Economic Contributions to Strategic Management

Question 1

Standard economics

Answer 1

• Competition between firms is based on price
• Firms inside keep firms “outside” industry to gain higher profit through creation of barriers
• Competition
  + Perfect competition
  + Monopolistic competition
  + Oligopoly competition
  + Monopoly

Question 2

Industrial economics

Answer 2

“Industrial organisation economics” which seeks to understand the causes and effects of various market structures on pricing and product choices

Question 3

The threat of entry

Answer 3

• Economies of scale
• Capital requirement
• Access to distribution channels
• Cost advantages independent of size
• Expected retaliation
• Legislation or government action
• Differentiation

Question 4

Buyer bargaining power

Answer 4

• Concentration of buyers
• Many small operators in the supplying industry
• Alternative sources of supply
• Materials are high percentage of cost leading to “Shopping around”
• Switching costs are low
• Threat of backward integration

Question 5

Supplier bargaining power

Answer 5

• Concentration of suppliers
• Switching costs are high
• Supplier brand is powerful
• Integration forward by supplier is possible
• Customers are fragmented and bargaining power low

Question 6

Threat of Rivalry

Answer 6

• Entry is likely
• Substitutes threaten
• Buyers or suppliers exercise control
• Competitors are in balance
• There is slow market growth
• Global customers increase competition
• There are high fixed costs in an industry
• Markets are undifferentiated
• There are high exit barriers

Question 7

Strategic Behavior

Answer 7

- Competitive strategy 
\+ Act before rivals or learn from mistakes of rivals
\+ Deter entry
\+ Create mobility barriers and time lags
- Generic strategies
\+ Cost leadership
\+ Differentiation
\+ Focus on one of the above (Cost OR Differentiation)