What is Strategy?

Five of the most frequently used and dependable strategic approaches to setting up a
company apart from rivals, building strong customer loyalty, and gaining a competitive edge
are :-

1. A low-cost provider strategy: Achieving a cost-based advantage over rivals.

Example - Walmart and Southwest Airlines.
2. A broad differentiation strategy: Seeking to differentiate the company products
from the competitors in a way to appeal to a broad spectrum of customers. Example -
Apple (Innovative Products), Johnson & Johnson in baby products (Product
reliability), Rolex (Luxury and Prestige), and BMW (Engineering Design and
Performance).
3. A focused low-cost strategy: concentrating on a narrow buyer segment (or narrow
market niche), and outperforming rivals by having lower costs, and thus being able to
serve niche members at a lower price. Example - IKEA’s emphasis on modular
furniture, ready for assembly, makes it a focused low-cost strategy player in
the furniture industry.
4. A focused differentiation strategy: Concentrating on a narrow buyer segment, and
outperforming rivals by offering buyers customised attributes that meet their
specialised needs and tastes better than the rivals’ products. Example - Lululemon
specialises in high-quality Yoga Clothing, and attracting a set of devoted
buyers in the process. Tesla Inc. with electric cars. LinkedIn in the business
and employment aspects of social networking. Goya Foods in Hispanic food
products.
5. A best cost-provider strategy: Giving customers more value for the money by
satisfying their expectations on key quality features, performance, and/or service
attributes while beating their price expectations. It’s a blend of low-cost provider
strategy and differentiation strategy. Example - Rodarte, Victoria Beckham, and
Jason Wu), as well as a more appealing shopping ambience for dis- count
store shoppers.

What Makes A Strategy A Winner?

1. The Fit Test: How well does the strategy fit the company’s situation?
To qualify as a winner, a strategy has to be well matched to industry and competitive
conditions, a company’s best market opportunities, and other pertinent aspects of the
business environment in which the company operates. A winner strategy must exhibit
a good external fit w.r.t. prevailing market conditions, and internal fit w.r.t. company’s
ability to execute the strategy in a competent manner. Winning strategies also exhibit
dynamic fit in the sense that they evolve over time in a manner that maintains close
and effective alignment with the company’s situation even as external and internal
conditions change.
2. The Competitive Advantage Test: Is the strategy helping the company achieve
a competitive advantage? Is the competitive advantage likely to be
 sustainable? Winning strategies enable a company to achieve a competitive
advantage over key rivals that are long-lasting. The bigger and more durable the
competitive advantage, the more powerful it is.
3. The Performance Test: Is the strategy producing superior company
performance? Two kinds of performance indicators tell the most about the calibre of
a company’s strategy: (1) com- petitive strength and market standing and (2)
profitability and financial strength.

What Does The Strategy-Making, Strategy-Executing Process

Entail?

1. Developing a strategic vision, that charts the company’s long-term direction, a mis-
sion statement that describes the company’s purpose, and a set of core values to
guide the pursuit of the vision and mission.
2. Setting objectives for measuring the company’s performance and tracking its
progress in moving in the intended long-term direction.
3. Crafting a strategy for advancing the company along the path management has
charted and achieving its performance objectives.
4. Executing the chosen strategy efficiently and effectively.
5. Monitoring developments, evaluating performance, and initiating corrective
adjustments in the company’s vision and mission statement, objectives, strategy, or
approach to strategy execution in light of actual experience, changing conditions,
new ideas, and new opportunities.

