Strategic planning managment
Competitive advantage etc.
Competitive advantage etc.
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Flashcards
Structure-conduct-performacne? What means conduct?
- Conduct: the way in which buyers and sellers behave, both amongst themselves, and amongst each other. Firms choose their own strategic behaviour, investment in research, in development, advertising levels, collusions, etc.
Structure-conduct-performacne? What means performance?
- Performance: It is measured by comparing the results of firms along the industry in efficiency terms, and different ratios are used to assess different profitability levels. The variables considered at this level are such as pricem quantity, product quality, resource allocation, production efficiency, etc.
Which forces belong to porters 5 forces?
Potential entrants (Threat of new entrants)
Substitutes (Threat of substitute products or services)
Suppliers (Bargining power of suppliers)
Buyers (Bargaining power of buyers)
Industriy competitior (Rival among exisiting firms)
What means competition from substitutes?
The price that customers are willing to pay for a product depends, in part, on the availability of substitute products. The existence of close substitutes means that customers will switch to substitutes in response to price increases for the product (demand is elastic with respect to price).
What is a value chain?
Suppliers à Industry incumbents à Buyers
• The value chain creates value that is divided by all the organizations in the industry
• Industry analysis identifies the factors of value creation and how it is divided (value capture)
What is Potential industry earnings (PIE)?
- PIE is the value to the buyers of the goods and services produced less the value of the resources that are used to produce them. However an industry can rarely capture all this value.
- Suppliers will capture some PIE by levying more than the opportunity cost of resources.
- Similarly, buyers who pay a price less than the maximum they are willing to pay will also typically capture some.
- Competition among the incumbent firms will dissipate some, and some will be lost to new entrants on the threat of entry.
What are complements?
- Complements are goods or services not produced by the incumbent firms but used in conjunction with their products (e.g. computer hardware and computer software)
- A drop in price will increase the price of the product
Which kind competition consists?
Perfect competition
Niche market
oligopoly
dominant firm
monopoly
What is a "perfect competition"?
- Large number of frims
- no product differentation
- Price taking behaviour
What is "Niche Market"?
- Product differentation
- Localizade competition
What is a "Oligopoly"
- Few frims
- strategic interdependence
- profitability determined by behaviour
What is a dominat firm?
- One/few large firms
- more small frims
- pricing leadership
- protected niches/competitive fringe
What is a monopoly?
Single firm
WHich two types of conditions affect the competitive intensity?
Market structure
- The number and relative sizes of the firms in the industry and the structure of industry demand
- E.g.corn
Firm Behavior
- Choices incumbent firms make that affect how competitive the industry will be given its structure
- E.g. Boeing and Airbus focusing on designing their products for different markets. This would lead to a less competitive market
What is a niche market?
Niche markets
- When a manager have responsibility for products of services for which no other firm produces really good substitutes
- Use tools such as product selection , pricing, promotion...
- A competitor can always enter the market if it is attractive enough
What is the different between the horizonatal vs vertical product differentiation?
Vertical product differentiation
- Customers agree about which product is better
- E.g. Ritz hotel vs Youth hostel, designer stores
Horizontal product differentiation
- Customers do not agree
- E.g. Beers,
What is vertical product differentiation
- Vertical differentiation occurs in a market where the several goods that are present can be ordered according to their objective quality from the highest to the lowest.
It's possible to say in this case that one good is "better" than another.
What is horizontal product differentiation?
- When products are different according to features that can't be ordered in an objective way, a horizontal differentiation emerges in the market.
- Horizontal differentiation can be linked to differentiation in colours (different colour versions for the same good), in styles (e.g. modern / antique), in shapes, in flavours, in tastes, in well-known category-idiosyncratic axes as well as elaborated proprietary marketing categories.
How reduce the differentiation the competition
- If prices constant are hold constant, increasing the differentiation among products leads to an increase in the number of potential buyers who prefer a specific product
- So, the effect of increase differentiation is to increase each firm’s sales
How to creat a monopol?
- Monopoly exists where an industry comprises a single firm protected by high barriers to entry.
- The monopolist can appropriate in profit the full amount of the value it creates.
- At the other extreme, perfect competition exists where there are many firms supplying an identical product with no restrictions on entry or exit
WHat is a oligopoly?
- Industries contain a few, large firms (large in terms of market share)
- The behaviour of these firms determines how profitable the incumbent firms in the industry will be (their actions effects the whole market)
- E.g. one firm in a duopoly increase output, then prices fall to adjust for expanded supply. The other player needs also to adjust its price
What are the framework of a oligopoly?
