Chapter 7 Flashcards
Define an effective commitment.
Should restrict our freedom of action, either by directly limiting our options or by making certain options so unattractive so that we avoid them.
What is a strategic commitment?
These are commitments that alter the strategic decisions of rivals and must be irreversible, visible, understandable, and credible.
What is a strategic substitute?
When one firm chooses more of some action, such as an output decision, and its rival firm cuts back on the same action
What is a strategic complement?
When one firm chooses more of an action and its rival chooses more as well.
What is the difference between a tough and soft commitment?
A firm’s tough commitment is bad for competitors, whereas a soft commitment is good for its competitors.
What is the type of strategy according to the taxonomy?
Strategic substitutes
Commitment posture: Tough
Top dog
What is the type of strategy according to the taxonomy?
Strategic substitutes
Commitment posture: Soft
Lean and Hungry Look
What is the type of strategy according to the taxonomy?
Strategic complement
Commitment posture: Tough
Puppy-Dog Play
What is the type of strategy according to the taxonomy?
Strategic complement
Commitment posture: Soft
Fat-Cat effect
What is a real option?
It exists when a decision maker has the opportunity to tailor a decision to information that is unknown today but will be revealed in the future. Decisionmaker can delay that option to get more knowledge about the market conditions.
What is the Net Present Value, and how to calculate it?
used to calculate the expected net present value
percentage of each total present value - the investment.
0.5(300) + 0.5(50) − 100 = $75 million.
What is the four-step framework for analyzing commitment-intensive choices?
- Positioning analysis
- Sustainability analysis
- Flexibility analysis
- Judgment analysis
What is tit-for-tat pricing?
The market “leader” sets the collusive price, and others will follow. But if a firm tries to lower its price, others must match it in order to deter such disruptive business stealing.
What is the folk theorem?
The folk theorem implies that cooperative pricing behavior is a possible outcome in an oligopolistic industry, even if all firms act unilaterally
If firms expect to interact indefinitely and have sufficiently low discount rates, then any price between the monopoly price and marginal cost can be sustained as an equilibrium
What is dynamic pricing rivalry?
Firms seek monopoly prices but cannot communicate with competitors. They try so unilaterally.
What are the impediments to coordination?
- The misread problem
- Lumpiness of Orders
- Information about the sales transaction
- Volatility of demand conditions
What is the misread problem?
By “misread,” a firm mistakenly believes a competitor is charging one price when it is really charging another or a firm misunderstands the reasons for a competitor’s pricing decision or its own change in market share.
What are Facilitating Practices for cooperative prices?
- Price leadership
- Advance announcement of price changes
- Most favored customer clauses
- Uniform delivered prices
What is price leadership?
In price leadership, each firm gives up its pricing autonomy and cedes control over industry pricing to a single firm.
What is meant by most favored customers clauses?
Is a provision in a sales contract that promises a buyer that it will pay the lowest price the seller charges.
What are Uniform Delivered Prices?
Under uniform delivered pricing, the firm quotes a single delivered price for all buyers and absorbs any freight charges itself.
What is position analysis?
Can be likened to determining the direct effect of the commitment.
What is the sustainability analysis
It can be likened to determining the strategic effects of the commitment.
What is the flexibility analysis?
Incorporates uncertainty into positioning and sustainability analysis.
What is the judgment analysis?
Assessing the factors that could influence a company’s decision-making towards an optimal strategy by examining its organizational and managerial aspects.