The Components of a Company’s Macro-Environment

The six components of a company’s macro-environment

1. Political Factors: Tax policy, fiscal policy, tariffs, the political climate, and the
strength of institutions such as the federal banking system.
2. Economic Conditions: The general economic climate and specific factors such as
interest rates, exchange rates, the inflation rate, the unemployment rate, the rate of
economic growth, trade deficits or surpluses, savings rates, and per-capita domestic
product.
3. Sociocultural Forces: Sociocultural forces include the societal values, attitudes,
cultural influences, and lifestyles that impact demand for particular goods and
services, as well as demographic factors such as the population size, growth rate,
and age distribution.
4. Technological Factors: Technological factors include the pace of technological
change and technical developments that have the potential for wide-ranging effects
on society, such as genetic engineering, nanotechnology, and solar energy
technology. They include institutions involved in creating new knowledge and
controlling the use of technology, such as R&D consortia, university- sponsored
technology incubators, patent and copyright laws, and government control over the
internet.
5. Environmental Forces: These include ecological and environmental forces such as
weather, climate, climate change, and associated factors like flooding, fire, and water
shortages. These factors can directly impact industries such as insurance, farming,
energy production, and tourism. They may have an indirect but substantial effect on
other industries such as transportation and utilities.
6. Legal and Regulatory Factors: These factors include the regulations and laws with
which companies must comply, such as consumer laws, labour laws, antitrust laws,
 and occupational health and safety regulation. Some factors, such as financial
services regulation, are industry-specific. Others affect certain types of industries
more than others.

The Five Forces Model of Competition: A Key Analytic Tool

● Rivalry increases when buyer demand is growing slowly or declining. In
markets where buyer demand is slow-growing or shrinking, companies eager to gain
more business are likely to engage in aggressive price discounting, sales
promotions, and other tactics to increase their sales volumes at the expense of rivals,
sometimes to the point of igniting a fierce battle for market share.
● Rivalry increases as it becomes less costly for buyers to switch brands. The
less costly (or easier) it is for buyers to switch their purchases from one seller to
another, the easier it is for sellers to steal customers away from rivals.
● Rivalry increases as the products of rival sellers become less strongly
differentiated. When the offerings of rivals are identical or weakly differentiated,
buyers have less reason to be brand-loyal—a condition that makes it easier for rivals
to convince buyers to switch to their offerings. Moreover, when the products of
different sellers are virtu- ally identical, shoppers will choose on the basis of price,
which can result in fierce price competition among sellers.
● Rivalry is more intense when industry members have too much inventory or
significant amounts of idle production capacity, especially if the industry’s
product entails high fixed costs or high storage costs. Whenever a market has
excess sup- ply (overproduction relative to demand), rivalry intensifies as sellers cut
prices in a desperate effort to cope with the unsold inventory. A similar effect occurs
when a product is perishable or seasonal, since firms often engage in aggressive
price cutting to ensure that everything is sold.
● Rivalry intensifies as the number of competitors increases and they become
more equal in size and capability. When there are many competitors in a market,
companies eager to increase their meagre market share often engage in price-cutting
activities to drive sales, leading to intense rivalry. When there are only a few
competitors, companies are more wary of how their rivals may react to their attempts
to take market share away from them.
● Rivalry becomes more intense as the diversity of competitors increases in
terms of long-term directions, objectives, strategies, and countries of origin. A
diverse group of sellers often contains one or more mavericks willing to try novel or
rule-breaking market approaches, thus generating a more volatile and less
predictable competitive environment
● Rivalry is stronger when high exit barriers keep unprofitable firms from leaving
the industry. In industries where the assets cannot easily be sold or transferred to
other uses, where workers are entitled to job protection, or where owners are
commit- ted to remaining in business for personal reasons, failing firms tend to hold
on longer than they might otherwise—even when they are bleeding red ink.
VRIN tests for sustainable competitive advantage

