Chapter 12 – Managing Competitive
Dynamics
Competitive dynamics are 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’ response
Collusion is collective attempts between competing firms to reduce
competition
Tacit collusion is when firms indirectly coordinate actions by signaling their
intention to reduce output and maintain pricing above competitive levels
Explicit collusion is when firms directly negotiate output and pricing and
divide markets
Cartel (trust) is an output-and price-fixing entity involving multiple
competitors
An antitrust law is a law that outlaws cartels (trusts)
Prisoners’ dilemma is a type of game in which the outcome depends on two
parties deciding whether to cooperate or to defect
Game theory a theory that studies the interactions between two parties that
compete and/or cooperate with each other
Concentration ratio is the percentage of total industry sales accounted for by
the top four, eight, or twenty firms
Price leader is a firm that has a dominant market share and sets “acceptable”
prices and margins in the industry
Capacity to punish is sufficient resources possessed by a price leader to deter
and combat defection
Market commonality is the degree of overlap between two rival’s markets
Multimarket competition is when firms engage the same rivals in multiple
markets
Mutual forbearance is when multimarket firms respect their rivals’ spheres of
influence in certain markets, and their rivals reciprocate, leading to tacit
collusion
Mutual forbearance primarily stems from two factors due to a high degree of
market commonality:
o Deterrence is important because a high degree of market commonality
suggests that if a firm attacks in one market, its rivals may engage in
cross-market retaliation
o Familiarity is the extent to which tacit collusion is enhanced by a
firm’s awareness of the actions, intentions, and capabilities of rivals
Cross-market retaliation is retaliatory attacks on a competitor’s other
markets if this competitor attacks a firm’s original market
Competition policy is government policy governing the rules of the game in
competition
o Broadly guides formal institutions governing domestic competition
o Determines the institutional mix of competition and cooperation that
gives rise to the market system
Dynamics
Competitive dynamics are 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’ response
Collusion is collective attempts between competing firms to reduce
competition
Tacit collusion is when firms indirectly coordinate actions by signaling their
intention to reduce output and maintain pricing above competitive levels
Explicit collusion is when firms directly negotiate output and pricing and
divide markets
Cartel (trust) is an output-and price-fixing entity involving multiple
competitors
An antitrust law is a law that outlaws cartels (trusts)
Prisoners’ dilemma is a type of game in which the outcome depends on two
parties deciding whether to cooperate or to defect
Game theory a theory that studies the interactions between two parties that
compete and/or cooperate with each other
Concentration ratio is the percentage of total industry sales accounted for by
the top four, eight, or twenty firms
Price leader is a firm that has a dominant market share and sets “acceptable”
prices and margins in the industry
Capacity to punish is sufficient resources possessed by a price leader to deter
and combat defection
Market commonality is the degree of overlap between two rival’s markets
Multimarket competition is when firms engage the same rivals in multiple
markets
Mutual forbearance is when multimarket firms respect their rivals’ spheres of
influence in certain markets, and their rivals reciprocate, leading to tacit
collusion
Mutual forbearance primarily stems from two factors due to a high degree of
market commonality:
o Deterrence is important because a high degree of market commonality
suggests that if a firm attacks in one market, its rivals may engage in
cross-market retaliation
o Familiarity is the extent to which tacit collusion is enhanced by a
firm’s awareness of the actions, intentions, and capabilities of rivals
Cross-market retaliation is retaliatory attacks on a competitor’s other
markets if this competitor attacks a firm’s original market
Competition policy is government policy governing the rules of the game in
competition
o Broadly guides formal institutions governing domestic competition
o Determines the institutional mix of competition and cooperation that
gives rise to the market system
