Lu I 44386922

Introduction
This simulation asks me and my partner to take turns in playing a role in Intel and
Microsoft, deciding the price and timing to launch new generation of product. Our
goal is to maximize the accumulate revenue. Intel and Microsoft are complementary
company which provides complementary products or services to a common customer
base. For this reason, Intel and Microsoft have both cooperative and competitive
relationship. They complement each other and have many common goals, especially if
they are looking to expand into the same market. However, the benefits are often
inconsistent. For example, they all hope that the other sacrifices a little benefit to
extend its own interests, it sometimes causes conflict. We gain insights through this
simulation, and we realized there are ways to reduce conflict and maximum the
accumulate revenue.

Performance & Evaluation

Game 1 Strategy:
We applied a price leadership model at the first game. We assumed Intel has distinct
advantages to be a market leader while the other plays the role of market follower.
Intel took the lead in determining its product price according to its profit margin while
Microsoft followed the goal of getting the highest sales profit based on the market
base which Intel created. Besides pricing strategies, the timing of new product
releases depends on the most favorable time for each company. However, the
decisions of the two companies to release the new generation are not related to each
other. When we noticed the high price cannot attract as many buyers as before, we
thought it is the time to launch new generation.
Reasons:
Intel has higher NPV Profit, average profit, and the same release cost as Microsoft.
We assumed that if Intel plays the leader company, Wintel can cumulative total
revenue faster. So, Intel made the first move and dominate in this game, Microsoft
followed to determine their pricing strategy. Moreover, both companies intended to
stay as long as possible in the old generation, because we planned to save the release
cost and squeeze the last profit from old generation. We only switched to a new
generation when the old one’s margin profit began to fade.
Game 1 Evaluation:
Although we knew that the decisions between them will affect each other, we didn’t
understand how to apply suitable strategies to different profit functions. Both
companies tried to get higher price to maximize its own total profit, but we didn’t
apply correct strategies to expand market base. The market base was turbulent and
non-balanced development strategy caused that Intel's revenue 2 times higher than
Microsoft. While the total revenue in the 14th round was only around $83,000MM. It
seems like we reached the average performance. However, some peers obtained
nearly $200,000MM at that moment. It means that our performance was acceptable
but still much room for improvement.
Game 2 Strategy:
The goal is maximizing the total profits of both companies by applying the most
proper price and production strategy. For the pricing strategy, Microsoft and Intel
decrease the price simultaneously to obtain the largest market share at early rounds,
and then gradually increase the price. We also change the timing of release the new
generation. Intel publish new generation every 3 years while Microsoft do it every 5
years followed by Intel.
Reasons:

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We finally realized the profit functions for the two companies are very different. This
time we effectively use the install base to earn more revenue. Because of install base,
the earlier to seize the greater market share, the more favorable for the future. As
customers cannot find alternatives in the short term, the reasonable range of prices
rising later will not significantly decrease the purchase volume. Moreover, as
Microsoft can benefit from the installation services, it is not the best strategy to
publish new generation in a short time. However, Intel eager to launch new generation
as it makes most of the profit early in the life of a generation. As a result,
Intel release new generation first and Microsoft followed closely to match its
technical requirement.
Game 2 Evaluation:
We gained nearly $168,000MM at the end; and both companies grown rapidly. The
market-based trends indicated that it may continue to expand in the future. However,
it was still not an outstanding performance. I think we were on the right track this
time; we mastered the general principle of competitive cooperation strategy. But we
still couldn’t get a good grasp of the price setting and the timing of the new
generation. The reason might be that we were not familiar with game theory. It
acquires us to study specific mathematical models to make the most accurate
decisions in each round. However, we didn’t have enough time to do that.

