Why is the price of crystal chips is a bad strategy?

In mid May, announced that part of the chip chip price increases of 15%, which led to the excitement of some media and investors, and thus infer LED chip prices will rise. However, this inference is clearly untenable, the reality is that today has passed a month, other manufacturers did not follow the trend of price increases. Even further, the price of crystal chip strategy itself is also very questionable, can achieve the desired goal of reducing losses need time to confirm, and the loss of the customer crisis is imminent.

Good strategy is not usually a strategy to achieve goals. Bad policies, usually those that look good, but ignore the actual situation, and even result in the opposite of the strategic objectives.

By setting up a simple model of game theory, to analyze the price decision in recent years the crystal electric logic, thus the rationality review crystal electric price decision, and then get some fresh experience of price game, in order to similar competition situation, enterprises can make more informed decisions on price.

The traditional price competition model of prisoner's dilemma

The traditional price game is a typical prisoner's dilemma model.

In this game, we assume that player is one of the two player crystal, we first simplify Saman, or is outside the crystal electric in Sanan as the representative of the game player, the number in parentheses is assumed the income brackets (payoff), the first number represents the crystal electric return the second digit represents income (hereinafter the same three).

While the payoff logic is that, if the two are price, both sides will suffer, we can only get meager profits (1, 1), if the two do not depreciate, while maintaining a higher price, everyone can benefit the Pareto optimal (5, 5), if one of the price. Another is not the price, the price of the market, do not adhere to the price of the market lost (1, 6) or (6, 1).

According to the classical theory of Nash equilibrium, the game equilibrium is (1, 1), also is that the two sides have chosen the dominant game player of their decisions, that is the price, the result is a tragedy, everyone can only earn less.

The actual price war

However, the logic of reality is not always the case, the most crazy price butcher does not necessarily like the price or dare to cut prices.

Because the enterprise is not strictly in the prisoner's dilemma decision-making mode. Usually enterprises can look at competitors take what decision, and then choose the most advantage of the decision, it will change the prisoner's dilemma game once into a game two times, this is the classic game.

A name is a revenge mode, his effectiveness is: if a game player has taken some damage to two action game player, game player two is bound to the same anti measures applied to a game player, because the act of revenge considering the two game player, a game player from the beginning will not take damage to two action game player. The widespread existence of this model allows human society to interact in a rational and peaceful way most of the time.

On the price game chip, if the crystal electric price, crystal electric no doubt can expect three will choose the price, because the price of the crystal electric in decision tree, then three payoff is 1 of the price, the price is 1, so the price is three dominant decision. Retaliatory measures against electric power.

But if you choose not to cut crystal electric, three theory will also choose not to cut prices. Because if three in two options to choose the price, actually is tantamount to the continuation of a game back, three in the crystal electric position, crystal electric dominant decisions will take the price in retaliation for three. Therefore, three also restricted tit for tat strategy.

So rational Sanan chose not to price cuts in response to the crystal electric price decisions, the two sides temporarily maintain a balanced state of payoff (5, 5). There is in fact the tit for tat strategy, and three crystal electric in 2013 to a long time in the second quarter of 2015 to maintain peace in the cause of a balance of terror situation.

The collapse model after the balance imbalance

Even if a strategy exists, EPISTAR must also recognize the price may lead to the collapse of the price of the consequences, however, crystal electricity or in the middle of 2015 flagrantly launched a price war, which opened the LED chip market as long as half of the crash scene. Although the economic environment is the key factor affecting the weak, but the balance of terror breaking there is no doubt that this type of cut price collapse reasons.

The observation made crystal electric behind this decision logic, it is not difficult to find the most important variable is the merger in 2015 canyuan after a huge operation pressure. When the chip market is not as good as the M & a stage is expected, when the crystal is a huge incremental capacity to force the crystal electric market share expansion, and the price is undoubtedly the best choice to seize the share.

So what's the difference of the previous analysis? We just need to make a little change in the tit for tat model will find the logic of change.

After the merger of the crystal electric canyuan, because of the huge production capacity to digest, if not maintain price, capacity utilization will fall