1. Is the resource or capability competitively Valuable? To be competitively

valuable, a resource or capability must be directly relevant to the company’s strategy,
mak- ing the company a more effective competitor. Unless the resource or capability
contributes to the effectiveness of the company’s strategy, it cannot pass this first
test. An indicator of its effectiveness is whether the resource enables the company to
strengthen its business model by improving its customer value proposition and/ or
profit formula.
2. Is the resource or capability Rare—is it something rivals lack? Resources and
capabilities that are common among firms and widely available cannot be a source of
competitive advantage. All makers of branded cereals have valuable marketing
capabilities and brands, since the key success factors in the ready-to-eat cereal
indus- try demand this. They are not rare.
3. Is the resource or capability Inimitable—is it hard to copy? The more difficult
and more costly it is for competitors to imitate a company’s resource or capability,
the more likely that it can also provide a sustainable competitive advantage.
Resources and capa- bilities tend to be difficult to copy when they are unique (a
fantastic real estate loca- tion, patent-protected technology, an unusually talented
and motivated labor force), when they must be built over time in ways that are
difficult to imitate (a well-known brand name, mastery of a complex process
technology, years of cumulative experience and learning), and when they entail
financial outlays or large-scale operations that few industry members can undertake
(a global network of dealers and distributors). Imitation is also difficult for resources
and capabilities that reflect a high level of social complexity (company culture,
interpersonal relationships among the managers or R&D teams, trust-based relations
with customers or suppliers) and causal ambigu- ity, a term that signifies the hard-to-
disentangle nature of the complex resources, such as a web of intricate processes
enabling new drug discovery.
4. Is the resource or capability Nonsubstitutable—is it invulnerable to the threat
of substitution from different types of resources and capabilities? Even
resources that are competitively valuable, rare, and costly to imitate may lose much
of their ability to offer competitive advantage if rivals possess equivalent substitute
resources. For example, manufacturers relying on automation to gain a cost-based
advantage in production activities may find their technology-based advantage
nullified by rivals’ use of low-wage offshore manufacturing. Resources can contribute
 to a sustainable competitive advantage only when resource substitutes aren’t on the
horizon.

Cost-Efficient Management of Value Chain Activities

1. Capturing all available economies of scale. Economies of scale stem from

an ability to lower unit costs by increasing the scale of operation. Economies
of scale may be available at different points along the value chain. Often a
large plant is more economical to operate than a small one, particularly if it
can be operated round the clock robotically.
2. Taking full advantage of experience and learning-curve effects. The cost
of perform- ing an activity can decline over time as the learning and
experience of company personnel builds.
3. Operating facilities at full capacity. Higher rates of capacity utilisation allow
depreciation and other fixed costs to be spread over a larger unit volume,
thereby lowering fixed costs per unit.
4. Improving supply chain efficiency. Partnering with suppliers to streamline
the ordering and purchasing process, to reduce inventory carrying costs via
just- in-time inventory practices, to economise on shipping and materials
handling, and to ferret out other cost-saving opportunities is a much-used
approach to cost reduction.
5. Substituting lower-cost inputs wherever there is little or no sacrifice in
product quality or performance. If the costs of certain raw materials and
parts are “too high,” a company can switch to using lower-cost items or
maybe even design the high-cost components out of the product altogether.
 6. Using the company’s bargaining power vis-à-vis suppliers or others in
the value chain system to gain concessions. Home Depot, for example,
has sufficient bargaining clout with suppliers to win price discounts on large-
volume purchases.
7. Using online systems and sophisticated software to achieve operating
efficiencies. For example, sharing data and production schedules with
suppliers, coupled with the use of enterprise resource planning (ERP) and
manufacturing execution system (MES) software, can reduce parts
inventories, trim production times, and lower labour requirements.
8. Improving process design and employing advanced production
technology. Often production costs can be cut by (1) using design for
manufacture (DFM) procedures and computer-assisted design (CAD)
techniques that enable more integrated and efficient production methods, (2)
investing in highly automated robotic production technology, and (3) shifting
to a mass-customization production process.
9. Being alert to the cost advantages of outsourcing or vertical integration.
Outsourcing the performance of certain value chain activities can be more
economical than performing them in-house if outside specialists, by virtue of
their expertise and vol- ume, can perform the activities at lower cost.
10. Motivating employees through incentives and company culture. A
company’s incentive system can encourage not only greater worker
productivity but also cost-saving innovations that come from worker
suggestions. The culture of a company can also spur worker pride in
productivity and continuous improvement.

