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

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

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

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

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

ATTACK AND COUNTERATTACK 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 capabilities needed to carry out counterattacks

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 entry strategy - 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

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