question
a firm's goal is ...
answer
a sustainable competitive advantage
question
sustainable competitive advantage
answer
to create and capture more value than rivals consistently over time
question
how a firm achieves a sustainable competitive advantage
answer
strategy
question
ultimate proof of a successful strategy is ...
answer
superior profitability (firm's surplus)
question
a good offense
answer
superior market position through value drivers and cost drivers
question
a good defense
answer
focus on preventing imitation by rivals and on retaining customers by building switching costs + increasing buyer surplus
question
...
answer
...
question
what makes a strategy successful?
answer
a good offense AND a good defense
question
Value-Cost Framework
answer
...
question
(Value-Cost Framework) competitive advantage is about producing and protecting...
answer
a larger gap between value and cost
- widening it more than your rival firms
- widening it more than your rival firms
question
(Value-Cost Framework) the wider the gap between value and cost ...
answer
the stronger your market position
question
(Value-Cost Framework) a firm's market position
answer
a firm's total economic contribution
- the difference between the value the firm offers to customers (demand side) and the firm's cost to produce that value
- the difference between the value the firm offers to customers (demand side) and the firm's cost to produce that value
question
(Value-Cost Framework) a firm's total economic contribution = ...
answer
product value - cost
question
(Value-Cost Framework) the higher the value delivered to customers and the lower the cost to produce that value...
answer
the stronger of a market position
question
(Value-Cost Framework) a firm's overall economic contribution is captured by ...
answer
- the buyer's surplus
- the firm's surplus
- the firm's surplus
question
(Value-Cost Framework) buyer's surplus
answer
product's value - market price
(aka the value captured by the customer)
(aka the value captured by the customer)
question
(Value-Cost Framework) firm's surplus
answer
price - cost
(aka profit/the value captured by the firm)
(aka profit/the value captured by the firm)
question
how does competition affect a firm's market position?
answer
imitation by other forms/copycats crowd the market and force the price down
question
true or false: strong rivalry lowers profits
answer
TRUE
- if you force the price down with costs remaining the same, its going to lower the firm's profits
- if you force the price down with costs remaining the same, its going to lower the firm's profits
question
value is also called
answer
willingness to pay
question
value/willingness to pay definition
answer
the price a buyer is willing to pay in the absence of a competing product and in the context of other purchasing opportunities
question
the buyer always determines ...
answer
a product's value
question
true or false: any price higher than the value/willingness to pay means that the customer simply refuses to purchase the product
answer
true
- no buyer surplus
- no buyer surplus
question
true or false: if there's no buyer surplus, there will be no customers
answer
true
question
effective competitive positioning is when a firm...
answer
offers a product whose characteristics match buyer preferences
question
methods for estimating value
answer
1. internal engineering
- direct calculation
- EX: manufacturer of bedsheets, quality of sheets measured by thread count
2. customer perceptions (+ context)
- focus groups, surveys
- EX: survey poll ran during class about whether or not we were interested in purchasing an electric vehicle, most people said no because we are not in the market for this purchase therefore the context was not appropriate
3. quantitative analysis
- EX: conjoin analysis **** read about in book
- direct calculation
- EX: manufacturer of bedsheets, quality of sheets measured by thread count
2. customer perceptions (+ context)
- focus groups, surveys
- EX: survey poll ran during class about whether or not we were interested in purchasing an electric vehicle, most people said no because we are not in the market for this purchase therefore the context was not appropriate
3. quantitative analysis
- EX: conjoin analysis **** read about in book
question
why does a firm have an advantage when the difference Value - Cost is bigger than its competitors? Why does Value matter?
answer
consumer demand (Q) is an increasing function of Value - Price
- thats why we care about Value
- thats why we care about Value
question
profit equation
answer
profit = Q(V,P)*(P-C)
question
the difference between product value and cost is called:
a. buyer's surplus
b. firm's surplus
c. willingness to pay
d. total economic contribution of the firm
a. buyer's surplus
b. firm's surplus
c. willingness to pay
d. total economic contribution of the firm
answer
d. total economic contribution of the firm
question
an effective strategic plan ....
answer
moves the business closer to choosing the best set of projects for improving performance
- given the business's current market position (value - cost) and the constraints of competition
- given the business's current market position (value - cost) and the constraints of competition
question
true or false: after playing the puzzle game in class, we know that its not necessary to have a strategic plan to outperform your rivals
answer
true
question
true or false: in general, all firms have a strategy. it doesnt matter if they have expressed it.
