Competition, Relativism and Market Choice
{'Code': '04050100', 'Directorate': {'Abbreviation': 'SBE', 'LongName': 'Direct For Social, Behav & Economic Scie'}, 'Division': {'Abbreviation': 'SES', 'LongName': 'Divn Of Social and Economic Sciences'}}
{'SignBlockName': 'Daniel H. Newlon', 'PO_EMAI': None, 'PO_PHON': None}
Most of standard microeconomic theory focuses on the absolute level             of crucial decision variables rather than on the importance of their            relative magnitude among agents.  The firm's profit maximization                condition compares the absolute level of marginal costs with the                absolute level of marginal revenue.  But this abstracts from most of            the strategic behavior that businessmen consider crucial.  For                  example, two firms compete in an existing market, say, main frame               computers.  One firm is trying to decide whether to enter a new                 currently nonexistent market, say, personal computers.  The decision            to enter depends on expectations about what the firm's rival will               do.  Calculations about how one firm does relative to its rival are             as important as calculations that align marginal cost with absolute             levels of marginal revenue.                                                                                                                                     The contribution of this project comes from developing and testing              empirically a theory of product choice based directly on relative               comparisons.  The idea is that a firm that is behind in one market              has an incentive to move into another line with higher variance                 outcomes, much like the trailing boat in yacht racing will often veer           off from the current direction in the hopes of benefitting from an              unexpected shift in the wind that would make the new course the                 faster one.  In yacht racing, the leader maximizes his chances of               winning by following the strategy of his opponent and also veering              off in the new direction because the leader maintains his relative              advantage over the challenger.  If the wind shifts favorably for the            challenger, the leader benefits as well.  If it does not, the leader            is still likely to maintain his lead.  For the same reasons the firm            that led in the original market may be drawn into competition in the            new market.                                                                                                                                                     The goal of this project is to provide empirically testable                     implications for the product development strategies of firms across             industries and by other observable characteristics, such as age of              the firm, start-up costs, and inherent riskiness of the business.               The high quality and originality of the preliminary work by the                 investigators on this subject show they have the ability to                     accomplish this goal.
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[{'Code': '1320', 'Text': 'Economics'}, {'Code': '9145', 'Text': 'SPECIAL PROGRAMS-RESERVE'}]
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