Managing Global Competitive Dynamics - Chapter 11

Course Information

• Course Mentor: Wade Roberts
• Education: PhD in Economics, University of Utah
• Expert Fields: Development, Labor, Public Health, Gender
• Current Research (Cambodia): Microfinance, Poverty, Inequality, Socioeconomics

Chapter 11: Managing Global Competitive Dynamics

• Learning Objectives:
  • Understand industry conditions for cooperation and collusion.
  • Outline how formal institutions affect domestic and international competition.
  • Articulate how resources and capabilities influence competitive dynamics.
  • Identify drivers for attacks, counterattacks, and signaling.
  • Discuss how local firms compete with multinational enterprises (MNEs).
  • Participate in leading debates concerning competitive dynamics.
  • Draw implications for action.

Competition, Cooperation, and Collusion

• Competitive dynamics: Actions and responses of competing firms.
• Competitor analysis: Anticipating rivals' actions to adjust plans and deal with responses.
• Collusion: Collective attempts to reduce competition.
  • Explicit collusion: Firms directly negotiate output and pricing, dividing markets.
  • Cartel: An output- and price-fixing entity involving multiple competitors
  • Trust: A cartel where members need to trust each other to honor agreements.
  • Antitrust laws: Laws in various countries to outlaw trusts.
• Prisoners' Dilemma: A game where two suspects face the risk of confessing or staying silent.
• Game theory: Studies interactions between parties that compete and/or cooperate.

Cooperation and Collusion (continued)

• Concentration ratio: Percentage of total industry sales by top firms (e.g., top 4, 8, or 20).
• Price leader: Dominant firm setting acceptable prices and margins.
• Capacity to punish: Price leader's resources to deter defection.
• Market commonality: Degree of overlap between rival markets.
• Multimarket competition: Firms competing with the same rivals in multiple markets.
• Mutual forbearance: Multimarket firms respecting one another's influence and leading to tacit collusion.
• Cross-market retaliation: If a firm attacks in one market, rivals can retaliate in other markets.
• Industry Characteristics and Possibility of Collusion:
  • Collusion possible: Few firms, industry price leader, homogeneous products, high barriers to entry, high market commonality.
  • Collusion difficult: Many firms, no industry price leader, heterogeneous products, low barriers to entry, lack of market commonality.

Institutions, Resources, and Competitive Dynamics

• Institution-Based View: Domestic competition (competition/antitrust policy), International Competition (trade/antidumping policy)
• Resource-Based View: Value, Rarity, Imitability, Organization

International Domestic Retail Price Comparisons

• Table showing the ratio of domestic retail prices to world prices across various countries (e.g., Australia, Canada, Germany) for various goods and services.

Formal Institutions Governing Domestic Competition

• Competition policy: Institutional mix of competition and cooperation.
• Antitrust policy: Policies to combat monopolies and cartels.
  • Collusive price setting: Monopolists or collusion parties setting prices above the competitive level.
  • Predatory pricing: Setting prices below cost to eliminate rivals to raise prices later.
  • Dumping: Selling goods below cost or home market prices.
  • Antidumping laws: Outlaw exporting goods at below-cost prices to eliminate local rivals abroad.

Resources Influencing Competitive Dynamics

• Resource similarity: Extent to which a competitor possesses similar strategic endowments (type and amount) to the focal firm.

Attack, Counterattack, and Signaling

• Attack: Initial actions to gain competitive advantage.
• Counterattack: Actions in response to an attack.
• Blue ocean strategy: Avoiding attacking core markets to avoid bloody price wars.

Local Firms Versus Multinational Enterprises

• Defender: Low pressures to globalize with strengths in local market understanding.
• Extender: Low globalization pressures with transferable skills and assets.
• Dodger: High globalization pressures with local industries.
• Contender: Industries with rapid learning followed by overseas expansion.

How Local Firms in Emerging Economies Respond to Multinationals

• Figure showing a framework to analyze local firms' responses to MNEs based on industry pressures and competitive assets.

Tips on Competitive Intelligence and Counterintelligence

• Be cautious about potential espionage in foreign countries.
• Be careful with cell phones and internet service.
• If offered extravagant accommodation, book your own instead.

Implications for Action

• Understand rules of domestic and international competition.
• Strengthen resources and capabilities to compete and/or cooperate effectively.
• Develop competitor analysis skills.