Instructor Manual
Chapter 13: Competitive Dynamics
(Prepared by Klaus E. Meyer, March 2019)
Introduction to the Topic
Learning Objectives
1. Explain how attacks and counterattacks are used in dynamic competition
2. Explain how and why firms sometimes like to collude.
3. Outline how competition policy and anti-dumping laws affect international competition
4. Articulate how resources and capabilities influence competitive dynamics
5. Participate in leading debates concerning competition
6. Draw implications for action
General Teaching Suggestions
Economists treatment of competition usually starts out from a model of (near-) perfect
competition, and thus many players in a market that hardly react directly to each other but
react to price signals. The situation is however very different when there are only a few big
players in the industry – and many global industries are like that: most big companies
compete with a handful of other companies; they know each other well and react to each
other’s strategic moves. This chapter thus explores the dynamics of interaction in
international global oligopolies and explains rules of competition that set the rules for how
companies can compete.
To motivate a discussion, pick two (local) companies that students are likely to be familiar
with. For example, does it matter for Apple if Samsung launches a new model of mobile
phone? Or if they lower their prices? Should Apple react, and how?
Opening Case Discussion Guide
This case, Gulf Airlines challenge a global industry, explains how airlines based in the Gulf
region challenge traditional European and American airlines in their most profitable business:
long-haul connection. European airlines have been fighting back with aggressive pricing, new
offering and tighter restrictions. However, these measures cannot stop the expansion of Gulf
airlines. Gulf countries are raising their investment in airport capacity. Ask students what
they think traditional airlines should have done? What should they do now? Should Gulf
airlines now seek to intensify its competition with European and American airlines or seek
cooperation in some aspects of its business?
Chapter Outline, Section by Section
Section 1: Dynamics of Competition
Key Ideas
The introduction and the first section introduce the ideas of dynamic interaction between two
(or more) competing firms on the basis of the AMC framework.
Note that Haier, introduced in In Focus 13.1, stepped up its international competition by
acquiring GE’s household appliances in 2016.
Key Concepts
strategy
Objectives and a set of actions to achieve those objectives.
oligopoly
A market form in which a market or industry is dominated by a small number of sellers (oligopolists)
competitive dynamics
The actions and responses undertaken by competing firms.
competitor analysis
The process of anticipating a rivals’ actions in order to both revise a firm’s plan and prepare to deal
with rivals’ responses.
attack
An initial set of actions to gain competitive advantage.
counter-attack
A set of actions in response to an attack.
awareness, motivation, capability (AMC) framework
A conceptual framework indicating when firms are likely to attack and counterattack each other
blue ocean strategy
A strategy of attack that avoids direct confrontation
Section 2: Competition and Collusion
Key Ideas
This section looks at the tenuous balance between competing and cooperating. Cooperating
may often appear to be advantages for firms in oligopoly or duopoly markets, but such
collaboration is often harming customers (i.e. consumers) and thus tightly constrained by law.
We first discuss the inherent instability of cartels, before looking at more informal means of
collaboration.
Key Concepts
collusion
Collective attempts between competing firms to reduce competition.
tacit collusion
Firms indirectly coordinate actions by signalling their intention to reduce output and maintain pricing
above competitive levels.
explicit collusion
Firms directly negotiate output, fix pricing, and divide markets.
cartel
An entity that engages in output- and price-fixing, involving multiple competitors.
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
A theory on how agents interact strategically to win
repeated game
A game plays over several periods of time
tit-for-tat
A strategy of matching the competitors move being either aggressive or accommodative
concentration ratio
The percentage of total industry sales accounted for by the top four, eight, or twenty 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.
barriers to entry
Start-up costs or other obstacles that prevent new competitors from easily entering an industry or
market segment
multimarket competition
Firms engage the same rivals in multiple markets.
market commonality
The overlap between two rivals’ markets
cross-market retaliation
The ability of a firm to expand in a competitor’s market if the competitor attacks in its original market.
Section 3: Institutions Governing Competition
Key Ideas
This section investigates closer the legal constraints on collusion, with a special focus on the
rules and regulations created by the European Commission that are relevant for any business
operating across borders in Europe. It explains the concept used by the Commission (and
their counterparts in other countries) to assess whether collusion is illegal or not. A further
discussion in this section considers anti-dumping policies as a means of competition policy.
This section has been substantially extended and updated in the second edition. Note the
practical examples of firms fined in Germany for colluding (In Focus 13.2) and the role of
patent law in shaping competition (In Focus 13.4).