Players (Firms whose actions affect each other)
Actions (The choices available to incumbent firms can affect competition)
Timing (E.g. Firms can move pre-emtively and gain a first-mover advantage)
Information (E.g. if information has knowledge before others they can exploit it)
Repetition
What are the steps for the framework of a oligopoly?
- Anticipate how rival firms will respond
- All firms will act in their own best interest
- Managers are thinking the same way about this firm, so he should adapt
What is a dominat firms?
- A firm leads the market
- Seeks to “milk” the customers
- Small firms can’t take the dominate role because something is really different – E.g. Coca-Cola (brand), IBM
Antitrust- What is price predation?
- A firm that charges a price below a reasonable measure of cost with the intent to drive out a competing firm
- A firm that denies access to an essential facility (i.e. a facility that is necessary for the survival of competing firms) is an asset
Why companys do price predation?
- Predatory pricing is the act of setting prices low in an attempt to eliminate the competition.
- Predatory pricing is illegal under anti-trust laws, as it makes markets more vulnerable to a monopoly.
- Companies may engage in a variety of activities that intend to drive out competitors, such as create barriers to entry for new competitors or unethical production methods to minimize costs.
What is collusion
- If competing firms agree not to compete.
- Collusion is a non-competitive secret or sometimes illegal agreement between rivals that attempts to disrupt the market's equilibrium.
- Collusion involves people or companies that would typically compete, conspiring or working together that results in an unfair market advantage.
- The parties may collectively choose to restrict the supply of a good or agree to increase its price to maximize profits.
What is a first-mover advantage?
- Competitive advantage due to being first to market in a new product category
What is an advantage of a first mover advantage?
- The benefits of pioneering may result in market dominance and higher-than-average profitability over time.
- Three types of benefits—technology leadership, control of resources, and buyer switching costs—can provide long-lasting first-mover advantages.
What is a disadvantage of a first mover advanatage?
- Later entrants would benefit from informed buyers without having to spend as much on education.
- Later entrants may be able to avoid mistakes made by the first movers.
What are traps for transient advantage?
- Sporadic innovation
- Empire-biulding
- white space
- hostage-resource (Geisel-Resourcen)
- superiority (überlegenheit)
- Quality
Value chain- what has each firm?
Primary activities (Marketing, retail, distribution, production, logistic)
Secondary activities (HR, accounting, finance, research and development)
What is a vertical integration?
- Vertical integration is a competitive strategy by which a company takes complete control over one or more stages in the production or distribution of a product.
- A company opts for vertical integration to ensure full control over the supply of the raw materials to manufacture its products.
When is a vertical integration attractive for a business?
- The current suppliers of the company’s raw materials or components, or the distributors of its end products, are unreliable
- The prices of raw materials are unstable or the distributors charge high fees
- The suppliers or distributors earn big margins
What is a horizontal integration?
- An academic definition is that horizontal integration is the acquisition of business activities that are at the same level of the value chain in similar or different industries.
- In simpler terms, horizontal integration is the acquisition of a related business: a fast-food restaurant chain merging with a similar business in another country to gain a foothold in foreign markets.
When is horizontal integration attractive for a business?
- When the industry is growing
- When rivals lack the expertise that the company has already achieved
- When economies of scale can be achieved
- When the company can manage the operations of the bigger organisation efficiently, after the integration
What is a backward integration?
- Backward integration is a form of vertical integration that involves the purchase of, or merger with, suppliers up the supply chain.
- Companies pursue backward integration when it is expected to result in improved efficiency and cost savings.
- For example, this type of integration might cut transportation costs, improve profit margins and make the firm more competitive.
- The supply chain starts with the delivery of raw materials from a supplier to a manufacturer, and ends with the sale of a final product to an end-consumer.
What is forward integration?
- Forward integration is a business strategy that involves a form of vertical integration whereby business activities are expanded to include control of the direct distribution or supply of a company's products.
- This type of vertical integration is conducted by a company moving down the supply chain.
- A good example of forward integration is when a farmer sells his crops at a local grocery store rather than to a distribution center that controls grocery store placement.
- Forward integration is a operational strategy implemented by a company that wants to increase control over its suppliers, manufacturers or distributors, so it can increase its market power.
- For a forward integration to be successful, a company needs to gain ownership over other companies that were once customers.
WHat is the goal of a forward integration
- The goal of forward integration is for a company to move forward in the supply chain, increasing its overall ownership of the industry.
What is a business ecosystem?
Business ecosystems are loose networks that affect, and are affected by, the creation and delivery of a company’s own offerings
