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Class Notes 9 Takeaways: Momo Deretic Sauder School of Business
Class Notes 9 Takeaways: Momo Deretic Sauder School of Business
Momo Deretic
Sauder School of Business
Lecture 7 says international location strategy
depends on four factors
-factor advantages
-PlEoS
-trade costs
-market size
This lecture says we need to take into
consideration interactions of competitors FDI
decisions, although it is NOT the critical factor. 2
1. Should competitors stay together or
separately? (Space dimension) Strategic
complementarity
Marketing-crowding effects
Agglomeration effects
Two normal-form games
2. Timing of entry decisions (Time dimension)
First Movers Effects
First-mover advantages
Second-mover advantages (fast-followers
advantages)
One game involving several effects
3. Summary
Location Choices for
McDonald and KFC
A symmetric case
KFC
Beijing Shenzhen
McDonald
Beijing 5, 5 10, 10
Shenzhen
10, 10 5, 5
Indifferent between two locations
Firms want to avoid each other.
Market-crowding effects
Market-crowding effects
When there is a nearby
competitor, the company has to charge a lower
price and surrender market share.
7
Location Choices for
McDonald and KFC
The previous pay-off form shows that the
two firms avoid choosing the same local
marketspatially separate themselves
Beijing 8, 8 5, 5
Shenzhen 5, 5 10, 10
Beijing 5, 5 8, 10
Shenzhen 10, 8 7, 7
Different locations are better than co-location in Shenzhen.
Whoever moves first will choose Shenzhenand earn higher
profits! This is an example of a first-mover advantage.
First-mover Advantages (FMAs)
Definition
An advantage gained by the first significant
company to move into a new market
Notice
First-mover long-run business success
Features
No competitormonopolisthigh profit margin
high market shares
How could FMAs lead to long-run
business success? Channels?
Loyalty to brand
Localized and non-shared learning curve
AC declines when cumulative output rises
Market not large enough to accommodate two
firms
Exclusive dealing contracts
Leverage the current monopoly power to the next
period
Network economies
e.g. Personal bank business
Second-mover Advantages (SMAs)
Sometimes being the first-mover has disadvantages.
What leads to second-mover advantages in production
location decisions?
Free-ride on investments made by the first mover
First mover already taught local consumers about product
First mover already taught local workers about modern
production
First mover already settled legal issues with local
government
Copying first movers successful decisions helps
second-mover lower risk of making bad choices in an
unfamiliar environment