answer
true
question
true or false: a strategy can be implicit by the fact that a firm is trying to increase value to attract customers and decrease their costs
answer
true
question
strategic planning
answer
involves a more significant commitment of resources by top management
- investment in fixed assets, major reorientation/realignment of the org environment relationship, major change in the definition of business, reconfiguration of org structure
- investment in fixed assets, major reorientation/realignment of the org environment relationship, major change in the definition of business, reconfiguration of org structure
question
tactical planning
answer
requires relatively minor, routine changes resolvable by middle or low level managers
fewer resources are committed, and procedural modification can generally be substituted for structural reformation
fewer resources are committed, and procedural modification can generally be substituted for structural reformation
question
what do we know about the strategic planning process
answer
- tools for decision making
- neutralizes decision making biases
- extends top management's leadership and power
- generates commitment from employees
- motivates the firm's systems of financial and operating control
- neutralizes decision making biases
- extends top management's leadership and power
- generates commitment from employees
- motivates the firm's systems of financial and operating control
question
the different types of decision making biases
answer
1. myopia
2. sunk costs (escalation of commitment)
3. bias re: gains or losses
4. information availability
5. information anchoring
2. sunk costs (escalation of commitment)
3. bias re: gains or losses
4. information availability
5. information anchoring
question
myopia
answer
weighting short term over long term outcomes, controlling for a discount rate
question
sunk costs (escalation of commitment)
answer
continuing to invest in failing projects in hope of getting back the original investment
question
bias re: gains or losses
answer
tending to be risk seeking in terms of losses and risk averse in terms of gains (prospect theory)
question
information availability
answer
valuing and using information simply because it is favored, most recent, or readily available
question
information anchoring
answer
overweighting information that appears first in the information flow
question
test question EX: shown Wall Street Journal article and in it is a quote, "the pandemic may mark the end of old co-working models about short term expectations." it does not discuss long term post-pandemic forces. What decision making bias is most likely represented in this article about co-working models and short term expectations?
answer
myopia
question
an effective strategic plan has 3 components:
answer
1. starts with problem identification and diagnosis
- requires internal (org) and external (industry, market) analysis
- external factors come as opportunities or threats
- internal factors determine how they will respond
2. specifies a mission that includes:
- the Objective (ends): "the what" with specific financial and operating goals that would demonstrate that the firm has realized its strategy
- the Scope (domain): "the where" to compete (what customer segments, geographies, industries, etc. do we compete in?)
3. specifies the sources of advantage (means): "the how"
- defines the strategic initiatives to address the problem or opportunity
- specifies how the strategic initiative will improve the likelihood of achieving a temporary or sustainable advantage
- specifies a set of coherent action plans/programs to execute each strategic initiative
- requires internal (org) and external (industry, market) analysis
- external factors come as opportunities or threats
- internal factors determine how they will respond
2. specifies a mission that includes:
- the Objective (ends): "the what" with specific financial and operating goals that would demonstrate that the firm has realized its strategy
- the Scope (domain): "the where" to compete (what customer segments, geographies, industries, etc. do we compete in?)
3. specifies the sources of advantage (means): "the how"
- defines the strategic initiatives to address the problem or opportunity
- specifies how the strategic initiative will improve the likelihood of achieving a temporary or sustainable advantage
- specifies a set of coherent action plans/programs to execute each strategic initiative
question
(strategic planning) step 1: problem identification and diagnosis
answer
analysis of a firm's industry and competitors
- macro-economic factors
- industry factors
- firm-specific factors
in class Hollywood example:
- macro-economic factors = tariffs set by US gov
- industry factors = supplier buyer power, writers of Hollywood scripts when on strike because unionized
- firm specific factors = film studios are highly vertically integrated
- macro-economic factors
- industry factors
- firm-specific factors
in class Hollywood example:
- macro-economic factors = tariffs set by US gov
- industry factors = supplier buyer power, writers of Hollywood scripts when on strike because unionized
- firm specific factors = film studios are highly vertically integrated
question
macro-economic factors
answer
Forces in the overall economy, e.g., regulation, interest rates, tax policy
question
industry factors
answer
conditions specific to an industry such as the presence of powerful buyers
question
firm-specific factors
answer
The resources & capabilities underlying a firm's V-C position
question
(strategic planning) step 2: set a mission objective
answer
- a mission objective sets financial and operating goals (both short term and long term)
question
true or false: there is often managerial resistance to long term goal setting which makes a firm vulnerable to decline
answer
true
- myopic bias
- myopic bias
question
financial (performance) goals
answer
- generic = revenues, net profits, ROI
- market measures of performance = based on investor expectations, rating agencies (EX: S&P), cost of capital *DCF): CAPM, firm's market value = Tobin's q
- market measures of performance = based on investor expectations, rating agencies (EX: S&P), cost of capital *DCF): CAPM, firm's market value = Tobin's q
question
operating goals
answer
- value indicators = quality, service levels, time to delivery, etc.
