Nutrasweet Case Analysis

Game Theory and the Social Sciences

NutraSweet vs Holland Sweetener Company

• Aspartame: low-calorie, high-intensity sweetener • Monsanto’s brand name: NutraSweet • NutraSweet: key to the success of diet Coke and diet Pepsi in the 1980s.

Introduction

Myong-Hun Chang Department of Economics Cleveland State University

G. D. Searle & Co.

• 1965: Serendipitous Discovery of Aspartame at Searle • 1970: Searle secures a patent on aspartame

– Patent Expiration Dates:

• 1987 in Europe and Canada • Dec. 14, 1992 in the United States

• 1970: Seeks approval from the FDA for the use of aspartame as a food additive

• July 1981: FDA grants permission for dry use of aspartame as a food additive • October 1981: Searle launches “Equal” • December 1982: The NutraSweet Group established as a separate operating division of Searle • July 1983: FDA approves “wet” use of aspartame • “Branded Ingredient Strategy” • Summer 1985: Monsanto acquires Searle

Monsanto’s Strategic Considerations

• Capacity investment, pricing, and marketing strategies in anticipation of the patent expiration • State of the markets (Europe, Canada, U.S.) following the patent expiration • Strategic vs Economic decisions

Holland Sweetener Company

• Joint Venture between Tosoh Corporation (Japan) and DSM (Dutch State Mines)] • Created (1985) to challenge Monsanto’s monopoly in the aspartame market • 1986: HSC begins building an aspartame plant in Geleen, the Netherlands • Scale of Entry: Small 500-tonne plant

HSC’s Strategic Considerations

• Expectation of the Post-Entry Market • Two Scenarios

– “Normal Competition” – “Price War”

HSC’s Conclusion

• Enter the European market at small scale

– Brand name Sanecta

• NutraSweet unlikely to engage in price warfare

• Strategic vs Economic Considerations

Post-Entry Price Competition

• 1987: NutraSweet’s European patent expires • Holland Sweetener attacks the European market • Monsanto fights back (aggressive pricing)

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