Strategy comparison:
We applied different strategy in game1 and game2, from price leadership model to a
collaborative strategy. The turning point is that we were more familiar with both
firm’s relationship and business model.
We admitted that did not really understand Microsoft’s and Intel's business model and
their relationship at the beginning. To solve this problem, we began to work hard to
research the operation and profitability of these two companies, as well as the most
appropriate mode of competition and cooperation. Such as their economic operation
rules, strategies and objectives, existing production capacity, cooperation incentives,
and what may lead to conflict to deal with the relationship between complementary
companies. These factors could significantly help us to do the right decisions.
We found that the only substantive asymmetry between Intel and Microsoft is the
effect of the installed base on profits. Intel does not profit from the installed base
while Microsoft does. In addition, Intel and Microsoft have very different fixed and
variable cost models. Intel has high initial marginal cost. Microsoft, by comparison,
has very little fixed investment. Dynamic competitive and collaborative strategies
should be tailored to different profit models and cost structures. As a result, we
changed our strategy after analyzed the decisions in the first game. We not only
focused on maximum profit at every round, but sought a tactic for long term
sustainable benefit by forming a collaborative strategy. Our goal is to form an
oligopoly market, the main strategy is to occupy the largest part of the market share. It
is obvious that the results quite effective. The outcome of game2 was better, the
accumulate revenue was 2 times more than the first one.

Reflection:
After several practice rounds, we figured out the principles of competitive-
cooperative model and are more confident about how to make better decisions next
time:
1. The priority is to make the market base bigger, instead of pursuing own profit
respectively:

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We find the optimum pricing strategy is that Intel should charge high prices in the
early stage while Microsoft suit to charge low prices at first to increase the installed
base. Microsoft then raises prices gradually as the life of the generation approaches its
end. Intel charges high prices early because it cannot obtain direct interest from the
installed base, and it is a good timing to take advantage of Microsoft's low price.
Because of these pricing patterns, Intel's profits are bigger than Microsoft's profits in
the early days of PC generation. As time goes by, Microsoft’s profits increase steadily
by progressively taking advantage of the growing installed demand.
2. Payoff asymmetries related to the installed base may result in asymmetric
preferences for the timing of new product releases:
It generated conflict when Intel release new microprocessors earlier than Microsoft.
Microsoft intend to maximum profit by milking the first generation to the last drop
and stay longer than Intel to introduce the new generation. However, Intel does not
gain profit from the installed base. Thus, it works the opposite way at an earlier time
for Intel. Clearly, we find out that the best situation is that Microsoft’s actions
followed Intel’s timing, release new generation at least 4 years once.
In short, the production schedule or marketing plan should be consistent between both
companies. It can effectively reduce tensions in many ways, such as pricing,
technology, and market control.
Besides the pricing and launching timing strategies, I learn three more lessons from
this simulation. I believe these concepts are also important to deal with competitive-
cooperative model in the real word.
1. It is crucial to improve the competitive advantage.
The essence of co-opetition is to achieve the complementation of the dominant
capability, enhance the strength of both sides’ competition advantage, work with other
companies in terms of resources, technology and capability to extend market share,
thereby enabling firms to establish and consolidate their respective market
competition positions. Business should actively create a variety of favorable
conditions, flexible and maximize the use of their own competitive advantage to
secure the foundation of cooperation.
2. It is wiser that do not rely too much on only one complementary company if the
two business models are really in conflict.
Although in this simulation we can only deal with Microsoft and Intel, the
development of several cooperative companies can effectively reduce the chance to be
contained by the only complementary company in the real world.
3. Companies should use soft power more than hard power to ask for cooperation.
When I used both strategies to communicate with my partner, it causes different
outcomes. The hard power is by means of persuasion or high pressure to achieve their
goals. For example, spending money on complementary companies, or threatening
nonconformity might cause serious consequences, which are usually effective and at
least have short-term benefits but might highly hinder deeply cooperation. Soft power
including not only the use of hard traditional practice, but the use of intangible
resources to establish legitimacy and trust. For example, soft power can provide
complementary company market intelligence or information about future product
plans to secure complementary company collaboration. Finally, it is not only one
choice between the soft and hard power. Managers should use both soft and hard
power to enable complementary companies to play the greatest role.

Conclusion:

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 Lu I 44386922

The core value of cooperative competition strategy is creating win-win situation. It

reflects firms should apply game theory to analyze various business interaction in the
competitive environment based on fair and reasonable cooperation and competition
relations. In this game, both decision-making and information are transparent and
without deception. However, in the real world, how to consolidate good cooperation
and create win-win situation will be a major issue. More scenario analysis may be
needed to predict the different outcomes of the collaboration and well prepare for
other plans.

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