- cost indicators= inventory turnover, admin expense, purchase price variance, etc.
- cost indicators= inventory turnover, admin expense, purchase price variance, etc.
question
financial goals must be aligned with ....
answer
operating goals, as measured by metrics guiding management team
question
common benchmarks for goal setting
answer
1. firm's historical performance or trend
2. performance of competitors/rivals
2. performance of competitors/rivals
question
(strategic planning) step 3: specifying sources of advantage
answer
- strategic initiatives define how the firm will compete in its market and achieve its performance targets
** look at Elements of Competitor Analysis (table 6.1) in the book**
general categories of initiatives = programs (projects) that:
- improve the firm's value drivers
- improve the firm's cost drivers
- raise customer retention rates
- invest in growth
- terminate or turnaround underperforming activities of the firm
- focus on risk management and compliance
** look at Elements of Competitor Analysis (table 6.1) in the book**
general categories of initiatives = programs (projects) that:
- improve the firm's value drivers
- improve the firm's cost drivers
- raise customer retention rates
- invest in growth
- terminate or turnaround underperforming activities of the firm
- focus on risk management and compliance
question
test question EX: DigiSports Company, which operates in the eSports industry, would like to create a strategic plan. To do so, top executives at the firm create a SWOT analysis. Given your knowledge of strategic planning, do you think DigiSports Company will benefit from this method of goal setting and decision making?
a. Yes, a SWOT analysis will identify the strengths, weaknesses, opportunities, and threats to the firm
b. No, a SWOT analysis might produce interesting content, but it lacks the structure of a discussion of goals, industry context, strategic initiatives, and programs
a. Yes, a SWOT analysis will identify the strengths, weaknesses, opportunities, and threats to the firm
b. No, a SWOT analysis might produce interesting content, but it lacks the structure of a discussion of goals, industry context, strategic initiatives, and programs
answer
b. No, a SWOT analysis might produce interesting content, but it lacks the structure of a discussion of goals, industry context, strategic initiatives, and programs
- look at ch 6 in textbook about SWOT
- look at ch 6 in textbook about SWOT
question
building a sustainable competitive advantage: offense = ...
answer
market position driven by value drivers and cost drivers
value - cost
gives you a superior market position
value - cost
gives you a superior market position
question
building a sustainable competitive advantage: defense = ...
answer
isolating mechanisms driven by retaining customers and preventing imitation
gives you a defendable market position
gives you a defendable market position
question
superior market position AND defendable market position = ...
answer
sustainable competitive advantage
question
companies can compete on the same value and cost drivers and defend them similarly, but still differ in how well they do in terms of performance. why is that?
answer
firms each have different resources and capabilities
question
resources
answer
those tangible and intangible assets controlled by a firm and can be used to implement strategies
-EX: improve its market position/improve that value - cost profile
-EX: geographical location, patents, brand, etc.
-EX: improve its market position/improve that value - cost profile
-EX: geographical location, patents, brand, etc.
question
capabilities
answer
firm's ability to accomplish tasks that are linked to performance by increasing value, decreasing costs, or both
-EX: managerial or org skills that a company uses to organize and deploy its resources
-EX: managerial or org skills that a company uses to organize and deploy its resources
question
how does a firm transform inputs into outputs
answer
capabilities
- EX: teamwork, marketing skills, supplier management skills
- EX: teamwork, marketing skills, supplier management skills
question
value drivers are divided into these 2 categories:
answer
1. attributes of products/services
2. relationship with customers
2. relationship with customers
question
value drivers: attributes of products/services
answer
1. quality
2. technology
3. customization
4. geography
5. risk assumption
2. technology
3. customization
4. geography
5. risk assumption
question
value drivers: relationship with customers
answer
1. breadth of line/compliments
2. brand/reputation
3. delivery/service
4. network externalities
2. brand/reputation
3. delivery/service
4. network externalities
question
if you focus on value drivers and you're a firm with a generic strategy of differentiation...
answer
there are some disadvantages
question
disadvantages of a differentiation strategy (focusing on value drivers)
answer
1. buyers, not producers/firms, determine the product's value (hard to predict!)
