Bitter Competition

Take-aways
 The Game through 1991

1986 1988 1990

• HSC begins work on 500 ton • HSC lodges dumping complaint against
• Tosoh Canada files
aspartame plant NS with European Commission
complaint against
• HSC and Angus Fine • Hoechst files petition for FDA approval
NS with Canadian Bureau of
Chemicals complain to for use of acesulfame-K in soft drinks
Competition Policy
European Commission about • Canadian Competition Tribunal
• Hoechst gains limited FDA
NS’s contracting practices disallows certain of Nutrasweet’s
approval for acesulfame-K
• Pfizer files petition for FDA contracting practices
Approval of alitame • European Commission imposes anti-
dumping duties on NS

1985 1991

1987 1989
• European & Canadian use patents expire
• HSC and United
1985 • NS drops exclusivity clauses in European
Sweeteners USA file suit in
1991
• HSC Formed contracts with Coke & Pepsi • NS – Ajinomoto
Delaware to declare NS’s
• Monsanto • HSC begins selling aspartame out of pilot plant announce plans to build
patents invalid
Acquires • Miwon (South Korea) announces plans to enter 2,000 ton plant in
• NS announces plans to
Searle • J&J files petition for FDA approval of sucralose Gravelines, France
double annual capacity in
• Tosoh announces plans to import HSC
Augusta plant
aspartame into Japan
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 wasn’t 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
First Level: 
Small scale entry in U.S. makes accommodation
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 Normal Competition


But can NutraSweet really bring prices back up?
Third Level: 
US market is ~10X the size of Europe / Canada
Multi-market / 
Makes sense for NutraSweet to fight there if it
Dynamic delays HSC’s 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 NutraSweet’s 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

? HSC’s 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 Pepsi—rather than
aspartame.
 Given NS’s 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
NutraSweet’s 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 HSC’s entry into US market

In games of this sort, the effectiveness of tactical
moves depends on how opponents interpret them.

Psychology
Psychology Matters
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

 NutraSweet’s 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
to operate
operateprofitably
profitably
even
evenafter
afterlegal
legal barriers
barriersto
toentry
entry(patents)
(patents)eroded.
eroded.
What is HSC’s added value?


Proprietary cost-reducing technology


Primarily, HSC destroys NutraSweet’s 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 Nutrasweet’s 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 artificial-
sweetener 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 next-
generation sweeteners.
 Ticket Scalping Example, Part A


“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?

This example is courtesy of Prof. Meghan Busse.

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?