Judo Economics: Bringing Down Microsoft
April 24th, 2008
Author: Michael Krotscheck
Category: Articles
Tags: apple, corporate strategy, google, judo economics, microsoft, nintendo
A few years ago I took what must have been one of the most entertaining courses of my graduate career: Business Game Theory. It was run using the Harvard Case method, but with no supporting textbook and no explanatory lectures before a case was assigned- we simply received a problem and were expected to solve it by the next lecture. The problems themselves were simple: we were given a situation and asked a fairly straightforward question. Should Company B enter a particular market, how will a competition play out, can you predict the next step in a competition given certain parameters, things like that. Most of us got the first problems blatantly wrong- the tacit requirement to do our own research didn’t sink in until after the first discussion- yet after that reality check it became one of the most engaging classes ever: The problems were challenging but not beyond rational analysis, and though I spent hours at a time bending my brain around decision making in a risky environment and other situations, I can still name the topics and methodologies for every case.
As a result I was practically giddy when I recognized a real world example of Judo Economics, a situation where a player uses the strength of their opponent against them. Consider a simple case: There exist two markets for a single product and two companies that can produce said product. The first market is large, however serving it comes with a high cost and therefore a low margin. The second market is small, but serving it is cheap and therefore comes with a high margin. The first of the companies must serve both markets, has deep pockets, while the second is considering market entry, but can only serve one of the two. Each company can only set one price against both markets. The question posed is: What will happen?
