Order backlogs and strategic pricing: the case of the U.S. large turbine generator industry

Ghemawat, Pankaj; McGahan, Anita M.

doi:10.1002/(sici)1097-0266(199803)19:3<255::aid-smj956>3.0.co;2-f

Cited by 21 publications

(7 citation statements)

References 17 publications

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“…For this reason I use game theory to study this question. Game theory is a particularly useful method for studying interactions when players' decisions are based on selecting optimal strategies according to the interdependency of the pay-offs to the various players (Camerer, 1991;Chen and MacMillan, 1992;Ghemawat and McGahan, 1998). 6 There is a long tradition of using game theory to analyze trade issues between governments (Brander and Spencer, 1985;Dixit, 1984;Krugman, 1986).…”

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confidence: 99%

“…7 6 Game theory has been used to account for the strategies of firms in cases where well-identified players' pay-offs depend on one another's choices, and interdependence is crucial when trying to maximize their respective pay-offs (Ghemawat, 1997: 76;Rasmusen, 1990). Game theory has also been used to explain firms' strategic responses to their competitors' actions (Chen and MacMillan, 1992;Ghemawat and McGahan, 1998;Porter and Spence, 1982), to account for the development of entrepreneurial behaviors (Arend, 1999), for reputation building (Weigelt and Camerer, 1988), or for the stability of alliances (Parkhe, 1993). In the international business literature, game theory has been used to explain the decision for firms to become multinational (Graham, 1998;Veugelers, 1995) and even to show how political and legal strategies could be integrated with international strategies, as in the case of Kodak vs. Fuji (Baron, 1997).…”

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confidence: 99%

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Global and political strategies in deregulated industries: the asymmetric behaviors of former monopolies

Bonardi

2003

Strategic Management Journal

114

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In deregulated industries former monopolies often adopt asymmetric behaviors: these firms impede the entry of foreign competitors in their home market, especially using defensive political strategies, and, at the same time, aggressively develop international strategies in foreign markets. To account for this behavior, I develop a game theoretic model involving three players: the former monopoly, its home government, and the host government of the country into which the firm wants to enter. I show first that there are in fact different asymmetric strategies that former monopolies can use in such a setting, and that a global strategy cannot always be implemented by those firms because of cooperation issues between the two governments. I also study the conditions under which these issues can be solved and show that this can happen only when the firm develops a political strategy that integrates both defensive and offensive activities. Overall, this paper therefore argues that asymmetric strategies are not always adopted to maintain monopoly rents but are also dictated by the nature of the international relationships between the governments involved.

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confidence: 99%

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confidence: 99%

Global and political strategies in deregulated industries: the asymmetric behaviors of former monopolies

Bonardi

2003

Strategic Management Journal

114

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“…Customers are visited by the …rms sequentially, 9 and, for each customer, once the marketing choices are taken, the active …rms simultaneously propose their prices. When we analyze price competition for the single customer, the crucial element is the amount of residual TOP obligations of the …rms, that enable them to serve the customer at zero marginal cost.…”

Section: Competition and Timingmentioning

confidence: 99%

Take or Pay Contracts and Market Segmentation

Scarpa

Polo

2007

SSRN Journal

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This paper examines competition in the liberalized natural gas market. Each .firm has zero marginal cost core capacity, due to long term contracts with take or pay obligations, and additional capacity at higher marginal costs. The market is decentralized and the firms decide which customers to serve, competing then in prices. In equilibrium each .firm approaches a different segment of the market and sets the monopoly price, i.e. market segmentation. Antitrust ceilings do not prevent such an outcome while the separation of wholesale and retail activities and the creation of a wholesale market induces generalized competition and low margins in the retail segment. Abstract This paper examines competition in the liberalized natural gas market. Each …rm has zero marginal cost core capacity, due to long term contracts with take or pay obligations, and additional capacity at higher marginal costs. The market is decentralized and the …rms decide which customers to serve, competing then in prices. In equilibrium each …rm approaches a di¤erent segment of the market and sets the monopoly price, i.e. market segmentation. Antitrust ceilings do not prevent such an outcome while the separation of wholesale and retail activities and the creation of a wholesale market induces generalized competition and low margins in the retail segment.

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“…Keser and Gardner (1999) discussed the use of game theory to predict the outcomes of common pool resource conflicts. Finally, Ghemawat and McGahan (1998) used game theory to predict the behaviour of a group of competing electricity generating companies. The writings of these researchers express or imply recommendations to apply game theory to particular types of conflict forecasting problems.…”

Section: Game Theorists' Preferencesmentioning

confidence: 99%

Game theory, simulated interaction, and unaided judgement for forecasting decisions in conflicts: Further evidence

Green

2005

International Journal of Forecasting

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When people in conflicts can accurately forecast how others will respond, they should be able to make better decisions. Contrary to expectations, earlier research found game theorists' forecasts were less accurate than forecasts from student role players. To assess whether game theorists had been disadvantaged by the selection of conflicts, I obtained forecasts for three new conflicts of types preferred by game theory experts. As before, role-players in simulated interactions were students, and other students forecast using their judgement. Game theorists did better than previously. However, when the three new and five earlier conflicts are combined, 101 forecasts by 23 game theorists were no more accurate (31%) than 354 forecasts by students who used unaided judgement (31%). Experienced game theorists were not more accurate. Neither were those who spent more time on the task. Of 105 simulated-interaction forecasts, 62% were accurate: an average error reduction of 47% over game-theorist forecasts and a halving of error relative to the current method. Forecasts can sometimes have value without being strictly accurate. Assessing the usefulness of forecasts led to the same conclusions about the relative merits of the methods. Finally, by combining simulated interaction forecasts, accurate forecasts were obtained for seven of the eight situations.

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Order backlogs and strategic pricing: the case of the U.S. large turbine generator industry

Cited by 21 publications

References 17 publications

Global and political strategies in deregulated industries: the asymmetric behaviors of former monopolies

Global and political strategies in deregulated industries: the asymmetric behaviors of former monopolies

Take or Pay Contracts and Market Segmentation

Game theory, simulated interaction, and unaided judgement for forecasting decisions in conflicts: Further evidence

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