Supply Chain Management - Unilock Case Study

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for neither of them to promote. This decision puts customers in a worse-off place than if the companies acted in their own self interest, which is why the Competition Act exists.

While Q&H would achieve the highest profits if neither businesses promoted, this is not realistic. Thus, as stated above, the highest return would be a result if Q&H promoted in June and Unilock did not promote at all, but also, promoting in June results in the highest return no matter what Unilock decides to do. Promoting in April is quite risky for both businesses, and Unilock may be waiting to act in response to Q&H. Thus, a promotion in the month of April, especially if Unilock promotes soon after in June, will be troublesome for both companies, and achieve low returns for both. Based on Game Theory, it is safe to say that Q&H cannot assume that Unilock will ever act in favour of them. This scenario is a classic case of the prisoner’s dilemma, so Q&H must protect themselves. For any manager, it would be comforting to know that the difference between the maximum attainable profits achieved with collusion differs by only 12% from the lowest profits achieved by Q&H acting in their own self interest and promoting in June. In the case that Unilock decides not to promote and Q&H proceeds with their promotion in June, their profits would be higher than had the two firms colluded.

It is important to note that the forward buying effect is greatest when the companies both promote in the same month. A 25% forward buying effect is quite high, and it would result in little increase in sales, but more so a loss in revenue due to uneven demand in that period and the time value of money. Given this, however, it is still best to promote in June, even if the Unilock decides to do so as well.