Revamping of the Value Chain System to Lower

Costs
1. Selling direct to consumers and bypassing the activities and
costs of distributors and dealers. To circumvent the need for
distributors and dealers, a company can create its own direct sales
force, which adds the costs of maintaining and supporting a sales
force but may be cheaper than using independent distributors and
dealers to access buyers. Alternatively, they can conduct sales
operations at the company’s website, since the costs for website
operations and shipping may be substantially cheaper than going
through distributor-dealer channels).
2. Streamlining operations by eliminating low-value-added or
unnecessary work steps and activities. At Walmart, some items
supplied by manufacturers are delivered directly to retail stores rather
than being routed through Walmart’s distribution centres and delivered
by Walmart trucks.
3. Reducing materials-handling and shipping costs by having
suppliers locate their plants or warehouses close to the
company’s own facilities. Having suppliers locate their plants or
warehouses close to a company’s own plant facilitates just-in-time
deliver- ies of parts and components to the exact workstation where
they will be used in assembling the company’s product.

When a Low-Cost Strategy Works Best

 1. Price competition among rival sellers is vigorous.
2. The products of rival sellers are essentially identical and readily available from
many eager sellers.
3. It is difficult to achieve product differentiation in ways that have value to
buyers.
4. Most buyers use the product in the same ways.
5. Buyers incur low costs in switching their purchases from one seller to another.

Managing the Value Chain to Create the Differentiating

Attributes

1. Create product features and performance attributes that appeal to a wide range
of buyers. The physical and functional features of a product have a big influence on
differ- entiation, including features such as added user safety or enhanced
environmental protection. Example - Styling and appearance are big differentiating
factors in the apparel and motor vehicle industries. Size and weight matter in
binoculars and mobile devices.
2. Improve customer service or add extra services. Better customer services, in
areas such as delivery, returns, and repair, can be as important in creating
differentia- tion as superior product features.
3. Invest in production-related R&D activities. Engaging in production R&D may
permit custom-order manufacture at an efficient cost, provide wider product variety
and selection through product “versioning,” or improve product quality.
4. Strive for innovation and technological advances. If the innovation proves hard to
replicate, through patent protection or other means, it can provide a company with a
first-mover advantage that is sustainable.
5. Pursue continuous quality improvement. Quality control processes reduce
product defects, prevent premature product failure, extend product life, make it
 economical to offer longer warranty coverage, improve economy of use, result in
more end-user convenience, or enhance product appearance.
6. Increase marketing and brand-building activities. Marketing and advertising can
have a tremendous effect on the value perceived by buyers and therefore their
willing- ness to pay more for the company’s offerings.
7. Seek out high-quality inputs. Input quality can ultimately spill over to affect the
performance or quality of the company’s end product.
8. Emphasise human resource management activities that improve the skills,
expertise, and knowledge of company personnel. A company with high-calibre
intellectual capi- tal often has the capacity to generate the kinds of ideas that drive
product innovation, technological advances, better product design and product
performance, improved production techniques, and higher product quality.

Revamping the Value Chain System to Increase Differentiation

1. Coordinating with downstream channel allies to enhance customer value.

Methods that companies use to influence the value chain activities of their channel
allies include setting standards for down- stream partners to follow, providing them
with templates to standardise the selling environment or practices, training channel
personnel, or cosponsoring promotions and advertising campaigns.
2. Coordinating with suppliers to better address customer needs. Close
coordination with suppliers can enhance differentiation by speeding up new product
development cycles or speeding delivery to end customers. Strong relationships with
suppliers can also mean that the company’s supply requirements are prioritised when
industry supply is insufficient to meet overall demand.

