CH 11 IMS

competitive dynamics

actions and responses undertaken by competing firms

competitor analysis

the process of anticipating rivals’ actions in order to both revise a firm’s plan and prepare to deal with rivals’ response

collusion

collective attempts between competing firms to reduce competition

coordination

formal or informal cooperation among competitors

tacit collusion

firms indirectly coordinate actions by signaling their intention to reduce output and maintain pricing above competitive levels

explicit collusion

firms directly negotiate output and pricing and divide markets

cartel (trust)

an output-fixing and price-fixing entity involving multiple competitors

antitrust laws

law that makes cartels (trusts) illegal

prisoner’s 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

a theory that studies the interactions between two parties that compete and/or cooperate with each other

concentration ratio

the percentage of total industry sales accounted for by the top four firms

price leader

a firm that has a dominant market share and sets “acceptable” prices and margins in the industry

capacity to punish

sufficient resources possessed by a price leader to deter and combat defection

market commonality

the overlap between two rivals’ markets

multimarket competition

firms engage the same rivals in multiple markets

sphere of influence

dominance acknowledged by competitors

mutual forbearance

multimarket firms respect their rivals’ spheres of influence in certain markets and their rivals reciprocate, leading to tacit collusion

cross-market retaliation

retaliatory attacks on a competitor’s other markets if this competitor attacks a coal firm’s original market

competition policy

government policy governing the rules of the game in competition

antitrust policy

government policy designed to combat monopolies and cartels

collusive price setting

price setting by collusion parties at a level higher than the competitive level

predatory pricing

an 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

an exporter selling goods below cost

antidumping laws

law that makes it illegal for an exporter to sell goods below cost with the intent to raise prices after eliminating local rivals

resource similarity

the extent to which a given competitor possesses strategic endowment comparable, in terms of both type and amount, to those of the focal firm.

attack

an initial set of actions to gain competitive advantage

counterattack

a set of actions in response to attack

awareness-motivation-capability framework

a competitive dynamics framework that suggests that a competitor will not respond to an action unless it is aware of the action, motivated to react, and capable of responding

blue ocean strategy

strategy that focuses on developing new markets (blue ocean_)an avoids attacking core markets defended by rivals, which is likely to result in a bloody price war (red ocean)

market power

ability to raise prices without the fear of losing customers