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
NS’s 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 Nutrasweet’s
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 NS’s
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 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

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 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 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 NutraSweet to continue to operate profitably
even after legal barriers to entry (patents) 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 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?