When a Differentiation Strategy Works Best

1. Buyer needs and uses of the product are diverse. Diverse buyer
preferences allow industry rivals to set themselves apart with product
attributes that appeal to particular buyers.
2. There are many ways to differentiate the product or service that have
value to buyers. Industries in which competitors have opportunities to add
features to products and services are well suited to differentiation strategies.
3. Few rival firms are following a similar differentiation approach. The best
differen- tiation approaches involve trying to appeal to buyers on the basis of
attributes that rivals are not emphasising.
4. Technological change is fast-paced and competition revolves around
rapidly evolv- ing product features. Rapid product innovation and frequent
introductions of next-version products heighten buyer interest and provide
space for companies to pursue distinct differentiating paths.

Focused (or Market Niche) Strategies

A Focused Low-Cost Strategy

A focused low-cost strategy aims at securing a competitive advantage by serving buyers in

the target market niche at a lower cost (and usually lower price) than those of rival
competitors. This strategy has considerable attraction when a firm can lower costs
significantly by limiting its customer base to a well-defined buyer segment. The avenues to
achieving a cost advantage over rivals also serving the target market niche are the same as
those for broad low-cost leadership—use the cost drivers to perform value chain activities
more efficiently than rivals and search for innovative ways to bypass nonessential value
chain activities. The only real difference between a broad low-cost strategy and a focused
low- cost strategy is the size of the buyer group to which a company is appealing—the
former involves a product offering that appeals to almost all buyer groups and market
segments, whereas the latter aims at just meeting the needs of buyers in a narrow market
segment.

A Focused Differentiation Strategy

Focused differentiation strategies involve offering superior products or services tai- lored to
the unique preferences and needs of a narrow, well-defined group of buyers. Successful use
of a focused differentiation strategy depends on (1) the existence of a buyer segment that is
looking for special product or service attributes and (2) a firm’s ability to create a product or
service offering that stands apart from that of rivals competing in the same target market
niche.

When a Focused Low-Cost or Focused

Differentiation Strategy Is Attractive
When a Focused Low-Cost or Focused Differentiation Strategy
Is Attractive

● Thetargetmarketnicheisbigenoughtobeprofitableandoffersgoodgrowthpotential.
● Industry leaders have chosen not to compete in the niche—in which case focusers
can avoid battling head to head against the industry’s biggest and strongest
competitors.
● It is costly or difficult for multi-segment competitors to meet the specialised needs of
niche buyers and at the same time satisfy the expectations of their mainstream
customers.
● The industry has many different niches and segments, thereby allowing a focuser to
pick the niche best suited to its resources and capabilities. Also, with more niches
there is room for focusers to concentrate on different market segments and avoid
competing in the same niche for the same customers.
● Few if any rivals are attempting to specialise in the same target segment—a condi-
tion that reduces the risk of segment overcrowding.
Best-Cost (Hybrid) Strategies
A best-cost strategy works best in markets where product differentiation is the norm and an
attractively large number of value-conscious buyers can be induced to purchase midrange
products rather than cheap, basic products or expensive, top-of-the-line products. In markets
such as these, a best-cost producer needs to position itself near the middle of the market
with either a medium-quality product at a below-average price or a high-quality product at an
average or slightly higher price.

Best-cost strategies also work well in recessionary times, when masses of buyers become
more value-conscious and are attracted to economically priced products and services with
more appealing attributes. However, unless a company has the resources, know-how, and
capabilities to incorporate upscale product or service attributes at a lower cost than rivals,
adopting a best-cost strategy is ill-advised.
Choosing the Basis for Competitive Attack

Strategic offensives should exploit the power of a company’s strongest competitive

assets - A strategic offensive should be based on those areas of strength where the
company has its greatest competitive advantage over the targeted rivals. Example - If a
company has especially good customer service capabilities, it can make special sales
pitches to the customers of those rivals that provide subpar customer service.

