1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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