Competitive Tactics
Professor McCabe

Week 4: Strategic Commitment
Discussion Questions

BDSS, Chapter 9 Questions:

1. What is strategic Commitment?

Strategic commitments are decisions that have long-term impacts and are difficult to reverse. They are inherently risky. It can influence the choices made by rival firm. When they are effective, they can often shape competitors’ expectations and change their behavior in ways that benefit the firm making the commitment. The commitments to be good have to be credible, understandable and visible.

2. What are Strategic Complements (Bertrand) and Strategic Substitutes (Cournot)?

Strategic complements and strategic substitutes are concepts that capture how competitors react when one competitor changes a tactical variable such as price or quantity.

Strategic Complements (Bertrand): when reaction functions are upward sloping, the more of the action one firm chooses, the more of the action the other firm will also optimally choose. Price are Strategic Complements because when one firm reduce price, the other finds it profitable to reduce prices as well.

Strategic Substitutes (Cournot): when reactions functions are downward sloping, the more of the action on firm takes, the less of the action the other firm optimally chooses. Quantities are strategic substitutes because when one firm increases its quantity, the other firm finds it profitable to decrease is quantity.

3. Tough versus Soft commitments?

Tough commitments: bad for competitors, (In Cournot) capacity expansion represents a tough commitments. (Bertrand) a commitment to reduce prices is a tough commitment. It conforms to the conventional view of competition as an effort to outdo one’s revals.

Soft commitments: good for competitors, (In Cournot) the elimination of production facilities represents a soft commitment. (Bertrand) a commitment to increase prices is a soft commitment.

4. Do you