Competitive Advantage Flashcards
Innovations for the firm
- higher returns and increase competitive advantage
- long-term stability
- barriers to entry
- rents can be appropriated by rival firms
Patents
- offset private costs from inventing (with private benefits)
- stimulate investment in technology
- diffusion of knowledge (social benefit)
Schumpeterian hypothesis
-larger firms and monopolies/oligopolies better at invention and innovation, so they are the primary source of economic progress
Is the Schumpeterian hypothesis valid?
- empirical studies have found that bigger firms have bigger R&D budgets so more R&D results
- others have found small firms have bigger R&D results
For what type of innovation are large firms better?
can do incremental changes that improve a product and reduce its manufacturing costs
For what type of innovations are smaller firms better?
free of bureaucratic problems and incentive problems that may get in the way of major inventions
Factors that affect how much R&D a firm does
- technological opportunity (biotechnology and software) –> technology push
- Demand for technology –> demand-pull
- appropriability
if patent rights strong–> both large and small
if not, other firms can copy, develop minor variations, but bigger firms can maintain dominance by having large number of patents and by defending them legally, so that new firms are kept out of the market
Modern Marketing
- industrial concentration (anti-competitive aspect)
- barriers to market entry
- may be regarded as other fixed costs
- multinational activity led by marketing rather than technology
Beginnings of Modern Marketing (1870-1930)
- branding (trademarks) 1870
- packaging, 1870
- Segmentation, 1890
- product design by skilled stylists, 1900
- market analysis, 1920
- producer-owned retail stores (Singer 1850)
- inventory analysis and management (1910)
- increased contact with independent retailers
- company salesforce
- advertising
Brands
social benefit: indicator of quality, reduce risk and uncertainty
private benefit: loyalty, intangible asset, marginal cash flow, long-term stability, kind of monopoly