*EX: google glass was a fail because buyers didn't value them*
2. value is multi-dimensional, "quality" is not the only dimension that matters
3. hard to measure exact value
4. producing high-quality products, especially in low quantities, undermines attempts to control costs
*EX: google glass was a fail because buyers didn't value them*
2. value is multi-dimensional, "quality" is not the only dimension that matters
3. hard to measure exact value
4. producing high-quality products, especially in low quantities, undermines attempts to control costs
question
cost drivers
answer
1. scale economies
2. scope economies
3. learning curve
4. low input costs
5. vertical integration
6. organizational practices
2. scope economies
3. learning curve
4. low input costs
5. vertical integration
6. organizational practices
question
if you focus on cost drivers and you're a firm with a generic strategy of low cost leader..
answer
there are disadvantages
-EX: Walmart
-EX: Walmart
question
disadvantages of a cost leadership strategy
answer
1. requires high capital investment
2. can be more easily imitated
3. mass production can undermine value and differentiation
2. can be more easily imitated
3. mass production can undermine value and differentiation
question
(isolating mechanisms) retaining customers, how can you do it?
answer
1. increasing the buyer's surplus relative to substitutes (increase value or decrease price
2. increase the buyer's cost to switching
2. increase the buyer's cost to switching
question
the 3 diff types of costs incurred by customers that keep them with a firm
answer
1. search costs
2. transition costs
3. learning costs
2. transition costs
3. learning costs
question
search costs
answer
tend to be high for products who value is apparent only after experiencing the product- experience goods
- EX: wine, beauty products, health care providers, hotels
- EX: wine, beauty products, health care providers, hotels
question
learning costs
answer
costs incurred in learning a new process
-EX: changing from a Mac to a PC, network externalities can help
-EX: changing from a Mac to a PC, network externalities can help
question
transition costs
answer
costs from shifting from old equipment, processes, practices or services to new
-EX: customizing your home, switching equipment in electronics (Apple to Android), contract termination fees
-EX: customizing your home, switching equipment in electronics (Apple to Android), contract termination fees
question
(isolating mechanisms) preventing imitation, how can you do it?
answer
1. property rights
- patents, copyright, trademarks
2. turning external resources into dedicated assets
3. casual ambiguity
4. sunk costs
- patents, copyright, trademarks
2. turning external resources into dedicated assets
3. casual ambiguity
4. sunk costs
question
dedicated assets
answer
tying up suppliers of low cost inputs
- partnerships, long term contracts
- EX: Walmart, Gucci
- partnerships, long term contracts
- EX: Walmart, Gucci
question
difference between property rights and dedicated assets
answer
property rights = assets owned by the firm
dedicated asset = external resource, asset that comes from outside the firm
dedicated asset = external resource, asset that comes from outside the firm
question
casual ambiguity
answer
multiple resources and/or their interconnections disguise the source of an advantage
-EX: Southwest Airlines' ability to turn planes around at the gate in 20 minutes
-EX: Walmart, Kmart tried to imitate Walmart's price matching but they went bankrupt because of it
-EX: Southwest Airlines' ability to turn planes around at the gate in 20 minutes
-EX: Walmart, Kmart tried to imitate Walmart's price matching but they went bankrupt because of it
question
sunk costs
answer
one time investments with continuing economic benefits
- brand, R&D investments
- time compression diseconomies (MBA program 1 v. 2 years)
- relationships between sunk investments and complementary resources
-EX: Walmart investing $1 billion in tech
- brand, R&D investments
- time compression diseconomies (MBA program 1 v. 2 years)
- relationships between sunk investments and complementary resources
-EX: Walmart investing $1 billion in tech
question
test question EX: which of the following is NOT an isolating mechanism?
