Question

Thomas Schelling, an expert on nuclear strategy and arms control, observed in his book The Strategy of Conflict, "The power to constrain an adversary depends upon the power to bind oneself." Explain this statement using the concept of strategic commitment. Use an example from either your own business experience or economics-related research in your explanation.

Answer 1

We know that the business strategy can formulate by using the opponent's reactions. Every business managers take three actions to choose better for their business includes commitments, threats and promises. All these three moves can opt before their rivals make the decisions. The strategic moves always achieve their desired effects. The rival firms ignore the strategic moves that are not credible for their business. If it is reliable only if the firm called upon to act, is considered the best step of the firm. Making a plausible strategic move is not an easy process because we don’t have any rules for this.

In the commitment strategy, there is no matter what the decision taken by their rival firms. The commitment is a decisive action for the committing firm increasing their payoff. The commitments are work under the committing firm genuinely locked itself for a particular decision. All the commitments should be credible and strategic value. Some other decision taken by the firm may become the best decision in the commitment.

The credible commitment on how to make profitability by using the example of Motorola and Sony to decide on analogue and digital technologies. Here the outcome of the simultaneous game is difficult because of two Nash equilibria. Here the managers of Motorolla thinks they can use analogue because the customers in Brazil use this technology. Also, the conversion of analogue to digital is a costly operation. Here Sony believes this move is irreversible and this is the best example of credible commitment strategy.