Tuesday, March 20, 2012

Tacit Collusion: Nike's Collusion Strategy?


Tacit Collusion in regards to Nike

I preface this but saying that I'm not accusing Nike of collusion, but more so the allusion of the potential collusionary practices that could be put in place for the benefit of all in the marketplace.  With that said, Nike's market is a prime suspect for such business strategies.

The sport/athletic textiles market is one that is dominated by few competitors with the market power being concentrated amongst a select few making it an oligopolistic market.  Luckily for Nike they are in this select group and are actually the "price leader" within the industry.  With that power comes great responsibility to themselves and their common rivals in implementing their competitive/cooperative strategy of producing superior economic performance for itself within collaborative constraints with rivals firms.  This practice of such is called Tacit Collusion.

Nike along with its traditional competitors, Adidas and Reebok, have established a pseudo-industry social structure over the years that each knows its proper placements and strongholds in the market (i.e. Nike being a basketball product leader, Adidas in soccer and Reebok in fitness/exercise).  The mix of hard and soft signals between these market leaders established protocols for the pricing and outputs so that each could, in theory, obtain superior economic profits rather than through pure competition.  

However with an influx of new entrants over the past couple of decades (i.e. Under Armour), these companies have reevaluated their stances in meeting the product differentiation and cost leadership strategies of their new rivals with individual strategic choices in mind.  Only recently has the market seemed to re-balance itself with these new "partners" as products are differentiated, albeit minutely in general, and prices are somewhat stable across the board.  Granted new hard and soft signals have been implemented to obtain this stability (Nike investing in new technologies and merging/procuring other companies such Umbro, Cole Haan and Converse), but on the surface it seems that although the companies are different in products and advertising, they are essentially balanced with their marginal cost-marginal revenue structures according to scale.

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