a. property rights
b. causal ambiguity
c. learning curve
d. transition costs
e. dedicated assets
f. sunk costs
a. property rights
b. causal ambiguity
c. learning curve
d. transition costs
e. dedicated assets
f. sunk costs
answer
c. learning curve
- cost driver, NOT an isolating mechanism
- NOT that same as learning costs
- cost driver, NOT an isolating mechanism
- NOT that same as learning costs
question
Walmart's cost drivers
answer
1. vertical integration= ware houses, own distribution centers, bypass intermediaries
2. low input costs = minimizing travel expenses, negotiating with suppliers
3. org practices = cross-docking
4. low input costs, org practices = IT (automated distribution)
2. low input costs = minimizing travel expenses, negotiating with suppliers
3. org practices = cross-docking
4. low input costs, org practices = IT (automated distribution)
question
Walmart's value drivers
answer
1. breadth of line = variety of merch selection
2. location = numerous stores offer convenience to customers
3. technology = improves supply management and makes sure nothing is out of stock
4. brand/reputation = rep for low prices
2. location = numerous stores offer convenience to customers
3. technology = improves supply management and makes sure nothing is out of stock
4. brand/reputation = rep for low prices
question
Walmart's isolating mechanisms
answer
1. casual ambiguity = hard for competitors to replicate the price point (Kmart bankrupt)
2. sunk costs = early investments in tech and development of the brand
3. dedicated assets = locked in relationships with suppliers
4. raised switching costs and transition costs = one stop shopping experience that no other discount retail stores can do
2. sunk costs = early investments in tech and development of the brand
3. dedicated assets = locked in relationships with suppliers
4. raised switching costs and transition costs = one stop shopping experience that no other discount retail stores can do
question
threats to Walmart's sustainability of competitive advantage
answer
1. competition from Target and other retail formats
2. limits to growth in core business
3. legal issues with employees, value drivers (lost continuity with founder's management philosophy in treating employees
2. limits to growth in core business
3. legal issues with employees, value drivers (lost continuity with founder's management philosophy in treating employees
question
Gucci's strategy: product design
answer
shed its classic image and became a fashion driven company (value driver via brand/reputation)
question
Gucci's strategy: manufacturing
answer
De Sole visited Tuscany and tried to mend relationships with suppliers
- increased craftsmanship, value driver, decreased costs by investing in supplier tech
- suppliers as dedicated assets
- increased craftsmanship, value driver, decreased costs by investing in supplier tech
- suppliers as dedicated assets
question
Gucci's strategy: distribution
answer
strengthened directly operated stores (DOS's) to add value
- brand, service/delivery
- brand, service/delivery
question
Gucci's strategy: marketing
answer
doubled their spending on advertising (value driver via brand/reputation)
question
Gucci's strategy: pricing
answer
prices were lowered by 30% on average
- value drivers increase value and prices lower results in larger buyer's surplus --> Gucci retains and attracts customers
- value drivers increase value and prices lower results in larger buyer's surplus --> Gucci retains and attracts customers
question
Gucci is a success story of __________
answer
repositioning
question
repositioning starts with ....
answer
management
question
true or false: repositioning requires changing almost everything
answer
true
- products, distribution, pricing, etc.
- exploit your most valuable assets, resources, and capabilities (EX: the Gucci brand, artisan manufacturing and suppliers in Tuscany)
- products, distribution, pricing, etc.
- exploit your most valuable assets, resources, and capabilities (EX: the Gucci brand, artisan manufacturing and suppliers in Tuscany)
question
repositioning requires __________
answer
trade-offs
- reduction of distribution while expanding sales
- lowering prices while aggressively strengthening the brand
- reduction of distribution while expanding sales
- lowering prices while aggressively strengthening the brand
question
firms create ________
answer
industries, not the other way around
question
industry boundaries allow us to ...
answer
appropriately assess opportunities and threats from industry forces on a firm's profitability
question
the 3 ways industry boundaries are drawn
answer
1. firms who products provide value in functionally equivalent ways
- EX: air conditioners, but not fans
2. technological similarity
3. market interdependence
-EX: where the change in the value or price of one firm's product affects the demand for the product of another firm
- EX: air conditioners, but not fans
2. technological similarity
3. market interdependence
-EX: where the change in the value or price of one firm's product affects the demand for the product of another firm
question
industries can determine firm ____________
answer
profitability
question
Michael Porter's Five Forces Framework
answer
a way to predict whether industry forces might reduce profitability
question
the 5 forces
answer
1. threat of entry
2. supplier power
3. threat of substitutes from other industries
4. buyer power
5. rivalry (competition)
2. supplier power
3. threat of substitutes from other industries
4. buyer power
5. rivalry (competition)
question
Michael Porter's Five Forces Framework: when forces are strong, profitability is ....
answer
low
question
Michael Porter's Five Forces Framework: when forces are weak, profitability is ....
answer
high
question
test question EX: what would reduce the bargaining power of incumbent product suppliers in relationship with buyer firms in an industry?
