In the 1960s Procter & Gamble recognized that disposable diapers could be made a mass- market product and developed techniques to produce diapers at high speed and correspondingly low cost. The result was that it dominated the market. According to Harvard's Michael Porter, who made a careful study of this industry, the following were some ways in which Procter & Gamble might have signaled other firms to deter entry.

a. In considering these possible tactics, why should managers at Procter & Gamble be concerned about their costs?
b. Why should managers be concerned with the costs to an entrant?
c. By the 1990s Procter & Gamble had to compete with high-quality, private-label diapers (as well as with Kimberly- Clark, which successfully entered the market in the 1970s). In March 1993 its Pampers brand had about 30% of the market, and its Luvs brand had about 10%. The price of Luvs and Pampers exceeded that of discount brands by over 30%. Should Procter & Gamble have cut its prices?
d. In 1993 Procter & Gamble sued Paragon Trade Brands, a private-label producer, alleging infringement of two patents. Are lawsuits of this kind part of the process of oligopolistic rivalry and struggle?

Cost to Procter & Gamble Tactic Cost to an Entrant Signal a commitment to defend position in diapers through public state- ments, comments to retailers, etc None Raises expected cost of entry by increasing proba bility and extent of retaliation 2. File a patent suit. Legal fees Incurs legal fees plus the probability that P & G wins the suit with subsequent cost to the competitor Raises expected risk of price-cutting and the proba- bility of P & G's retaliation to entry Raises the expected cost of entry by forcing entrant to bear possible product devel opment and changeover costs contingent on the ultimate configuration of the new generation 3. None Announce planned capacity expansion 4. Announce a new generation of diapers to be introduced in the future. one