CHAPTER 11
MANAGING GLOBAL COMPETITIVE DYNAMICS
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. understand the industry conditions conducive to cooperation and collusion.
2. outline how formal institutions affect domestic and international competition.
3. articulate how resources and capabilities influence competitive dynamics.
4. identify the drivers for attacks, counterattacks, and signaling.
5. discuss how local firms fight multinational enterprises (MNEs).
6. participate in two leading debates concerning competitive dynamics.
7. draw implications for action.
GENERAL TEACHING SUGGESTIONS
Many students attribute a variety of their problems to conspiracies, especially between big
MNEs. If you have such students, this is an opportunity to get them involved through one of
several ways. Bring up a popular conspiracy topic and ask people to give their opinion with the
condition that after they have set forth their position that they should also try to set forth an
argument refuting what they have just stated. Some will find that hard to do, of course. As that
happens, ask people to “step outside of themselves” for a moment and discuss global competitive
dynamics from the perspective of this chapter.
OPENING CASE DISCUSSION GUIDE
Patent Wars and Shark Attacks
Patents have become just another way of making money. Firms hoard patents and then sue other
firms for patent infringement. Millions of dollars exchange hands as lawsuits are won or lost.
Non-operating entities (NOEs) own patents that they could never use except as grounds for
patent-infringement lawsuits. Although the ethics of owning patents solely as a source for
lawsuits might be questionable, the practice is legal and can be financially rewarding.
CHAPTER OUTLINE: KEY CONCEPTS AND TERMS
Sections I through VII of Chapter 11
I. COMPETITION, COOPERATION, AND COLLUSION
1. Key Concept
Industries primed for collusion tend to have (1) fewer rivals, (2) a price leader, (3)
homogeneous products, (4) high entry barriers, and (5) high market commonality
(mutual forbearance).
2. Key Terms
Antitrust law is law that makes cartels (trusts) illegal.
Capacity to punish is sufficient resources possessed by a price leader to deter and
combat defection.
Cartel (trust) is an output-fixing and price-fixing entity involving multiple
competitors.
Collusion is collective attempts between competing firms to reduce competition.
Competitive dynamics are the actions and responses undertaken by competing
firms.
Competitor analysis is the process of anticipating rivals’ actions in order to both
revise a firm’s plan and prepare to deal with rivals’ responses.
Concentration ratio is the percentage of total industry sales accounted for by the top
four, eight, or twenty firms.
Cross-market retaliation is retaliatory attacks on a competitor’s other markets if
this competitor attacks a firm’s original market.
Explicit collusion is firms directly negotiating output and pricing and dividing
markets.
Game theory is a theory that studies the interactions between two parties that
compete and/or cooperate with each other.
Market commonality is the overlap between two rivals’ markets.
Multimarket competition is firms engaging the same rivals in multiple markets.
Mutual forbearance is multimarket firms respecting their rivals’ spheres of
influence in certain markets and their rivals reciprocate, leading to tacit collusion.
Price leader is a firm that has a dominant market share and sets “acceptable” prices
and margins in the industry.
Prisoners’ dilemma, in game theory, a type of game in which the outcome depends
on two parties deciding whether to cooperate or to defect.
Tacit collusion is firms indirectly coordinating actions by signaling their intention to
reduce output and maintain pricing above competitive levels.
II. INSTITUTIONS GOVERNING DOMESTIC AND INTERNATIONAL COMPETITION
1. Key Concept
Domestically, antitrust laws focus on collusion and predatory pricing. Internationally,
antidumping laws discriminate against foreign firms and protect domestic firms.
2. Key Terms
Antitrust policy is government policy designed to combat monopolies and cartels.
Antidumping laws is law that makes it illegal for an exporter to sell goods below
cost abroad with the intent to raise prices after eliminating local rivals.
Collusive price setting is price setting by monopolists or collusion parties at a level
higher than the competitive level.
Competition policy is government policy governing the rules of the game in
competition.
Dumping is an exporter selling goods below cost.
Predatory pricing is 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.
III. RESOURCES INFLUENCING COMPETITIVE DYNAMICS
1. Key Concept
Resource similarity and market commonality can yield a powerful framework for
competitor analysis.
2. Key Terms
Resource similarity is the extent to which a given competitor possesses strategic
endowment comparable, in terms of both type and amount, to those of the focal firm.
IV. ATTACK, COUNTERATTACKS, AND SIGNALING
1. Key Concept
Regarding the drivers for attacks, counterattacks, and signaling, there are three main
types of attacks: (1) thrust, (2) feint, and (3) gambit. Counterattacks are driven by (1)
awareness, (2) motivation, and (3) capability. Without talking directly to competitors,
firms can use various means to signal rivals.
2. Key Terms
Attack is an initial set of actions to gain competitive advantage.
Blue ocean strategy is strategy that focuses on developing new markets fiblue
ocean”) and avoids attacking core markets defended by rivals, which is likely to
result in a bloody price war fired ocean”).
Counterattack is a set of actions in response to attack.
V. LOCAL FIRMS VERSUS MULTINATIONAL ENTERPRISES
1. Key Concept
When confronting MNEs, local firms can choose a variety of strategic choices: (1)
defender, (2) extender, (3) dodger, and (4) contender. They may not be as weak as many
people believe.
Key Terms
Contender strategy is strategy that centers on a firm engaging in rapid learning and
then expanding overseas.
Defender strategy is strategy that centers on local assets in areas in which MNEs are
weak.
Dodger strategy is strategy that centers on cooperating through joint ventures with
MNEs and sell-offs to MNEs.
Extender strategy is strategy that centers on leveraging homegrown competencies
abroad.
VI. DEBATES AND EXTENSIONS
1. Key Concept
The leading debates concerning competitive dynamics consist of (1) competition versus
antidumping and (2) competitive strategy versus antitrust policy.
2. Key Terms
None
VII. MANAGEMENT SAVVY
1. Key Concept
Managers need to understand the rules of the game, particularly the laws, governing
domestic and international competition around the world. Savvy managers know
themselves and their opponents and will develop the skills and knowledge necessary to
effectively analyze their competitors.
2. Key Terms
None