Co-Opetition - Adam M. Brandenburger [138]
6. Rules
1. Richard H. Rovere, Senator Joe McCarthy (New York: Harcourt, Brace & World, 1959), p. 65. Harold J. Laski (1893–1950) was a controversial English intellectual who greatly influenced the British socialist movement from World War I on.
2. The term “most-favored-nation clause” reflects its use in international trade where all countries so designated are given the lowest tariffs of any trading partners.
3. If Adam would have had to make the same concession later on anyway in order to close a deal in one of the subsequent negotiations, then it doesn’t cost two dollars. However, at the time of the first few negotiations, Adam doesn’t know what he’ll have to do later on. Since Adam can never go back, agreeing to a new low price has two costs for Adam. First, he has to give the same deal to Tarun. Second, the more generous Adam is in the earlier rounds, the harder it becomes to use Tarun as a foil in the later rounds.
4. Originally, Congress passed the Communications Act of 1934, which guaranteed members “lowest unit cost” (LUC) advertising from broadcasters. The act was amended by the Federal Election Campaign Act of 1971, which modified some of the original provisions regarding the period that candidates can purchase LUC advertising and other items, such as preemption of ads.
5. Fortune, December 27, 1993, p. 120.
6. Fiona Scott Morton, “The Strategic Response by Pharmaceutical Firms to the Medicaid Most-Favored-Customer Rules,” RAND Journal of Economics, vol. 28, no. 2, 1997.
7. Fortune, December 27, 1993, p. 120.
8. The traditional story, which has Cortés burning his ships, is in W. H. Prescott, The History of the Conquest of Mexico, vol. 1 (London: Gibbings & Co., [1843], 1896), chapter 8. For an account based on more modern research, see Hugh Thomas, Conquest: Montezuma, Cortes and the Fall of Old Mexico (New York: Simon & Schuster, 1993), pp. 222–24. Thomas says that the legend of burning the ships arises from an error, where a reference to boats breaking (Spanish quebrando) in a contemporary document was misread as burning (quemando). For more on the strategic analysis of this story, see Avinash Dixit and Barry Nalebuff, Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life (New York: W. W. Norton, 1992), and Richard Luecke, Scuttle Your Ships Before Advancing (New York: Oxford University Press, 1994).
9. Wall Street Journal January 28, 1994.
10. The problem is that these contracts are hard to enforce when the information isn’t public. For example, Gordie Howe, one of the great hockey players of all time, was reportedly told that he had the highest salary in hockey but that he shouldn’t talk about it for fear of making other players jealous. Only later did he discover the real reason that management didn’t want him talking about his salary—it wasn’t the highest.
11. Salary caps in some of these sports create an extra layer of complexity which further changes the incentive to start bidding wars.
12. We are indebted to UCLA professor Sushil Bikhchandani for suggesting this application of the Card Game.
13. In the United States, many consumer electronics stores claim to have the same policy, but they don’t always have the lowest prices. Sometimes these stores will use the proliferation of model numbers and unimportant differences as a reason not to match someone else’s lower price. Other times the stores will exclude certain types of retailers (such as price clubs) from the universe of competitors they are willing to match.
14. In February 1993 GM launched the Gold card, raising the annual limit to $1,000 and the seven-year ceiling to $7,000.
15. Data from SMR Research Corp., Budd Lake, New Jersey. Also see “The Strategic Alliance That Produced the GM Card,” Direct Marketing Magazine, September 1993, p. 64.
16. In technical terms, demand for cars becomes less “elastic”—less sensitive to price.
17. This turn of phrase is due to