Chapter 2 Flashcards
industry
A group of firms producing products (goods and/or services) that are similar to each other
perfect competition
A competitive situation in which
- price is set by the “market”
- all firms are price takers
- entries and exits are relatively easy
industrial organization (IO) economics (industrial economics)
A branch of economics that seeks to better understand how firms in an industry compete and then how to regulate them
structure-conduct-performance (SCP) model
An industrial organization economics model suggests that industry structure determines firm conduct (strategy), which in turn determines firm performance
structure
Structural attributes of an industry such as the cost of entry
conduct
Firm actions such as product differentiation
performance
The result of firm conduct
monopoly
A situation whereby only one firm provides the goods and/ or services for an industry
oligopoly
A situation whereby a few firms control an industry
duopoly
A special case of oligopoly that has only two players
five forces framework
A framework governing the competitiveness of an industry was proposed by Michael Porter
(1) the intensity of rivalry among competitors
(2) the threat of entrants
(3) the bargaining power of suppliers
(4) the bargaining power of buyers
(5) the threat of substitutes
dominance
A situation whereby the market leader has a very large market share
incumbent
A current member of an industry that competes against other members
scale-based advantage
Advantage derived from economies of scale (the more a firm produces some products, the lower the unit costs become)
economies of scale
Reduction in per unit costs by increasing the scale of production
non-scale-based advantage
Low-cost advantage that is not derived from the economies of scale
product proliferation
Efforts to fill product space in a manner that leaves little “unmet demand” for potential entrants
product differentiation
The uniqueness of products that customers value
network externality
The value a user derives from a product increases with the number (or the network) of other users of the same product
platform
An intermediary that connects two or more distinct groups of users and enables their direct interaction
excess capacity
Additional production capacity currently underutilized or not utilized
bargaining power of the supplier
The ability of suppliers to raise prices or reduce the quality of goods and services
forward integration
Acquiring and owning downstream assets
bargaining power of the buyer
The ability of buyers to reduce prices or demand quality improvement of goods and services
backward integration
Acquiring and owning upstream assets
substitute
Product and service of a different industry that satisfies customer needs currently met by the focal industry
industry positioning
Ways to position a firm within an industry in order to minimize the threats presented by the five forces
artificial intelligence (AI)
Simulation of human intelligence processes by machines, especially computer systems
Big Data (data analytics)
Analyzing extremely large data sets that may reveal previously unknown patterns, trends, and associations
Internet of Things (IoT)
A system of interconnected devices and machines linked by the Internet
digital strategy
An application of digital technologies to existing business activities and/or to develop new ways of competition
Also known as: the digital business model
generic strategy
A strategy intended to strengthen the focal firm’s position relative to the five competitive forces, which can be
(1) cost leadership
(2) differentiation
(3) focus
cost leadership
A competitive strategy that centers on competing on low costs and prices
differentiation strategy
A competitive strategy that focuses on how to deliver products that customers perceive as valuable and different
focus strategy
A competitive strategy that serves the needs of a particular segment or niche of an industry
ecosystem
A community of organizations interacting as a system
complementor
A firm that sells products that add value to the products of a focal industry
industry life cycle
The evolution of an industry that typically goes through
- introduction phase
- growth phase
- maturity phase
- decline phase
strategic group
A group of firms within a broad industry
mobility barrier
Within industry differences that inhibit the movement between strategic groups
flexible manufacturing technology
Modern manufacturing technology enables firms to produce differentiated products at low costs (usually on a smaller batch basis than the large batch typically produced by cost leaders)
additive manufacturing (3D printing)
Manufacturing three-dimensional products from a digital model by using additive processes, where products are created by adding successive layers of material
additive manufacturing v. traditional manufacturing
Additive manufacturing contrasts traditional manufacturing, which can be labeled “sub-tractive” processes centered on removing material by methods such as cutting and drilling.
mass customization
Mass-produced but customized products
servitization
A smart combination of manufacturing and services
The title of Chapter 2
Managing Industry Competition