Key Concepts
competition policy (anti-trust policy)
Policy governing the rules of the game in competition in a country.
anti-trust policy
US term for competition policy
collusive price setting
Price setting by monopolists or collusion parties at a higher than competitive level.
leniency program
A program that gives immunity to members of a cartel that first report the cartel to the authorities
market division collusion
A collusion to ivied markets amongst competitors
anti-competitive practices (by a dominant firm)
Business practices by a dominating firm that make it more difficult for competitors to enter or survive
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 below cost abroad and planning to raise prices after eliminating local rivals.
Section 4: Resources Influencing Competition
Key Ideas
This section applies the VRIO framework to discuss how resources are important for firms to
be able to build competitive positions.
Key Concepts
patent race
A competition of R&D units where the one first to patent a new technology gets to dominate a market
Section 5: Debates and Extensions
Key Ideas
This section presents a special discussion section on how companies can compete during a
major downturn. Stimulated by the 2008/09 recession, this section answers the call for
relevance. The first debate concerns survival restructures during a recession, and the second
debate distinguishes long-term strategies that may be launched during a recession. Its main
message is that companies have to think both short term (ensuring cash flow) and long-term
(building market positions).The third debate concerns strategies that local firms may pursue
against apparently over-mighty MNEs, stimulated by Dawar and Frost’s HBR paper.
Key Concepts
survival strategy
A strategy designed to ensure survival by ensuring liquidity and positive cash flow.
economic forecasting
A technique using econometric models to predict the likely future value of key economic variables
scenario planning
A technique generating multiple scenarios of possible future states of the industry
contingency plan
plans devised for specific situations when things could go wrong
defender strategy
This strategy centres on leveraging local assets in areas in which MNEs are weak.
extender strategy
This strategy centres on leveraging home-grown competencies abroad.
dodger strategy
This strategy centres on cooperating through joint ventures (JVs) with MNEs and sell-offs to MNEs.
contender strategy
This strategy centres on a firm engaging in rapid learning and then expanding overseas.
Section 6: Implications for Practice
Key Ideas
The concluding section emphasizes the needs for competitor analysis, understanding the rules
of the game, and strengthening capabilities to compete.
Key Concepts
No new concepts
Review Questions
Review questions are provided to students on the website accompanying the book. They
directly ask to summarize the material provided in the text. Instructors may also use the
questions to structure their lectures or review sessions.
Review Questions
(as provided to students on the website)
Material in the Book
1. What is competitive dynamics in an oligopolistic
industry setting?
2. How do awareness, motivation and capabilities
influence competitors reaction to a competitive
attack?
3. How can we use concepts from game theory to
explain the challenges of maintaining a collusive
agreement?
4. Under which industry condition is collusion
between competitors more or less feasible?
5. How can companies use signalling in a competitive
setting?
6. How do institutions shape the intensity of
competition?
7. How does competition policy aim to prevent
collusion between competitors?
8. What are anti-competitive practices, and how are
they constrained by institutions?
9. Why do many competition authorities have
leniency programs?
Page 362-363
Page 362-363
Page 364-366
Page 366-367
Page 367-368
Page 368-372
Page 368-372 (including In
Focus 13.2)
Page 371
Page 369
10. Explain the difference relationship between
‘predatory pricing’ and ‘dumping’?
11. How do resources of the firm shape their
competitive actions?
12. What is the role of patents in competition?
13. How can companies compete during a global
recession when markets are collapsing?
14. How can small local firms compete with big
multinational enterprises?
15. What are the main lessons to be drawn for
strategizing for competition in an oligopoly?
Page 371-372
Page 373-375
In Focus 13.4
Page 375-376
Page 377-378
Page 378
Critical Discussion Questions
At the end the chapter, we provide discussion questions that aim to stimulate students
thinking beyond memorizing the material learned in the chapter. They are designed to be
used at a basis for in-class discussions, group work, or individual assignments. Below,
provide some indicative answers of issues that may be raised in response to these questions.
Discussion Questions
(as provided in the book)
Indicative Responses
1. As CEO, you feel the price war in
your industry is undermining profits
for all firms. However, you have been
warned by corporate lawyers not to
openly discuss pricing with rivals,
who you know personally (you went
to school with them). How would you
signal your intentions?
devastated by non-EU imports. Trade
These questions challenge student to both
demonstrate their strategic thinking and
argumentation, but also their awareness
for the rules of the games and for ethical
behaviours.
1. A hard-nosed competitive student may
devise creative ideas such as initiating
a class reunion by contacting the rival.
