Mid-may crystal electric announced that part of the chip prices to rise 15%, this caused a part of the media and investors excited, and concluded that the LED chip price will rise. This inference is obviously untenable, however, the reality is, today is over a month, other vendors did not follow suit. Even further, crystal electric chip price strategy itself is very questionable, can achieve the desired goals to reduce losses still need time to confirm, and the crisis of customer churn is already imminent.

Strategy, it is often not able to reach target strategy. Bad strategy, usually some looks nice, but ignore the actual situation, and even cause the results run counter to the policy target.

By establishing a simple model of game theory, this paper attempts to analyze the crystal electricity in recent year price decision-making logic, this review of the rationality of the crystal electricity price decision, and get some game on prices of fresh experience, in order to compete in similar situations, companies can make decisions more sensible prices.

Traditional the prisoner's dilemma of price competition model

The price of the traditional game, is a typical model of the prisoner's dilemma.

In this game, we assume that it is one of the player is crystal electricity, first and second player we simplified into three Ann, or is a delegate with three Ann crystal players outside of the electricity, the figures in the parentheses are the families of assuming the earnings (payoff), the first number in brackets represents earnings crystal electric, the second number represents three Ann's earnings (the same below).

And the payoff of logic is that if the two lower price, is both; everyone only meager profits (1, 1), if the two don't reduce the price, is to maintain a higher price alliance, everyone can benefit from the pareto optimality of (5, 5), if one of the price cut, another don't reduce the price, the price of the market to expand, do not reduce the price of market lost (1, 6) or (6, 1).

According to the classical theory of Nash equilibrium, the balance of the game is (1, 1), which is both players choose the dominant in the decision for yourself, that is the price, the result is very tragic, everyone can only earn less.

In fact the price of a tooth for a tooth model

Logic is not always the case in the reality, however, the most crazy price butcher is not like the price or to reduce the price.

Because enterprise in fact it is not strictly in the prisoner's dilemma of decision mode. Companies can usually see how competitors to take the first decision, and then select the most dominant decision on their own, this will be a one-off prisoner's dilemma game change into a second game, this is the classic game of tit for tat.

A tooth for a tooth as the name suggests is a mode of revenge, his effectiveness lies in: if the player a took some damage players two actions, the player 2 is bound to be in the same measures to a player, because considering the retaliation, players two players from the beginning will not damage the player two action. This pattern of widespread let most of the time to be able to take a rational and human society interact peacefully.

On the price of the chips in the game, if you choose the crystal electricity prices, crystal electricity no doubt can choose three Ann expected to price cuts, because in the crystal electric chose to depreciate the decision tree, the three Ann's payoff is the price 1, don't reduce the price - 1, so three Ann's dominant decision is the price. Retaliation for crystal electricity with a tooth for a tooth.

Crystal electricity if chose not depreciate, three Ann theory will also choose not to reduce the price. Because if the three Ann chose price cuts in two options, in fact is to take game continue back round, three Ann are in the position of crystal electric, crystal the dominant decision will also take the price of electricity in retribution for three. Therefore, three Ann also restricted by tit for tat strategy.

So rational three Ann chose not depreciate in response to electric crystal don't reduce the price decision, the two sides temporarily maintain equilibrium payoff (5, 5). Tit for tat strategy in fact exist and crystal electricity and three of the Ann in the second quarter of 2013 to 2015 in quite a long time possible for one of the reasons for maintaining the balance of terror.

Balance imbalance after the collapse of the model

Even if tit for tat strategy in fact exist, can crystal electricity will be conscious to depreciate may collapse in the price of the consequences, but a crystal or in the middle of 2015 brazen first launched a price war, as the LED chip market for half a year's crash. Is weak is also the key influence factors of economic environment, however, terrorist balance broken there is no doubt is the internal reason of the ks type price collapse.

Watch crystal the logic behind the power to make this decision, it is not difficult to find that the most important variable is the combined ladies round in 2015 after huge pressure to operate. When the chip market as well as merger and acquisition phase expected good, huge incremental capacity for crystal electric force crystal electricity needs to expand market share, and the price is definitely preferred share.

Before the analysis what is the difference? We only need to do in a tooth for a tooth on the model of a slightly modified will find the change of decision logic.

After merged ladies round crystal electricity, because great for digestion capacity, if can't keep prices, capacity utilization rate would drop to lower levels, and can't maintain 5 proceeds as before. If idle capacity loss leads to reduced earnings and suffer the tit for tat strategy benefits are quite even lower, price becomes the dominant strategy.

And if again with fluky psychology, it is estimated that rivals will not react or does not respond quickly, then the payoff and chance to become (6, 1). It is far better than not for crystal electricity price (1, 5 "), in that case, to make money, not earn more watching your opponents more of each other's strength gap. Willing to part with or use unsaddle, also want to the emperor, to lose all.

Although it is not hard to see crystal electricity results in 2015 lost many, but the mainland several major chip factory three Ann, HuaCan, dry as starting from the third quarter gross margin in the cliff fall, while HuaCan and dried according to respective recorded nearly one hundred million yuan in 2015 net profit losses. And crystal report will eventually have to make up his mind to turn off some of the old factory. The actual results, or the result of a tooth for a tooth, everyone was crystal electricity down, nearly as bad losses (1, 1) together.

Data sources: LEDinside Gold + Member Report, 2 q16

However, judging from the perspective of rational decision making, before this, crystal electricity price decision logic generally are said in the past. Just need down so hard very questionable.

Now that the price is wrong, the price is not right?

Crystal caused the price of electricity price to slaughter to afflict, peer industry profitability destroyer of pan is out of the back also get back. In that case, the price is not good?

Crystal electricity prices to rise 15% notice after exposure, competition is also pretty happy, however, follow chip factory almost no rise in price. Of crystal electricity price rises, this really is a good strategy? You can also like didn't reduce the price of the tacit understanding with prices back to the original everyone covered the pareto optimal state of pure beautiful?

Increase in the price of theoretically and, with the price and not the price cut is a pair of symmetrical set of decisions. Or the original model, we just can't change the price to rise in price, change don't reduce the price to rise in price. Become a new model as follows:

If, crystal electricity option in the in the decision tree, we will find that three Ann such as the manufacturer's decision is not price increases, the three Ann the biggest gains (1, 6). At this point, a tooth for a tooth strategy restrict doesn't exist, unless crystal electricity prices up, to reconsider the decision does not rise in price. However, this also means that has just broken price policy, and may affect the later crystal electricity to promote the credibility of the new policy.

This is why crystal electricity price increases, peers have steal to smile, but are rarely the cause of the follower, everybody happy waiting for crystal electricity customers turn single door to door. Coupled with the chip vendor number although greatly reduced than before, but the absolute number is still large, the possibility of a consistent rise in price is very low, who also dare not risk to follow suit to rise in price.

Because of the presence of such a mechanism, the price movement, initiated by the crystal electricity may eventually evolved into crystalline monologue of electricity, and it is hard to become the industry's rise. The media and investors expect the chip price reversal may not work, however, the chip prices remain stable for a period of time is a big probability event, the price war destroyed several chip factory can finally welcomed respite.

Ratchet effect, to prevent a price war need to be careful

Not just the LED chip, most don't like tigers of oil monopoly industry enterprise is such as to move mountains rise in price, and the price is such as levee breaches. It is the price game of internal logic, that the process of price movement is a unidirectional ratchet effect. It is because they are so hard, so the enterprise in the process of decision making, as far as possible don't light qi feng, the very worst way USES the price war. Otherwise one day find it hard to bear and want to have too when I come back up.