Game Theory 2

Reaction, Retaliation

- Signal that you have deterrent
- Overinvestment
> cost structure
> increase barrier to entry
> getting advantage of learning by doing
... make entrants believe this is unprofitable

- Underinvestment
> keep strong power to buyer / supplier
... figure out what is the key power in certain industry

- Punish the company which cheated
> punishment > profit it got
> keep short term profit < long term cost

- What make it difficult to punish
> small volume, differentiated products
- Make a reputation that you are likely to retaliate