Strongly ethically oriented students
may argue that such actions would be
lawyers suggest filing an antidumping
case against leading foreign rivals in
China and assure you a win. Would
you file an antidumping case or not?
Why?
3. As part of an attack, your firm (firm
A) announces that in the next year, it
intends to enter country X, where the
competitor (firm B) is very strong.
“fool” B, customers, suppliers,
investors, and the media are also being
2. As a short-term oriented CEO, most
would probably argue for the filing
anti-dumping case. Long-term oriented
CEOs may use the opportunities to
kick their own organization to improve
its productivity to fight back.
3. This is a question in which the answer is
not as important as the thought process
and the ability to clearly articulate.
However, if firm A has explicitly
actually work and the con include the
possibility that the lie would be
Closing Case
Google” and focuses on the challenges faced by Google in navigating European competitions
policy. Similar challenges were encountered especially by Microsoft and Facebook, which
students likely will have read about in the media. Below are some indicative responses to the
case discussion questions.
Case Discussion Questions
(as provided in the book)
Indicative Responses
1. As Google, how would you develop
your business in Europe?
2. As a software entrepreneur in Europe,
how would the dominance of
Microsoft and Google in their
respective segment influence your
strategy?
3. As a member of the European
Parliament, is there any action that
you should take?
These questions challenge students to
demonstrate their abilities to think and argue
strategically.
1. A key aspect is that it is important for
Google to “play by the rules.’ We could
explore this question from institution-based
view: “Google’s managers need to be well
versed in European rules of the game
governing competition”,
2. As a local software enterprise in Europe, it
is facing more intense competition than
other industry. The priority is how to
survive in the face strong competitors
(Microsoft and Google).
Further Learning Activities
sales coming from the largest manufacturing companies in an industry can be used as a proxy.
Based on this approach, categorize the following four industries from most to least
concentrated by using the sales of the top four companies in the report you locate: aerospace
and defense, beverages, chemicals, and food. Which countries are represented across these
four industries? What insights concerning competitive dynamics in each industry can your
evaluation provide?
Exercise 1 Answers
One resource which can be used is “IndustryWeek: IW 1000 – World’s Largest
Manufacturing Companies”. This website can be found by entering the search term “largest
manufacturing companies” at the globalEDGE™ Resource Desk search box located at
http://globaledge.msu.edu/resourceDesk/. Once at the IndustryWeek: IW 1000 – World’s
Largest Manufacturing Companies website, find the most recent report (you may need to
scroll down a little)). Based on the data in the 2009 report, the percentage of industry sales
2. The structure of international trade and tariff systems is highly complex. To maintain order,
the United Nations Conference on Trade and Development (UNCTAD) has developed a
coding system that categorizes the different trade control measures that may be required when
conducting business internationally. Find this coding system and then outline the nature of the
main categories included.
Exercise 2 Answers
One resource which can be used is “UNCTAD–TRAINS”. This website can be found by
For use with Peng and Meyer, International Business 3e, 9781473758438, © Cengage Learning
EMEA 2019
Further Readings
At the end the chapter, suggested further readings are provided. The primary aim is to
provide students a starting point for further work, for example when preparing a class
assignment or dissertation. These references also are recommended for instructors not
familiar with the topic and wishing to ‘get ahead of the students’ before lecturing on a topic.
M.J. Chen & D. Miller, 2015, Reconceptualizing competitive dynamics: A multidimensional framework,
SMJ, 36: 758–775. – theoretical paper that updates the awareness, motivation and capability framework on
dynamic competition.
G. S. Day & D.J. Reibstein, 1997, Wharton on Dynamic Competitive Strategy, New York: Wiley – A
collection of essays by professors association with Wharton sharing their ideas on practical aspects of how
to compete.
A. Dixit & B. Nalebuff, 1991, Thinking Strategically, New York: Norton – a very practical book that
extracts ideas from game theory that help businesses (and individuals) make decisions in competitive
situations.
E. Fox & D. Gerard, 2017, EU Competition Law: Cases, Text and Context, Cheltenham: Edward Elgar –
introductory textbook on competition law written by law professors.
E.J. Morgan, 2009, Controlling cartels – Implications of the EU policy reforms, EMJ, 27: 1-12 – a
synthesis of the institutional framework regarding collusion and cartels in the EU.
D.F. Spulber, 2007, Competitive Strategy, Cambridge: Cambridge University Press – a strategy textbook
that focuses on competition in the global economy.