Ch. 17 - Economics of Strategic Management

Question 1

What is the five forces framework?

Answer 1

The structure of competition in your market can be described in terms of five forces:

1. Existing Competitors
2. Threat of Entry
3. Threat of Potential Substitutes
4. Bargaining Power of Suppliers
5. Bargaining Power of Buyers

Question 2

What is price competition? What is non-price competition?

Answer 2

Competing to win customers by offering lower prices

Competing to win customers by differenciating your product

Question 3

What is a search good?

Answer 3

A good that you can easily evaluate before buying it

Question 4

What is informative advertising?

Answer 4

Advertising that provides information about a product and its attributes

Question 5

What is persuasive advertising?

Answer 5

Advertising that tries to pursuade or manipulate you into believing that you’ll enjoy a particular product

Question 6

What is bargaining power?

Answer 6

Your ability to negotiate a better deal

Question 7

What are relationship-specific investments?

Answer 7

An investment that is more valuable if the current business relationship continues

Question 8

What is the hold up problem?

Answer 8

Once you have made a relationship-specific investment, the other side may try to renegotiate so that they can get the better deal

Question 9

What is vertical integration?

Answer 9

When two (or more) companies along a production chain combine to form a single company