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ASM_G3_Entry and Rivalry (Using Game Theory to Understand rivalry (Kinds,…

- - - - Firm cutting price has advantage
      - Niche player relative to compititors
      - High network externalities
    - - Early stage of product
      - "Informative" advertising
- - - - They don't know whether the other one will take the incentives or not
        
        They both admitted the crime
  - - - Firm2 also cut prices
        
        Firm1 :red_cross: Firm2 :red_cross:
        
        To avoid both make no profits
        
        Signaling
        
        Provide information to encourage coordination and restraint.
        
        Selective release of information to influence competitors.
        
        Commitment
        
        Make large, sunk investment
        
        Forego short-term opportunities
      - Firm2 doesn't cut prices
        
        Firm1 :check: Firm2 :red_cross:
    - - Firm2 cut prices
        
        Firm1 :red_cross: Firm2 :check:
      - Firm2 also doesn't cut prices
        
        Firm1 :check: Firm2 :check:
- - - - Deter
      - Accommodate
    - - Fight
      - Cooperate
      - Restructure
  - - - Ex: Honda
        motor company > different segment using small engines
    - - Ex: Walmart > grocery sales
    - - Ex: Sony > game player market
    - - Take a minority ownership stake in an existing rival
      - Recent entrant into related industries
      - Same industry in other geographicmarkets
        
        Ex: BSB v.s Sky TV
        
        BSB’s failure to see the potential rival
        
        The game was set
        when dynamics put in place
        
        One enters, the other exits
- - - - Strategies to increase the cost and risk of entry
        
        Erect structural barries
        
        Reduce the quality of information on costs and demand
        
        Make retaliation more credible (and accommodation less credible)
      - Strategies to reduce the incentive to enter
        
        Raise factor costs
        
        Limit pricing, which works best when:
        
        Incumbent holds a true cost advantage
        
        information about costs is poor
        
        incumbent has long time horizon and entry becomes harder over time
  - - - Accommodate entry if deterrence is too costly
      - Commit to a position that will soften competition after entry
      - Make commitments limiting your ability or incentives to compete aggressively
      - Organise to facilitate future coordination