The Bertrand-Edgeworth Model

Checklist For Game

• Consolidate multimedia content to gain economies of scope
• Maintain market dominance as incumbent via launching a new standard: blue-ray technology
• Increasing production in order to lower average cost (economies of size)
• Setting a price of $599, given an inelastic demand curve
• Because of interdependence (zero-sum constraint)

Knowledge: Why and how do Sony play?

• Consolidate multimedia content to gain economies of scope
• Maintain market dominance as incumbent via launching a new standard: blue-ray technology
• Increasing production in order to lower average cost (economies of size)
• Setting a price of $599, given an inelastic demand curve
• Because of interdependence (zero-sum constraint)

Knowledge: Why and how do Microsoft play?

• Playstation had changed the supply of multimedia content merging gaming, DVD and internet
• Threat to Microsoft‘s dominant position in the multimedia industry
• Response to growth in online gaming
• Setting the standard in multi-media content
• 'Console market' as a tool to increase market share in the multi-media market
• Provides diversification for Microsoft products
• Push for HD technology
• Set a price lower than Sony at $549

Identify the Game Dimension

• Identify a PRICE WAR - Definition: A sequence of continuous price movements, triggered by unilateral price action by one player.
• Identify a NASH EQUILIBRIUM - Definition: Price level where each player realises it is the ‚best‘ price given their reactions. Players believe they can do better with non-price differentiating strategy
• Observe a NEW SIGNAL
• Confirm TECHNOLOGY DIFFERENTIATION - HD-DVD vs Blu Ray

External Environment

• Capacity – excess v reserved
• Product lifecycle
• Geography & location of the game
• Price Elasticity of demand
• Player types
• Product content v product price
• Shareholder constraint