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Creating constraints

Creating Constraints

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Definition & Summary: Introducing a new constraint where none existed to hamper competitors . In other words, purposefully impose a bottleneck -- often via supply chain or market conditions -- that your competitors now have to deal with, but which you prepared for.

Detailed Explanation: Unlike exploiting an existing constraint, here you manufacture a constraint. The origin might be a firm cornering a market resource or influencing standards. The purpose is to limit others' freedom of action. Key principle: identify something critical to competition that is not yet scarce or controlled, and then seize control or make it scarce. This could involve signing exclusive contracts (creating an access constraint), lobbying for a new regulation (a legal constraint), or launching a product that sets an expectation/standard (a market constraint). By doing so, you shape the playing field to one with a new barrier that you have the key to.

Real-World Examples:

  • Historical: De Beers and the diamond supply -- De Beers in the 20th century essentially created an artificial scarcity constraint by controlling the majority of diamond mines and stockpiling diamonds. This "created constraint" meant any competitor in the diamond trade had to go through De Beers (supply constraint) or face severe shortages. De Beers thus controlled price and evolution of that market for decades by the constraint it manufactured (artificially restricting supply).

  • Tech: Exclusive deals -- e.g., when Apple launched the iPhone, it initially had exclusive carrier deals (AT&T in the US). This created a constraint for competitors: to offer a comparable experience, they needed similar carrier support but those carriers were locked. It also constrained consumers (if you want an iPhone you must go to AT&T). While this example is double-edged (it constrained Apple's user base to AT&T network too), it's illustrative of using exclusivity to change market conditions. Another example: console makers securing exclusive game titles -- creating a content constraint for competitor consoles (they can't offer those games).

  • Hypothetical: A battery manufacturer anticipates a surge in electric vehicle demand. It strategically signs long-term exclusive contracts with major raw lithium suppliers. This creates a new constraint: any new EV entrant now struggles to procure lithium at scale (they didn't have this problem before, when lithium was open market). The manufacturer both secures its supply and puts a resource constraint on others, thereby slowing their production or raising their costs.

When to Use / When to Avoid:

  • Use when: You have foresight or leverage to lock in a key resource or choke point before others realize its importance. Ideal in emerging industries where critical inputs will become bottlenecks (e.g., talent, materials, distribution channels). Also when you have bargaining power to negotiate exclusivity (like being a major buyer). Creating a constraint is effective if you can do so in a way that competitors cannot easily bypass (otherwise it's moot).

  • Avoid when: It's likely to invite legal challenges -- e.g., exclusive deals that smell like anti-competitive behavior can be struck down. Or if it antagonizes partners (locking up a supplier might drive them to favor you short term but could harm relationship if not win-win). Don't attempt if you lack the clout to truly enforce the constraint (halfway measures will just anger others and prompt them to find alternatives).

Common Pitfalls:

  • High cost: Gaining exclusivity or stockpiling resources can be expensive. If the expected surge or need doesn't materialize, you're stuck with excess (and possibly a financial burden).

  • Workarounds: Competitors might innovate around the constraint. For example, if you lock one supply, they might develop tech that uses a different material. Then you've wasted effort on a constraint that became irrelevant.

  • Supply chain risk: If you constrain via single-sourcing or exclusivity, you must deliver. If you fail to supply (say you locked up a supplier but your own production falters), you not only hurt yourself but also the whole market, potentially pushing customers or regulators to intervene.

Related Strategies: Exploiting Constraints (often the follow-up: you create a constraint then exploit it), Raising Barriers to Entry (creating constraints is a way to raise barriers in effect), Tower and Moat (in a sense, every time a competitor tries something, you commoditize it -- that's like continually creating constraints on differentiation).

Further Reading & References:

  • Wardley, S. -- "Creating constraints: supply chain manipulation to create a new constraint where none existed." . Explains how deliberately introducing a new bottleneck can be a gameplay.

  • Example Analysis: Exclusive Dealing in Antitrust -- discusses cases where companies cornered markets or distribution (e.g., US vs. ALCOA for aluminum -- ALCOA didn't create bauxite scarcity but controlled refining, similar spirit). Shows legal perspective on creating market constraints.

  • Tech News: Reports of manufacturing capacity booking -- e.g., TSMC's 5nm chip line fully booked by Apple -- leaving less capacity for rivals, effectively a created constraint in chip supply (reported in tech journals around 2020). This illustrates modern supply constraint tactics.