The principal offensive strategy options include the following:

1. Offering an equally good or better product at a lower price.

2. Leapfrogging competitors by being first to market with next-generation
products.
3. Pursuing continuous product innovation to draw sales and market share away
from less innovative rivals.
4. Pursuing disruptive product innovations to create new markets. Disruptive
innovation involves perfecting a new product with a few trial users and then quickly
rolling it out to the whole market in an attempt to get many buyers to embrace an
altogether new and better value proposition quickly.
5. Adopting and improving on the good ideas of other companies (rivals or
otherwise).
6. Using hit-and-run or guerrilla warfare tactics to grab market share from
complacent or distracted rivals. Options for “guerrilla offensives” include
occasionally lowballing on price (to win a big order or steal a key account from a
rival), surprising rivals with sporadic but intense bursts of promotional activity
(offering a discounted trial offer to draw customers away from rival brands), or
undertaking special campaigns to attract the customers of rivals plagued with a strike
or problems in meeting buyer demand.
7. Launching a preemptive strike to secure an industry’s limited resources or
capture a rare opportunity. What makes a move preemptive is its one-of-a-kind
nature—whoever strikes first stands to acquire competitive assets that rivals can’t
readily match. Examples of preemptive moves include (1) securing the best
distributors in a particular geographic region or country; (2) obtaining the most
favourable site at a new interchange or inter- section, in a new shopping mall, and so
on; (3) tying up the most reliable, high-quality suppliers via exclusive partnerships,
long-term contracts, or acquisition; and (4) mov- ing swiftly to acquire the assets of
distressed rivals at bargain prices.

Red Ocean vs Blue Ocean Strategy

Red oceans are all the industries in existence today – the known market space, where
industry boundaries are defined and companies try to outperform their rivals to grab a
greater share of the existing market. Cutthroat competition turns the ocean bloody red.
Hence, the term ‘red’ oceans.

Blue oceans denote all the industries not in existence today – the unknown market space,
unexplored and untainted by competition. Like the ‘blue’ ocean, it is vast, deep and powerful
– in terms of opportunity and profitable growth.

To sustain themselves in the marketplace, red ocean strategists focus on building

advantages over the competition, usually by assessing what competitors do and striving to
do it better. Here, grabbing a bigger share of a finite market is seen as a zero-sum game in
which one company’s gain is achieved at another company’s loss. They focus on dividing up
the red ocean, where growth is increasingly limited. Such strategic thinking leads firms to
divide industries into attractive and unattractive ones and to decide accordingly whether or
not to enter.

Blue ocean strategists recognize that market boundaries exist only in managers’ minds, and
they do not let existing market structures limit their thinking. To them, extra demand is out
there, largely untapped. The crux of the problem is how to create it. This, in turn, requires a
shift of attention from supply to demand, from a focus on competing to a focus on creating
innovative value to unlock new demand. This is achieved via the simultaneous pursuit of
differentiation and low cost.
Under blue ocean strategy, there is scarcely an attractive or unattractive industry per se
because the level of industry attractiveness can be altered through companies’
conscientious efforts. As market structure is changed by breaking the value-cost trade-off, so
are the rules of the game. Competition in the old game is therefore rendered irrelevant. By
expanding the demand side of the economy new wealth is created. Such a strategy,
therefore, allows firms to largely play a non–zero-sum game, with high pay-off possibilities.
Game Theory
Game theory is a theoretical field of study in the social sciences that applies a mathematical
model to predict the likely outcomes of a particular scenario. It is often used by people in
political science, business, or poker to predict potential outcomes for scenarios in their fields.
Game theory simulates a series of real-life, strategic situations through sequential games to
predict how people or organisations will act. The dominant strategy is often for a player to
make the choice that benefits them the most, though the best response is usually to
cooperate to ensure the most advantageous, symmetric outcome for all players.

How Is Game Theory Applied in Business?

Game theory can be used in business by economists who are analysing a specific economic
landscape to predict the moves that companies (or players) will make. It can also be used by
private companies to make business decisions, or strategically monitor and analyse the
varying aspects and competitive behaviours within their relevant economy. Teachers may
also use game theory models in business school to introduce their students to a set of
strategies and various solution concepts that they may see reflected in the real world.
Game theory can help companies make strategic choices within or outside of their
organisations, especially against competitors. Different situations are presented through
simple games that set up hypothetical scenarios meant to simulate real-world conditions and
predict a player’s behaviour.

