Strategies in Market Competition

How can the first firm to move in a sequential game benefit in market competition?

Can establishing a strategic position provide an advantage over competitors?

Answer:

Yes, the first firm to move in a sequential game can benefit in market competition by establishing a strategic position that is favorable to them.

In market competition, the first firm to move can establish a strategic position, potentially creating an advantage over competitors. This concept is exemplified in a scenario where two firms, Amy and Joe, position themselves on Main Street in a strategic manner to capture maximum customers. Ultimately, strategic moves can lead to an equilibrium, with each firm holding an equal share of the market.

The first firm to move in a sequential game has an advantage by establishing a strategic position that is favorable to them. In the context of sequential games and market competition, having the first-mover advantage allows a firm to create a strategic foothold in the market that competitors must then respond to. In a scenario where two firms compete on the same street, if one firm (Amy) moves next to its competitor (Joe), it has effectively created an intervening opportunity for customers, potentially capturing a larger market share before Joe can respond.

Amy's initial move provides her with the upper hand as customers traveling down Main Street are more likely to visit her store first. If Joe responds by leapfrogging Amy, strategically positioning his store beyond hers, he may recapture lost customers and balance the competition. Eventually, after various strategic moves, the two firms may reach a state of equilibrium, each with approximately half of the customer base.

Although the concept of comparative advantage typically refers to the production efficiency of states or countries, it can also apply to individual firms distinguishing themselves through factors like price, service, and product differentiation. Aspects such as cost-effective production methods, unique services, or standout products can contribute to a firm's longer-term strategic positioning beyond merely physical location.