Following points are considered to structure the essay:
- Game theory adds value to the strategy choice of adidas in a competitive game.
1) Pricing elasticity: how consumers made choice / switch / Nike vs adidas
Evaluation of strategy
Nike has a high brand loyalty. For adidas. Consumers are highly cross price inelastic. adidas can
-Compete on price to change consumer’s preference
-Focus on the strength.
-Think about economics of strategy: incentive structures, imbalances; game theory
-How likely they can get Nike’s consumers to switch? (Price / additional value / branding)
For adidas, in order to switch Nike’s customers to adidas, they can do…
- What they do really depend on the actions of our rival
- Broad idea is thinking about what their best action is given what their rival is likely to do.
- Look at the game from the perspective of other players
- What they do will trigger the response of theirrival
- Future look
- What is the best option?
- Help to look at the range of options, look at the range of responses might be; try to anticipate the most likely response and organize themselves accordingly
- What is the value added by applying economic concepts?
1) Market entry:
Endorsement (prisoner dilemma, Nash equilibrium)
2) Product launch (T3)
Technology (Challenge of technology)
3) Barriers to entry and risks of new entry
3) Economies of scale and economies of scope (golf, basketball, football, etc.)
If a firm has advantage of Economies of scale- they have potential to offer lower price
If a firm has advantage of Economies of scope-they can bundle one product with another product to make a more attractive product
4) First mover advantage
- Technology leadership – First movers can make their technology/ product/ services harder for later entrants to replicate.
- Control of resources – The second benefit is the ability to control strategic and/or scarce resources. Second mover advantage
- Buyer-switching costs – The third benefit that first movers may enjoy is buyer-switching costs.
5) Second mover advantage
- Customer development
- Product management (learn about what works the best)
- Customer acquisition (1st mover cost time and money to test multiple channels)