Class #11 Highlights

In class #11, we talked about building mental models. The case offers several frameworks that build up to form the "right" game to analyze. The first step, of course, is to gather relevant data. This is data not just about the financial aspects of a decision, but about the behavior of rivals as well. Competitor Analysis takes this data and uses it to paint a "portrait" of the rival. Sketching out assumptions and goals helps to determine which aspects of the payoff matrix on which to place weight. For example, Jerry Yang's founder status indicated that he highly valued control of Yahoo over other financial considerations. By studying current strategy and capabilities, one obtains a list of possible responses to your actions. For instance, if you are a startup contemplating a business model is some aspect of the social/mobile space, understanding the capabilities of Facebook is obviously essential in developing a non-threatening business strategy where their large user base will not be deployed against you. 

After completing a competitor analysis, it is useful to undertake a behavioral analysis. Are there ways that you can change the frame of a negotiation to get what you want? How does the positioning of the status quo affect the reaction to various negotiated outcomes. It is also useful to apply this same analysis to yourself. Is your data gathering subject to confirmatory bias? Are you overconfident in determining the appropriate scenario analysis to perform?

These behavioral factors can influence the perception of payoffs as well as the types of strategies your rival is likely to pursue. This is critical to building a mental model. Finally, game theory puts all of these analyses together to formulate what game is being played, what strategies are available and how payoffs are evaluated. As we saw in the Coors case, sometimes it is enough to know the relative payoff rankings, and these analyses can be especially useful in informing this aspect of payoffs. 

Together, these steps constitute the basic framework for assessing a rival's response to a new product introduction, a change in positioning, a new pricing strategy, and so on.