which exist when several firms in an industry observe others’ competitive actions and respond to reduce industry output below the potential competitive level to maintain higher-than-competitive prices. Another form of tacit collusion is mutual forbearance, by which firms avoid competitive attacks against rivals they meet in multiple markets. Rivals learn a great deal about each other when engaging in multimarket competition, including how to deter the effects of their rival’s competitive attacks and responses. Given what they know about each other as a competitor, firms choose not to engage in what could be destructive competitions in multiple product markets. Tacit collusion tends to be used as a business-level competition-reducing strategy in highly concentrated industries. At a broad level in free-market economies, governments must determine how rivals can collaborate to increase their competitiveness without violating established regulations. Assessment of Business-Level Cooperative Strategies Firms use business-level strategies to develop competitive advantages that can contribute to successful positioning and performance in individual product markets. To develop a competitive advantage using an alliance, the particular set of resources and capabilities that is combined and shared in a particular manner through the alliance must be valuable, rare, imperfectly imitable, and nonsubstitutable. Complementary business-level strategic alliances (especially vertical ones) are the most likely to create sustainable competitive advantage. Horizontal complementary alliances are sometimes difficult to maintain because they are often formed between rival firms. Although strategic alliances designed to respond to competition and to reduce uncertainty can also create competitive advantages, these advantages tend to be more temporary than those developed through complementary (vertical andhorizontal) strategic alliances. The primary reason is that complementary alliances have a stronger focus on the creation of value compared to competition-reducing and uncertainty-reducing alliances, which are far more reactive. Of the four business-level cooperative strategies, the competition-reducing strategy has the lowest probability of creating a sustainable competitive advantage. This suggests that companies using such competition reducing business-level strategic alliances should carefully monitor them as to the degree to which they are facilitating the firm’s efforts to develop and successfully create competitive advantages.
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- Summer '12
- Business, joint venture, strategic alliance, Cooperative Strategy