Competitive advantage and principle agent problem Flashcards
How can rivals erode a firm’s competitive advantage?
- Imitate formula for success
- Use new technologies, products and business practises
In a perfectly competitive industry, firms are:
Price takers
In a perfectly competitive industry, competitive advantage:
Doesn’t exist
In monopolistic competition, Firms sell __ __ products
Horizontally differentiated
In monopolistic competition, each seller faces a downward sloping demand curve due to:
Product differentiation
Sellers in a monopolistic competition market get to set their price above:
Marginal cost
What to isolating mechanisms do?
Limit the rivals from eroding a firm’s competitive advantage
What are two types of isolating mechanisms
- Impediments to imitation
- Early mover advantage
What are two types of impediments to duplicating?
-Legal restrictions
-Superior access to customers
-Market size
Intangible barriers
Why is innovation so important?
- Increasing importance of intangible assets
- Knowledge is created
- Innovation = economic growth
What are the two types of innovative environments?
- Ideas are scarce
- Ideas are common knowledge
What are two types of innovation?
- Product innovation
- Process innovation
What is R&D?
Creative work to make innovation
What are the differences between Drastic and nondrastic innovation
Drastic allows the innovator to behave as a monopolist, nondrastic means they still have to compete
Through creative destruction, good products become:
Monopolies
