Copycats
If we take a moment to look at a phonebook, or even an isle in a grocery store, something unique about America’s competitive market should jump out at consumers. For every need or want, there are a multitude of options with greater, equal, or lesser value. However, the fact that companies have decided that there is value in forming clusters and mimicking each others decisions is an interesting concept. In Marvin Liebmerman’s and Shigeru Asaba’s article, from UCLA, the strategy and benefit of marketing mimicry is examined.
In the article, concepts of information cascades, direct benefit, and Nash equilibrium are highlighted to discuss a company’s rationale behind copying another firm in practice and production. Additionally, the article aims to dismiss notions that it is always lucrative to copy, and examine the reasons for copying leading to widespread market failure based misinformation or poor information.
Direct benefit, however, plays the largest role in a company’s decision to mimic another in practice or production type. First, by entering a saturated market, the new company can simply take away some of the market share from an established company at a lower price point. Additionally, there is less risk to being in a saturated market, because it prevents any company from acting aggressively to gain a greater chunk of the market. (aggressive action leads to greater risk).
In addition to reducing risk, following the crowd in uncertain markets largely benefits imitators. First, imitators have more information by following an innovator into a market. Second, imitation of a superior organization allows for the incoming firm to reduce the amount of experimentation they would have needed to make in other markets if they chose to be an innovator. This means in most cases it is more beneficial in terms of lowering over-head costs and investments in an idea if a business is an imitator rather than an innovator.
This information could also likely be described by a Nash equilibrium, where innovators without imitators receive substantial gains. However, when an imitator is in the market, the gains are largely decreased. Also, when both companies are imitators in the market, the profit is split. This would then drive the equilibrium toward everyone entering the market being an imitator.