Inorder to succeed in the CEO Game you need to apply real life strategies.
For instance, in the real business world, in order to earn more than normal profit (which is zero) you need to do something better than the other competitors. Otherwise, you’ll simply maintain your position, instead of earning a real profit.
Price Wars- Who Will Win?
It is easy to describe this problem in a simplified economy. There are two stores selling the same products in the same place to the same customers, who have complete information on the store prices and there is no additional cost to produce aside the cost of the product itself. So people will go from one store to the other to bargain until they get the minimum price of one store. If the product has the same manufacturing cost to both stores, the stores will end up selling their products in the same price. Their profit will be normal profit rate, a little higher than the interest rate.
How do you get to a normal profit rate?
Well, if you don’t have anything unusual like a unique product or services, trademark, patent or even knowledge that you’re other competitors don’t have, eventually you’ll get to normal profit rate. Because if you are selling a commodity and if your store is in a certain region that makes lots of money by selling a product that every one of your competitors can sell at the same price, they will. So they will start to sell the same commodity in the same profitable region and slowly decrease your profit rate. Eventually, one store will start to lower its prices in order to be more attractive to the customers and that will lower your profit rate of both stores even further. Then you will lower your price and so on and so forth–this is called a “Price war“. The only ones winning here are the customers, while you and your competitors’ loss profit until you reach the normal profit rate.
How can you avoid a normal profit rate? As mentioned before, you need something that your competitors don’t have, such as a patent on a product or trademark, which your competitors can’t use, and therefore you can charge how much you want because you are the only one that can supply the certain good. Even a source of knowledge can be a barrier to competition, but not as strong as patent or trademark. For example, if you know in what region the demand to your product is the highest you can open the store there and sell it at high prices. But after a while your competitors will find this profitable region and start selling the same product and once again you will have a price war.
This is just one of the key economic concepts you need to understand to succeed in the business world. In the CEO Game, as a realistic business simulation , these concepts are just as important. Good luck, with setting up your business tycoon!
Omri.
The CEO Game.
