Competitor Reaction Simulator
Game theory engine. Predict how your competitors will respond to your pricing moves based on their profile and market conditions.
Scenario Setup
Aggressive Price Match
Strategic Advice
High Risk. Competitor has inventory to burn. Avoid price war.
The Retaliation Risk
High probability means you should prepare for a fight.
High Risk (>70%)
Retaliation is almost guaranteed. Ensure you have the margin/cash to survive a price war before you start one.
Low Risk (<30%)
You have room to maneuver. Your competitor is either unable or unwilling to follow you.
Asymmetric Response
Sometimes the reaction isn't price. You drop price, they might launch a massive ad campaign instead. Watch for non-price moves.
Execution Steps
Define the 'Market Type' (Commodity = Price Sensitive, Differentiated = Brand Loyalty).
Select your intended 'Move' (Price Cut or Price Hike).
Profile your Competitor (Aggressive vs Passive, High Inventory vs Low).
The simulator predicts the likelihood of retaliation and offers strategic advice.
Pro Strategy
- Before cutting price, check if your competitor has 'High Capacity' (excess inventory). If they do, they MUST match you to clear stock.
- In differentiated markets, price cuts are less effective because customers are loyal to features, not just price.
- Raising prices is safer if you are the Market Leader. Competitors often follow the leader up to improve their own profits.
Core Concepts
Nash Equilibrium
A situation where no player benefits by changing their strategy while others keep theirs unchanged. Often leads to price matching (everyone loses margin).
Signaling
Using public price moves to communicate intent to competitors. A small price hike signals a desire for better margins; a deep cut signals a war.
Tit-for-Tat
A common strategy: I will cooperate (high price) as long as you do. If you defect (cut price), I will immediately retaliate.
What is Competitor Reaction Simulator?
This tool uses basic Game Theory principles (Prisoner's Dilemma logic) combined with market structural analysis (Capacity, Differentiation) to forecast competitive response probabilities.
Best For
- • Planning a Black Friday promotion.
- • Deciding whether to match a competitor's recent price drop.
- • Considering a permanent price increase.
Limitations
- • Simplified logic model.
- • Does not account for competitor's cash position (desperation).
- • Cannot predict 'Blue Ocean' moves (competitor changing the product entirely).
Alternative Methods
War Gaming Workshop
Role-playing session with your team acting as competitors.
Historical Analysis
Looking at what they did last time you changed prices.
Industry Applications
See how this methodology generates real revenue uplift in different sectors.
Airline Price War Avoidance
Airline A wanted to drop fares on the NY-LON route.
Simulation predicted 95% probability of instant matching by Airline B (Commodity market, High Capacity).
SaaS Market Entry
New entrant pricing 50% below market leader.
Simulation showed the leader would likely 'Ignore' (Low Risk) to maintain premium brand positioning.