Strategy and Competition – Part 1
Part 1
The Group B – Strategy and Competition Workshop research was on a company in both footwear and women’s businesses. The Under Armour targets a niche market in the leisure and connected fitness sectors. The largest shareholder of the market is Nike with 51%, while the entrant has a 15% share. Thus, Nike is the incumbent company while Under Amour is the closest competitor in the industry. The economics concepts discussed in this essay are game theory, Cournot Game and Bertrand Model, Critical Time Line, and Nash equilibrium.
Game theory is applied in strategic management by organization with the aim of coming up with possible alternatives related to prices and moves of competitors. It is from the patterns that a company could make decisions on the strategy to adopt to remain competitive. Game theory is concerned with the prediction of the outcome of the games of strategy whereby a few participants compete. McNutt (2013) pointed out the role of the game theory is to identify the players involved in the game (such as Nike, Adidas, and Reebok) and the player’s type. In addition, it entails finding the patterns and trends adopted by rival behaviour. Thus, game theory is about the acquisition of information on the opponent type to establish the action and reactions, belief systems, and recognised interdependence. In the workshop research, technology for sports apparel was established as the consumer’s preference in the game. The companies use information gathered via game theory to make rational decisions. Simon (1956) argued that the management of organizations was bounded rational in decision-making, whereas Penrose (1958) contended that management was in its nature limited in its abilities.
Nike is the dominant incumbent because it has at least 40% of the market share (51%), which implies that it controls and determines the prices of the products in the industry. Technology is a major factor that is considered by the two companies in the industry. Turocy and von Stengel (2001) pointed out that a “ Nash equilibrium, also called strategic equilibrium, is a list of strategies, one for each player, which has the property that no player can unilaterally change his strategy and get a better payoff” (p.3). Thus, as an important concept in economics and management that is used to describe a situation where all the involved participants pursue their best possible strategies to remain competitive. For instance, both companies have based on wearable technology and partnerships with companies in the technology industry such as Flextronics, Apple, HP, and IBM. As a first move, the goal of Nike is to win while Under Armour is to be competitive and not to lose. According to the e first-mover advantage, a player who is the market leader is not worse off when compared to the original game in case the players act simultaneously (Rasmusen, 2001). In the case of Nike, the first mover game has become disadvantageous.
Critical Time Line entails the observations of the behavior of competitors in terms of actions in order to know the manner in which to react. The key to understanding the kind of strategy used by others in an industry is by understanding the behavior, and subsequently infer from observed behavior the most likely actions and reactions of management (McNutt, 2013). A failure to understand rival competitor behavior could result in poor decision-making. Therefore, it is the role of the management to undertake a closer observation of behavior and patterns found in the signals. Although the patterns and trends could be hard to establish, clear observations are required. For example, in the Worship, the patterns were observed based on Under Armour and Nike in terms of their actions and reactions between 2013 and 2016. As pointed out by Samuelson (2002) patterns and trends emerge in the observed behaviors, patterns to achieve growth via acquisition as in the case of both Under Armour and Nike. In this case, the patterns usually develop a critical timeline (CTL) that is composed of the observed actions (McNutt, 2009). It is through the unfolding of the CTL that a strategy is revealed.
Firms in a market can compete on various levels and variables, for example, the companies could compete based on their quantity, choices of prices, and quality (Rasmusen, 2001). In most cases, competition is based on the pricing choices and this is explained via the Bertrand Model. This model is used to assess the interdependence between the decisions of the rivals based on pricing decisions (McNutt, 2009). In the workshop research, it was established that competition in the market is predominantly based on innovation and technology, as opposed to positioning themselves on price. Thus, the Bertrand Game was not applicable because the firms in the market are more than one, the goods produced are not homogenous, the firms do not set the prices simultaneously, and the firms do not have the same marginal cost. In this case, Nike and other shoemakers use shoe innovation, while Under Armour's innovation is lacking, and this has caused Under Armour to remain less competitive in the industry (Derrick, 2017). Thus, for Under Armour, the possible strategy would be investing more in technology and being innovative in its products in order to acquire more market share.
Introduced by Augustin Cournot, the Cournot Game is a simple model of duopolies used by companies. The model is based on the assumption that only a single market for the goods produced exists, collusive behavior is not allowed, it is hard for new companies to enter the market, and few firms produce indistinguishable and homogeneous goods (McNutt, 2009). In the Cournot model, the output quantity is the strategic variable. For instance, in the case Nile and Under Armour operate under the Cournot Game. For instance, both brands are using this as a De novo fighting ship in order to generate a user base to gather big data to support their core business. The implication is that firms make decisions on the quantity of the goods to produce. In addition, both firms have knowledge of the market demand curve and understand the cost structures of each other.
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