3 Common Game Theory Strategy Games Used in Business

1. The Prisoner’s Dilemma. This game involves two players—or prisoners—who have
been separated and asked to confess to a crime that they may have committed
together. Either both parties can confess, only one party confesses, or no parties
confess, all of which present different outcomes. This game assumes that the players
will behave strategically out of self-interest, resulting in a less than optimal outcome
for both parties. In business, you can apply this to a scenario of two businesses with
competing products. If one business alters their pricing to gain a competitive
advantage, the other business will be forced to as well, effectively reducing the
maximum profits for both companies.
2. The Centipede Game. The centipede game involves two players choosing to take or
leave a sum that increases with each sequential turn. In this game, the players must
trust one another and continue to pass the sum in order to increase the amount, and
they will each receive the largest possible sum at the end of the game. If one player
takes the sum before the end, each will end up with less than if they would have
cooperated. In business, this game sets up a scenario in which two entities (which
might be rival businesses) are required to trust each other. The optimal strategy
requires them to deny their individual self-interest in the moment for a greater payoff
for all in the end.
3. The Dictator Game. The dictator game involves two players splitting a sum of cash.
The first player must split a sum of cash with the second player, but the second
player can’t influence their decision. This sets up a state of information asymmetry,
which gives one party information that another doesn’t have. If the second player
accepts the first player’s proposed split of the cash, they both get to keep their
portion of the money. However, if they reject it, both parties get nothing. This is
another scenario that can illustrate how different companies or individuals working
together in a company can work together to devise the most beneficial outcome for
both parties.

Two-Sided Market

A two-sided market exists when both buyers and sellers meet to exchange a product or
service, creating both bids to buy and offers (asks) to sell. This can occur when two user
groups or agents interact through an intermediary or platform to the benefit of both parties.
Also known as a "two-way market" or a "two-sided network," examples of two-sided markets
are seen in a variety of industries and companies. One example is in the relationship
between market-makers (specialists), who are required to give both a firm bid and firm ask
for each security in which they make a market (acting as intermediaries), and buyers and
sellers of securities.
Two-sided markets exist in various industries, serving the interest of manufacturers,
retailers, service providers, and consumers. A classic example is the yellow pages telephone
directory, which serves consumers and advertisers. Credit card companies, which act as an
intermediary between card-holding consumers and merchants, and video-game platforms,
such as Microsoft's Xbox or Sony's PlayStation, which offer a platform that video-game
developers and gamers benefit from, are examples of two-sided markets. Some modern
companies that illustrate this relationship include Match.com, Facebook, LinkedIn, and eBay.
Some, such as Amazon.com, employ both a two-sided market and a one-sided market.

Tacit Collusion

Tacit collusion is a type of collusive behaviour where firms coordinate their actions without
explicitly communicating or reaching an agreement. Instead, firms may signal their intentions
through various actions, such as pricing behaviour or output levels, in order to coordinate
their behaviour and achieve higher profits.
Unlike explicit collusion, which involves direct communication and agreement among firms to
fix prices or divide markets, tacit collusion is more subtle and difficult to detect. In some
cases, tacit collusion may occur naturally due to market conditions, such as limited
competition or high barriers to entry.
Examples of tacit collusion include:
Price leadership: In some industries, one firm may set prices that other firms follow,
without any explicit agreement. This can lead to a stable market with little
competition.
Implicit understandings: Firms may have implicit understandings about each other's
pricing or output behaviour, without any direct communication or agreement.
Limit pricing: A dominant firm in an industry may set prices at a level that deters entry by
potential competitors. Other firms in the industry may follow suit, leading to higher
profits for all firms.
Tacit collusion can be difficult to prove and is often illegal under antitrust laws, as it can lead
to reduced competition and higher prices for consumers. Regulators may use various
methods, such as analysing pricing behaviour and market structure, to detect and deter tacit
collusion.