticompetitive business practices prisoners’ dilemma - in game theory, a type of game in which the outcome depends on two parties deciding whether to cooperate or to defect game theory -branch of mathematics that studies the interactions between two competing parties

4. Cooperation and Collusion market commonality -overlap between two rivals’ markets multimarket competition -firms engage the same rivals in multiple markets mutual forbearance -act of strategic deterrence in which multimarket firms respect their rivals’ spheres of influence in certain markets, and their rivals reciprocate, leading to tacit collusion cross-market retaliation -ability of a firm to expand in a competitor’s market if the competitor attacks in its original market

5. Formal Institutions Governing Domestic Competition: A Focus on Antitrust competition policy -way in which a company determines the institutional mix of competition and cooperation, which gives rise to the market system antitrust policy -laws designed to combat monopolies and cartels collusive price setting - price setting by monopolists or collusion parties at a higher than competitive level predatory pricing - attempt to monopolize a market by setting prices below cost and intending to raise prices to cover losses in the long run after eliminating rivals dumping -attempt by an exporter to monopolize a market by selling below cost abroad, and then raising prices to eliminate a competitor

6. ATTACK AND COUNTERATTACK ATTACK thrust - classic frontal attack with brute forces feint -firm’s attack on a focal arena important to a competitor but not the attacker’s true target area gambit -withdraw from a low-value market to attract rivals to divert resources into it and then to capture a high-value market COUNTERATTACK awareness- prerequisite for counterattack motivation- if the attacked market is of marginal value, managers may decide not to counterattack capabilities - strong capabilitiesneededto carry out counterattacks

7. COOPERATION AND SIGNALING Short of illegally talking directly to rivals, firms have to resort to signaling by: nonaggression strategy - active investment in nonthreatening ways so as not to provoke attacks on a firm’s core markets market entrystrategy - seeks mutual forbearance by establishing multimarket contact truce - firms can send an open signal for a truce enlisting the help of government - filing an antidumping petition or suing strategic alliances with rivals – in the US, reducing cost by 10% through an alliance is legal

8. LOCAL FIRMS vs. MNEs defender strategy -leveraging local assets in areas in which MNEs are weak extender strategy - centered on leveraging homegrown competencies abroad dodger strategy - centered on cooperating through joint ventures (JVs) with MNEs and sell-offs to MNEs contender strategy - centered on a firm engaging in rapid learning and then expanding overseas