The idea
In an oligopoly you cannot price on customer demand alone, because competitors respond. Together, operators usually earn more without a price war, yet each is tempted to start one. Concentration is measured with the HHI, the sum of squared market shares; regulators use it in merger reviews.
Use it thoughtfully
- Model competitor reactions in every price plan.
- Know your market's concentration before mergers happen.
- Watch competitors' public prices, never discuss them privately.
An example
ILLUSTRATIVE EXAMPLE: Before cutting a pack price, a team lists how each of three competitors reacted to the last five price moves in the market.
A question to try
How did each competitor respond to the last price move in your market?
A useful framework is a starting point, not a guarantee. Effects vary with the audience, product and situation. Use truthful evidence, respect customer choice, and test the result.