Combing at the End of the Beach

The End of the BeachI took a sabbatical a few years ago and ended up doing an MBA at Bradford.  One day the microeconomics lecturer, Damian Ward, posed a couple of questions, along these lines:

You decide to set up a refreshment stall on a beach.  Where’s the optimal place to set up stall? (Answer: the middle of the beach).

 

There’s already a refreshment stall in the middle of the beach.  Where do you set up yours…?

 

The answer to the second question is that you set up right next to the guy in the middle of the beach, effectively dividing it between the two of you.  You can’t do better than this – if you move closer to one end, your competitor can steal market share by following you and setting up next to you again.  The equilibrium position for this ‘game’ is: both stalls next to each other, in the middle of the beach.

 

Dr Ward went on to draw parallels between this simple game and analogous real world cases, notably the electoral success that the Blair-led Labour Party had enjoyed by stealing the middle ground.  His prescription for a whole range of such strategic games was ‘sit in the middle and get fat’ (i.e. spread outwards from there).  Sound advice indeed.

 

It’s a little odd though that a similar thing seems to happen on tube station platforms, where the game objective is different.

 

I usually try to travel around London by tube outside peak times.  When I do this, I do well fairly consistently by waiting for a train at one of the extreme ends of the platform.  The bell curve of mass of the waiting crowd generally seems to congeal around the middle of the platform, and often the cabins near the center of the train are crushed full, while the end cabins are half empty.

 

It’s not a foolproof strategy, and it fails altogether at peak times, when the sheer volume pouring onto the platform, constrained by its finite end points, creates a dense but even distribution.  The best strategy at these times is probably to move outside the paradigm of the game.  Walk, in other words.  Sort of a genteel version of Captain Kirk’s famously unique beating of the ‘unwinnable’ Kobayashi Maru scenario…Kobayashi Maru

 

Anyway.  It’s not uncommon to see a similar sort of dynamic in corporate strategy considerations.  The classic problem of corporate strategy (as distinct from business strategy) is ‘where do we play?’  What sectors and sub-sectors are attractive places to invest?  But in order to actually implement a move, we have to go further than this – what positioning do we want within a given sector?  And very often this second consideration leads to a whole bunch of sponsors targeting the same pool of assets.

 

In the past I’ve had this problem to solve in an environment with the added complication that we were 10% of the size of our two main competitors.  Chasing after the same positioning as them, in other words, would have been unlikely to have ended well.

 

Sometimes the best answers in these circumstances are at the very edges of the sector.  Stuff you see out of the corner of your eye.  Assets where the question arises as to whether they actually belong in this sector at all.  Answering that question, in depth, can be a very fertile source of opportunity.

 

Back to the beach.  What happens when a third stall-holder turns up?

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