Competitive Advantage

Question 1

Innovations for the firm

Answer 1

• higher returns and increase competitive advantage
• long-term stability
• barriers to entry
• rents can be appropriated by rival firms

Question 2

Patents

Answer 2

• offset private costs from inventing (with private benefits)
• stimulate investment in technology
• diffusion of knowledge (social benefit)

Question 3

Schumpeterian hypothesis

Answer 3

-larger firms and monopolies/oligopolies better at invention and innovation, so they are the primary source of economic progress

Question 4

Is the Schumpeterian hypothesis valid?

Answer 4

• 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

Question 5

For what type of innovation are large firms better?

Answer 5

can do incremental changes that improve a product and reduce its manufacturing costs

Question 6

For what type of innovations are smaller firms better?

Answer 6

free of bureaucratic problems and incentive problems that may get in the way of major inventions

Question 7

Factors that affect how much R&D a firm does

Answer 7

1. technological opportunity (biotechnology and software) –> technology push
2. Demand for technology –> demand-pull
3. 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

Question 8

Modern Marketing

Answer 8

• industrial concentration (anti-competitive aspect)
• barriers to market entry
• may be regarded as other fixed costs
• multinational activity led by marketing rather than technology

Question 9

Beginnings of Modern Marketing (1870-1930)

Answer 9

• 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

Question 10

Brands

Answer 10

social benefit: indicator of quality, reduce risk and uncertainty
private benefit: loyalty, intangible asset, marginal cash flow, long-term stability, kind of monopoly