Discussion Question

  • Read the article titled “Game Theory” at http://www.econlib.org/library/Enc1/GameTheory.html. In the article, the authors discussed a classic case of game theory (zero-sum games) of the Prisoner’s Dilemma (PD). There are many variations of this game in use. Suggest the manner in which organizations could apply PD to their business’ strategy formulation. Provide support for your response. 
  • Refer to “Case 11 Ford and the World Automobile Industry in 2015” located in the “Excess Capacity” section, page 542 in your textbook, or use the Internet to research two to three (2-3) articles on the North American automobile and its market segments. Next, analyze the key ways that segmentation provides a competitive advantage or disadvantage to the North American automobile. Provide a rationale for your response.

Excess Capacity

The greatest structural problem of the industry was excess capacity. Ever since the early 1980s, the growth of production capacity had outstripped the growth in the demand for cars. Import restrictions had exacerbated the problem. During the 1980s and early 1990s, North American and European production capacity grew substantially as Japanese automakers built greenfield “transplants.” Internationalization by Korean automakers resulted in further big additions to world production capacity.

The eagerness of Western and Japanese automakers to exploit growing demand in emerging markets was a further source of new capacity. As a result, excess capacity was not only a problem in the mature markets—it was also a huge problem in China, where the large number of domestic car makers and the influx of foreign auto companies resulted in capacity growing faster than demand. By 2014, Ford had five plants in China, Volkswagen had eight, and 45% of the country’s automobile capacity was unused.

                                          2007  2009  2011  2011

North America               79   44           69   91

South America               82   62           75    71

Europe                                82   61           72    70

Japan and Korea           86   72           81    84

China and SE Asia        89    83           76    65 

Global                                 84    67           75     74