Bitter Competition

Take-aways

The Game through 1991

1986
HSC begins work on 500 ton
aspartame plant
HSC and Angus Fine
Chemicals complain to
European Commission about
NSs contracting practices
Pfizer files petition for FDA
Approval of alitame

1990

1988
Tosoh Canada files
complaint against
NS with Canadian Bureau of
Competition Policy
Hoechst gains limited FDA
approval for acesulfame-K

HSC lodges dumping complaint against

NS with European Commission
Hoechst files petition for FDA approval
for use of acesulfame-K in soft drinks
Canadian Competition Tribunal
disallows certain of Nutrasweets
contracting practices
European Commission imposes antidumping duties on NS

1985

1991

1987
1985
HSC Formed
Monsanto
Acquires
Searle

European & Canadian use patents expire

NS drops exclusivity clauses in European
contracts with Coke & Pepsi
HSC begins selling aspartame out of pilot plant
Miwon (South Korea) announces plans to enter
J&J files petition for FDA approval of sucralose
Tosoh announces plans to import HSC
aspartame into Japan

1989
HSC and United
Sweeteners USA file suit in
Delaware to declare NSs
patents invalid
NS announces plans to
double annual capacity in
Augusta plant

1991
NS Ajinomoto
announce plans to build
2,000 ton plant in
Gravelines, France

How effective a strategist has NutraSweet been

so far?
+ Branded ingredient and cost reduction strategies,
pursued in advance of patent expiration, generated a
significant competitive edge over any future
competitors
+ Decision to fight in Europe / Canada seemed to be
effective.

No lasting entry by a third player

Although prices have fallen, with a third player they may have fallen
more
May have deterred HSC from expanding capacity sooner

How effective a strategist has NutraSweet been

so far? (2)
Building a plant in Europe early on could have been a more
effective deterrent against entry there, since anti-dumping duties
could not have been imposed
? Given that a European plant wasnt built pre-1987, the decision
to build one there later effectively eliminated any chance of
reducing an implicit agreement with HSC to develop separate
spheres of influence
The launch of SweetMate seems likely to trigger an expensive
reshuffling of market share in the tabletop segment. Possible
additional impact of cannibalizing Equal sales.

How effective a strategist has HSC been so far?

+ Small-scale entry created an incentive for NutraSweet
to cede part of the European / Canadian market rather
than initiate price war

Problem: figure out a way to commit or signal intention to staying small

HSC allowed itself to be bluffed into delaying

expansion

Waited for resolution of the legal battle in Canada / Europe

before installing more capacity

Decision-making about plant expansion at HSC:

Was NutraSweet bluffing?
Analysis

Logic

Small scale entry in U.S. makes accommodation

First Level:
Single market / preferable for NutraSweet than fighting
Static

Second Level: Potential profits in the future for NutraSweet more

Single market / than compensate for a period of low profits
Dynamic
Price
Monopoly
Level
Price War

Third Level:
Multi-market /
Dynamic

Normal Competition

But can NutraSweet really bring prices back up?

US market is ~10X the size of Europe / Canada

Makes sense for NutraSweet to fight there if it
delays HSCs entry into the US

How effective a strategist has HSC been so far?

(2)
? Better to commit to a larger facility in the beginning?

Sinking the capacity to enable HSC to enter the US market

would have reduced NutraSweets temptation to fight in
Europe/Canada and may have deterred NutraSweet from
expanding.
Also a larger facility would have yielded a lower cost-gap with
NutraSweet

? HSCs best opportunities may lie outside the US.

There Coke, as a dominant player, may benefit more from

having a second source (and suffer less from not being able
to use the NutraSweet brand)

How effective a strategist has HSC been so far?

(3)
+ HSC seems poised to shift the game over time to cost, where
they may have an edge over NutraSweet through their
patented enantiomer separation process
+ HSC should have viewed itself as selling competition
offering a bargaining chip to Coke and Pepsirather than
aspartame.

Given NSs brand and cost advantages, HSC is a duopolist in a weak

position when it comes to selling aspartame
However as the last hold-out in the aspartame business, HSC is in a
strong position when it comes to selling competition
Challenge: get paid to play

Demand fixed payment to enter / expand

Demand a long-term contract from Coke

The Game between HSC and NutraSweet played

out on two levels

Tactics

Shaping the perceptions of the other player

Value

Securing added value, denying it to the other player

NutraSweets tactical strategy

Dropped price sharply when HSC entered European

and Canadian markets

Goal: shape perceptions of HSC managers about how tough

competition would be in Europe and in the US

Starve HSC of funds

Deny HSC learning-related cost reduction opportunities

Effectiveness: delayed HSCs entry into US market

In games of this sort, the effectiveness of tactical

moves depends on how opponents interpret them.

Psychology
PsychologyMatters
Matters!!

What is added value?

YOUR ADDED VALUE =

Size of the Pie When Your Are IN the Game
Minus
Size of the Pie When Your Are OUT of the Game

Source: Brandenberger and Nalebuff (1996), Co-Opetition, p. 45

NutraSweets added value strategy

Investments in brand building

Increase end-customers WTP generate pull

Decrease direct customers (Coke, Pepsi) willingness to
gamble by switching

Emphasis on cost reduction

Enabled
EnabledNutraSweet
NutraSweet to
tocontinue
continueto
tooperate
operateprofitably
profitably
even
evenafter
afterlegal
legal barriers
barriersto
toentry
entry(patents)
(patents) eroded.
eroded.

What is HSCs added value?

Proprietary cost-reducing technology

Primarily, HSC destroys NutraSweets added value
(and increases the added value of Cola makers)

Thinking ahead, HSC might have captured some of this by

getting paid to play.

From the Where are They Now Files

1992-2000

1992:
Pepsi and Coke re-sign exclusive deals to buy artificial sweetener
exclusively from Nutrasweet
Holland Sweetener Company enters the U.S. market for aspartame
as Nutrasweets patent expires
1996:
Nutrasweet turns to Tony Bennett and actress Jamie Lee Curtis to
fatten its Equal brand's share of the flat $225 million artificialsweetener market
Coca-Cola blames slow growth in diet soft drink market on
NutraSweet

2000-Present

2000:
Monsanto said it agree to sell its bulk NutraSweet business to
J. W. Childs Associates LP for $440 million.
Present:

NutraSweet is still maintains its position of leadership in the artificial

sweetener market.
Both HSC and NutraSweet continue to pursue research on nextgeneration sweeteners.

Ticket Scalping Example, Part A

This example is courtesy of Prof. Meghan Busse.

The Producers starts in 5

minutes
Outside the theater, there are
two scalpers with two tickets
each
Five people who want to
attend the play, each willing
to pay $100
What do you expect will
happen?

Ticket Scalping Example, Part B

The Producers starts in 5

minutes
Outside the theater, there are
two scalpers with two tickets
each
Four people who want to
attend the play, each willing
to pay $100
What do you expect will
happen?

Ticket Scalping Example, Part C

The Producers starts in 5

minutes
Outside the theater, there are
two scalpers with two tickets
each
Three people who want to
attend the play, each willing
to pay $100
What do you expect will
happen?