How Game Theory Can Help Crest and Colgate fight for the #1 spot
The toothpaste industry offers us a dental health product that is considered a basic life necessity. While there are a handful of brand names to choose from, Crest (Procter & Gamble) and Colgate (Colgate-Palmolive) dominate the market. These brands are most successful as they cater to diverse customer health needs such as Crest Pro-Health and Colgate Sensitive, and have the capital to run a multitude of ad campaigns annually. Toothpaste brands rave about their product’s health results as well as their beauty-enhancement abilities to garner and maintain their customer base. Additionally, the toothpaste industry encompasses nearly everyone as it is a necessity good; it’s a multibillion-dollar industry. Depending on the price-sensitivity of the consumer, the cost to switch between brands may be too high or it may be negligible. Customers use channels such as the internet, health care professionals, and advertisements boasting product benefits to make decisions on what product is best for their, and/or their family’s, needs.
The industry is dominated by giants allowing companies like Crest and Colgate to enjoy unique access to resources that others cannot compete with; everything from advertising, packaging design costs to R&D has an excessive budget to help maintain their edge over most competitors. So the question becomes, how can we use Game Theory to help one giant crush the other? If we use what we know about competition and game theory, and we assume that each submarket of the industry (i.e, sensitive teeth, teeth whitening, etc.) is as lucrative as the next, we find that instead of having the two companies create competing products they should split the market; Colgate should cater to some submarkets while Crest caters to the others. However, because Colgate and Crest are interested in garnering the greatest market share overall, they will forego this logic in hopes that taking as much of each submarket as possible will lead to their overall success.
For example (numbers are invented) this is how we can think about the submarkets:
Colgate v Crest
| Split Market | Steal Market | |
| Split Market | (5,5) | (0,10) |
| Steal Market | (10,0) | (0,0) |
Sources:
http://www.kuttlerdental.com/blog/post/toothpaste-most-of-us-use-it-but-how-do-you-choose-it.html