The concept of first mover advantage is widely used in gametheoretical Essay

The concept of first mover advantage is widely used in gametheoretical models and international trade theories. Discuss it in th - Essay Example A perfect example of first movers includes companies such as, Coca-cola and eBay, who were the first companies to enter their respective market. Where Coca-cola was first company to produce cola and made their products available to the public in 1886, eBay was the first company to introduce the auction process online in 1995. Both these companies have been a recurrent powerhouse in their respective industries ever since they were founded. It has been witnessed very often that first movers are generally pursued by competitors who try to capitalize on the original company’s success, brand value and recognition. They try and acquire the market that has already been penetrated by the first moving company (Poulsen, 2007). The competitors try and bring about certain modifications and improvements in their product line and make them available to the public in order to market their products, as being better than the products offered by the first moving company. However, by the time th e competitors lay their foundation in the already penetrated market, the first mover has already accumulated huge market share, customer loyalty, satisfaction and expertise in this particular field of work, which is required to stay at the pinnacle (Markides and Sosa, 2013). ... One of the crucial characteristics as far predicting the second mover’s reaction is concerned, is the second mover’s payoff function. First mover advantage is associated with pioneering products that benefit from advantages attained from a long-term market share. In addition to that, they also enjoy advantages in distribution of those products, the improved product-line, breadth, and quality (Chen and Pereira, 1999). First mover advantages are characterized by a pioneering firm’s ability to earn positive economic profits (profits in excess of the cost of capital). First mover advantages transpire endogenously within multi-stage process (Lieberman and Montgomery, 2002). The multi stage process is depicted in figure 1. The first stage involves the generation of an asymmetry that enables a particular company to gain competitive advantage over the rival companies. This opportunity to make the first move is a result of the firm’s possession of some unique infor mation sources or foresight or may be simply out of luck. Once this asymmetry is established, a firm may be able to exploit its advantageous position by following variety of mechanisms. These mechanisms thereby enhance the durability and magnitude of the first mover profits. Figure 1: Endogenous generation of first mover advantages (Source: Lieberman and Montgomery, 2002) Game theory Game theory is the process of modelling the strategic interaction between two or more players in a situation containing set rules and outcomes (Heap and Varoufakis, 2004). While used in a number of disciplines, game theory is most notably used as a tool within the study of economics. The economic application of game theory can be a valuable tool to aid the fundamental

Answer questions Essay Example | Topics and Well Written Essays - 2000 words

Answer questions - Essay Example Value based pricing focuses on the usability and value a product adds to the life of the consumer. Rather than fixing prices with the intention of covering the cost incurred in production of a product, a company fixes the price depending on the value it adds to the consumer’s life. Value can be measured in terms of increased efficiency in conducting business activities, improvement in general standards of living and other qualitative measures. Examples of businesses that use this strategy include software companies and producers of medical products. Being a computer and electronics company that seeks to solve the computing needs of our clients, we use the value that the product adds to the lives of our clients to determine how much it is worth. The company also produces a number of personalized software products for its clients. This is a good strategy because rather than concentrating on the metrics in terms of cost of coming up with a product, the company is more concerned with the utility that a client derives from it. It makes no sense for a customer to pay for a product just to cover the cost of producing it while it adds no value to his/her life. Traditional approaches of penetrating the market favor charging a low price for a product when a business enterprise is initially entering into a market niche. Chances are high that there were previously existing businesses on the market before it came in and therefore, charging lower prices may capture the attention of the target market. Once it has established a reliable customer base and gained ground in the market, it should take advantage of strategies such as increasing prices or large-scale production to boost profits. This is effective in countering competition especially because of the seemingly low profits. Skimming on the other hand favors charging high prices for products as they are being introduced into the market. The main aim