Shell and first mover advantage

Royal Dutch Shell have announced that they are going to build a floating liquefied natural gas facility. This will be the largest floating structure ever built, six times the size of a big aircraft carrier and costing up to $15 billion (full story here).

This is interesting from a game theory and competition point of view.

By making this announcement and committing to spend such a large amount Shell have become the ‘first mover’ in this situation. By moving first they have changed the options for their competitors. A competitor who was considering a similar scheme but was unsure about such a large commitment will now be better off waiting to see the results of the Shell scheme. By being first to commit to this scheme Shell have made it harder for their competitors to justify a similar investment.

If it is successful then Shell will have a greater lead over their competition – they will have achieved a first mover advantage.

Of course, if the scheme fails then any competitors who wait will have the advantage because they won’t have spent the money on a failed scheme.

By going first you change the options that your competitors have, but that doesn’t mean that going first is always best. In any strategic situation you need to recognize that committing first to a course of action will change the game for everyone else. Once you have recognized this then you need to determine whether going first will give a first mover advantage or not.

 

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2 Responses to Shell and first mover advantage

  1. Asrar Chowdhury says:

    The first mover advantage comes from the Stackelberg model in the 1930s. The first mover has an advantage if all players in the game face same/similar cost structure. Shell may have a first move advantage if and only if the other players do not collude (cooperate) in the industry. Otherwise, as you have pointed out, Shell may not have a 1st mover advantage. Interesting piece. Thanks for sharing

    • Asrar Chowdhury says:

      Based on the assumption all players in the game face same/similar cost conditions

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