1. a large number of suppliers
2. low buyer switching costs
3. presence of viable substitutes
a. 1
b. 2
c. 1 & 2
d. 2 & 3
e. all of the above
1. a large number of suppliers
2. low buyer switching costs
3. presence of viable substitutes
a. 1
b. 2
c. 1 & 2
d. 2 & 3
e. all of the above
answer
e. all of the above
question
the value net: industry forces that increase profitability
answer
1. legal coordination/cooperation among competitors
-EX: R&D partnerships, industry lobbying groups, technical standards
2. effective complements
3. cooperation between the firm and suppliers
4. cooperation between the firm and buyers
-EX: R&D partnerships, industry lobbying groups, technical standards
2. effective complements
3. cooperation between the firm and suppliers
4. cooperation between the firm and buyers
question
effective complements
answer
firms can invest in complements to create "market ecosystem" that drives value up
question
strength of benefit of complements affected by
answer
1. market power
2. ease of customer switching across competitors
3. ease of unbundling
2. ease of customer switching across competitors
3. ease of unbundling
question
cooperation between the firm and suppliers
answer
1. sharing information
-EX: Walmart's development of Retail Link
2. sharing resources and capabilities; quality management efforts
-EX: Gucci providing training and quality control
-EX: Walmart's development of Retail Link
2. sharing resources and capabilities; quality management efforts
-EX: Gucci providing training and quality control
question
cooperation between the firm and buyers
answer
customer education, technical support
-EX: Whole Foods Recipes App, beta testers for video games, software updates
-EX: Whole Foods Recipes App, beta testers for video games, software updates
question
relational capability
answer
firms that repeatedly receive benefits from cooperation have developed relational capability
question
the Cola Wars case is all about the ____________ industry
answer
concentrate producer
question
five forces analysis of cola wars
answer
1. rivalry = constrained competition
- competition within bounds (only 2 major players Coke and Pepsi)
2. low threat of entry
3. locked in, weak buyers
4. secret ingredients (low cost, hard to imitate)
5. substitutes with limited impact
- competition within bounds (only 2 major players Coke and Pepsi)
2. low threat of entry
3. locked in, weak buyers
4. secret ingredients (low cost, hard to imitate)
5. substitutes with limited impact
question
conclusion of cola wars case: what type of industry is it?
answer
attractive and profitable
question
true or false: cola wars case is a great example of how firms can create and exercise market power
answer
true
question
true or false: Coke and Pepsi did not just inherit this business, they created it, shaping an entire industry
answer
true
question
true or false: Coke and Pepsi are an example of "smart" competitors: when they go to war, they kill the bystanders (smaller CSD brands), not each other
answer
true
question
differentiator
answer
Any tangible or intangible characteristic that can be used to distinguish a product or a company from other products and companies
question
cost leader
answer
focuses its attention and resources on reducing the cost to manufacture a product or deliver a service in order to offer lower prices to its customers
question
value driver
answer
actions, processes, or results that are needed to deliver value
question
cost driver
answer
A factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes overhead costs.
question
Time compression diseconomies
answer
trying to achieve the same outcome in less time, even with higher investments, tends to lead to inferior results
question
incumbent firm
answer
An incumbent is a business already operating in and established in a market
question
limit pricing
answer
reducing the price of a good to just above average cost to deter the entry of new firms into the market. Prices are set at levels which are likely to make it unprofitable for potential entrants who might consider coming into the market
question
economies of scale
answer
the property whereby long-run average total cost falls as the quantity of output increases
question
economies of scope
answer
The total cost of producing two products is less than the sum of costs to produce them separately
question
monopoly
answer
A market in which there are many buyers but only one seller.
question
oligopoly
answer
A market structure in which a few large firms dominate a market
question
perfect competition
answer
the degree of competition in which there are many sellers in a market and none is large enough to dictate the price of a product
question
concentration (ratio)
answer
the value of sales by the top firms of an industry stated as a percentage of total industry sales
question
price taker/price maker
answer
Taker- take the price. price-maker - makes the price (monopoly)
question
non cooperative strategic interaction
answer
the distinct economic game theory of "quantity competition" with "price takers" and "price competition" with "price makers".
question
tactic collusion
answer
when firms limit production and raise prices in a way that raises each others' profits, even though they have not made any formal agreement
question
explicit collusion
answer
cooperation involving direct communication between competing firms about setting prices
question
information signaling
answer
signaling theory: an effective mechanism to describe how firms communicate information
question
price leader
answer
a firm whose price is adopted by other firms in the industry
question
cartel
answer
an association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition.
question
ease of unbundling
answer
if a product and its complement are difficult to unbundle, the complement has more influence over the product's customers.
question
Tobin's Q
answer
ratio of market value of the firm to replacement cost
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