WINTEL

SIMULATION
A Co-opetitive Game Theory Analysis
Anish Arun Kaulgud
Deepak Venga
Kottana Naveen Kumar
Mirank Maheshwari
Priyanshi Agrawal
Selvaraj E

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Competitive products versus Complementary products:

Through the Wintel simulation we realized that competitive strategies of firms in a particular
industry are highly dependent on the relation between the products. If the presence of one
product increases the value/usage of another product, then these products are complementary to
the other. For example, the software and hardware used in a personal computer (PC) are
complementary products and improvement in these products adds value to the primary product
i.e. PC.
Overall value of the primary product (PC) drives the profitability of industry as well as the
complementary firms (i.e. Intel and Microsoft). Hence the strategy of the complementary firms
should be to compete and cooperate in order to create maximum value of the primary product.
Sources of conflict:
Although the two firms have complementary products, there can still be conflicts between the
two. One of the primary reasons for conflict arises because of different profit maximizing
objective functions. For eg. Microsoft's profits depend on the existing customer base whereas
Intel's profits depend on the new PCs bought by consumers.
Conflict also arises when product releases by the complementing firms are not in sync. For
example, if both Intel and Microsoft release their new products at the same time and at increased
prices, the price of the primary product (PC) will increase significantly and demand will decline
as the price elasticity is significantly high for this product. This will impact the sales of the
primary product, reducing profits for both companies.
Another reason for conflict arises when the research and development activities of both firms do
not complement each other.
Strategies to resolve conflicts:
Pricing strategy:
Depending on the objective function, the actions and responses of a firm should be aligned to
leverage the actions of the complementing firms for maximizing its own profits.
For example, when Intel releases a new version, Microsoft should reduce its product prices in the
initial phase (ref Appendix). This will help in increasing the overall PC base, which is essential
for Microsoft to maximize its profits. Though this strategy will reduce the initial profits of
Microsoft, in the long run the company will be benefitted.
Product strategy:
The product development and release cycles of a firm should depend on the strategy of
complementing firms. This will maximize the overall benefits that a firm can reap from its
investments.

In case of the PC industry, Intel tries to introduce a new product earlier than Microsoft. It
benefits Intel from the existing lower prices of the software. On the other hand, Microsoft tries to
maximize its profits from the older version by delaying the release of its new version. This also
enables it to maximize its benefits of an upcoming new version on a larger installed PC base.
Also, the firms' new product development should consider the capabilities of its complementary
products. For example, the expansion of 4G network usage depends on the availability of
supporting hardware devices, which is a complementary product.

APPENDIX

Figure 1 Payoff matrix for the pricing strategy followed by Intel and Microsoft after the release
of a new Intel product*

Product Release Stage

High price charged by

Intel
4a

High price charged by

Microsoft
2b

Product Maturity Stage

2c

5d

* The payoffs are qualitatively measured on a scale of 1-5, with 5 being the highest.
a: Intels objective function is to generate profits through each new PC sold. It charges high
prices in the initial stages to recover the marginal and release costs of the product launched.
Hence, the high payoff from increasing prices in the Product Release Stage.
b: Microsofts profit maximizing function depends on the installed PC base. In the initial years it
plays a co-opetitive role by reducing its prices to compensate for the high prices of Intel. The low
payoff justifies its less profits in the Product Release Stage.
c: Intel has recovered the marginal cost of its new product launch by the maturity stage. It plays a
co-opetitive role by reducing its prices to compensate for the premium charged by Microsoft.
d: Microsoft increases its prices in the later stages of the product lifecycle to gain from the
increased based in installed PCs. The payoff received by charging high prices is more for
Microsoft in the Product Maturity Stage.