Product details

NutraSweet''s worldwide patent-protected monopoly on aspartame, the low-calorie high-intensity sweetener, ended with the 1987 entry of the Holland Sweetener Co (HSC) into the European market. Following the arrival of a challenger, NutraSweet acted to reduce sharply the price at which it offered aspartame to its European customers. NutraSweet''s pricing move raised the question: were its actions in Europe a credible signal of how it would respond to entry in the US market (where its patent was due to expire in late 1992)? This case explores some aspects of the game between a challenger (such as HSC) that is looking to enter a market and an established player in the market (such as NutraSweet) that may engage in signalling behavior. Can be used to examine how, by setting low prices, an established player in a market can credibly signal an advantageous cost position to a potential challenger and thereby dissuade the latter from entering. Analysis indicates that the credibility of the signal rests not on its cost (which is the same to either a low or high-cost player), but rather on its benefit (which is indeed greater to a low than to a high-cost player).