Chapter 11 in Competition Demystified: Games Companies Play, Of Interest

Obvious prospects for physical growth in a business do not translate into obvious profits for investors.–Ben Graham

Games Companies Play: A Structured Approach to Competitive Strategy, Part II Entry/Preemption Games.

This chapter may help you with your case study in Fox Broadcasting (Previous post found here:http://wp.me/p1PgpH-AK).

Question 1: What are the four characteristics of entry/preemption or “quantity” competitive situations that differ from pricing issues?

Question 2: What can a potential entrant do to discourage incumbents from resisting its entrance?

Question 3: You are faced with analyzing a competitive industry, and you want to understand what the players might do. Describe what techniques you might use to accomplish this analysis.

Weekend Reading

Ben Bernanke gives his point of view: http://www.theatlantic.com/magazine/archive/2012/04/the-villain/8901/

Prize awarded to anyone who can explain the following. If central planning of an economy has been shown repeatedly to fail–witness USSR, Communist China, Cuba, North Korea, Welfare Europe–how can the Federal Reserve succeed in manipulating interest rates for a multi-trillion dollar economy?

How is Ben doing? Purchasing Power Calculator:   http://www.bls.gov/data/inflation_calculator.htm

Corporate compensation or Failure is the New Success:http://prudent-speculation.blogspot.com/2012/03/gimme-failure-baby.html  Why is this not surprising?  Why do corporate CEOs receive such distorted compensation. Hint: follow the money!

The government builds a listening center. Comforting. http://www.wired.com/threatlevel/2012/03/ff_nsadatacenter/all/1

Next week while you do your case studies, we will discuss how to read a Value-Line Tear Sheet.  Do you know that almost any major library will have Value-Line available on-line for your use from home? It doesn’t get better than that!

Have a good weekend.

2 responses to “Chapter 11 in Competition Demystified: Games Companies Play, Of Interest

  1. Hi John, I was wondering how you incorporate this aspect of competitive analysis (games companies play) into your investment process. Prisoner’s Dilemma, Entry/Preemption and simulations.

    Is it useful as framework for thinking about businesses and competition?

    Thanks.

    • Dear Logan:

      I do not use game theory in my work, but I do think about the competitive responses amongst competitors when looking at an industry.
      The cereal industry (Kellogg’s and General Mills) plays nice–little price competition. How do Sotheby’s and Christie’s compete. Do they allow certain segments of the art market to each other?

      At least the Prisoner’s Dilemma forces you to always think of how others respond.

      Also, I watch if a market increases then I would sell the company that dominated in that niche. Getty Images (GYI) now private used to dominate the stock photo business, then digital photography and the Internet opened up the market and competitors rushed in to sell photos that were just “good” enough. Profitability for Getty was decimated.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.