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Foundations of International Strategy > EVERYTHIIIIING > Flashcards

EVERYTHIIIIING Flashcards

1
Q

Information Assymmety

A

When one party has more /different information than the other

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2
Q

Adverse selection (hidden information)

A

When sellers have information that buyers dont or vice versa

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3
Q

Screening

A

Increasing observability: The seller can screen and select the buyer with the desired characteristics

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4
Q

Moral Hazard (Hidden action)

A

One party has better information than the other after signing the exchange contract

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5
Q

Signalling

A

Attempt at showing hidden information so that buyer can be sure of the quality

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6
Q

Mutual insurance companies

A

Customers are also shareholders of the firm (no abusive claims)

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7
Q

Ex ante

A

Before contract is signed (risk of Adverse Selection)

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8
Q

Ex post

A

After contract is signed (risk of moral Hazard)

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9
Q

Game Theory

A

A formal way to analyze/conceptualize strategic interaction among a group of rational players who behave strategically

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10
Q

Three steps of Analysis

A
  1. Problem formula (question)
  2. Model building (who, what, payoffs etc)
  3. Decision (using game theory analysis)
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11
Q

Assumptions of Game theory

A
  1. Players aim to maximize profits
  2. Rationality (all players are perfect calculators) #
  3. Common rules
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12
Q

Coordination Game

A

Players must coordinate their decisions in order to reach the outcome that is best

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13
Q

2-Entry game

A

A number of players have to decide simultaneously if they want to enter a market

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14
Q

Prisoners Dilemma

A

Situation where if both settle, there is minimum payout but if one confesses and the other doesnt, one of them gets maximum profits while the other looses. If both confess both loose.

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15
Q

Dominant strategy

A

The best strategy whatever the other player does

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16
Q

Nash equilibrium

A

A set of strategies one for each player such that each players strategy is a best response to other strategies (no incentive to unilaterally change my strategy)

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17
Q

Auctions

A

When there are several people involved in buying one thing

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18
Q

Dutch auction

A

The auctioneer starts very high and goes down until someone says they’ll take it

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19
Q

Agency theory

A

Defining the best reward structure in the context of incomplete information and conflicting interest

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20
Q

Positive Theory of agency

A

How do contracts affect behavior of participants

What can be done to reduce agency cost

Which governance mechanisms can solve agency problems

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21
Q

Theory of principal and agent

A

How should the principal design the agents reward structure

Which contract will be the efficient/optimal under different levels of risk attitude outcome uncertainty, task measurability, information asymmetry

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22
Q

Outcome based incentives (Rent contrat)

A

Agent is rewarded based on the outcome achieved

E.g. Annual bonuses, commissions, profit sharing or stock options

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23
Q

Benefits of Information enhancing systems

A

Principal can asses the behavior and performance of agents

shareholders have information to control behavior of managers

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24
Q

Bonding

A

Arrangement that penalise agents (managers) for acting in ways that violate the interst of principals (shareholders) or reward them for achieving principals goals

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25
Q

Monitoring

A

Observing the behavior and performance of agents

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26
Q

Unrelated acquisitions

A

A firm is acquiring another firm that uses very different assets, resources and capabilities (costly for shareholders and almost never increase profits of the nerwly formed firm)

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27
Q

Stock option

A

Holding of firms sock by managers –> more likely to make decisions consistend with the shareholders interests

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28
Q

Behavior based contract

wage contract

A

Fixed salary –> wage contract
(if the principal can accurately evaluate the effort of the agent he/she can reward on the basis of the real effort invested

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29
Q

Forcing contract

A

Principal promises to pay a certain amount if the agents effort reaches a predetermined level. If that level is not attained the agent gets nothing

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30
Q

Behavioral theory of the firm

A

Focuses on firms behavior and decision-making

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31
Q

Bounded ratinonlity

A

No one is a human calculator…

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32
Q

Local search

A

Solutionas similar to the current operating process

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33
Q

Path dependency

A

Tendency to replicate decisions from the past

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34
Q

Behavioral theory of the firm stuff to keep in mind

A
  1. Firms are complex entities dealing with several contradictory objectives
  2. Individuals participating in firms are boundedly rational and can make suboptimal choices because of incomplete information
  3. Firms generally tend to manage more efficiently current operating procedures rather than trying out new ideas
  4. This causes systematic and significant differences in performance among firms (heterogeneity)
    - -> Managers are required! Influence behavior and decision making of the organization
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35
Q

Transaction cost economics

A

The decision to “make” vs to “buy”

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36
Q

Vertical integration

A

internalizaton (do it internally within a firm) of vertical transactions formerly done on the market (the combination in one firm of two or more stages of production normally operated by separate firms.
)

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37
Q

Main Argumment of TCE

A

In some cases the cost of using the market increases substantially and surpasses the technical efficienceis provided by the market

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38
Q

Transaction costs

A

Price + specific transaction costs, which agents (buyer and or seller) have to bear

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39
Q

Two main behavioral assumptions of TCE

A

Bounded rationality & Opportunistic behavior

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40
Q

cost of bounded rationality

A

Identifiyng the needed resources, searching for the right supplier (costly &time) writing contracts (time), contracts are risky

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41
Q

Opportunism transaction costs are determined by

A

Asset specificity Uncertainty and frequency.

The greater these are the more expensive the use of the market and the more efficient is in house production

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42
Q

–

A

-

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43
Q

Asset specificity

A

Assets are specific when the supplier cannot redeploy them to an alternative use (eg. sell them) without a significant reduction in value

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44
Q

Frequency

A

How frequent are transactions? (Indirect/reinforcing impact on make or buy decisions)

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45
Q

Three core topics of economic theory

A
  1. How is economic activity coordinated
  2. What explains input/output prices
  3. How to understand the dynamics
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46
Q

Economic theory Two approaches

A
  1. Population ecology –> organizational ecology –> Industry level
  2. Theory of evolution –> Evolutionary economics –> firm level
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47
Q

The VSR principle

A
  1. Variation given spiecies
  2. Selection of the fittest
  3. Retention or heredity
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48
Q

Variation EE

A

Two main types:

  1. Exploitation (Firms refine existing process)
  2. Exploration (firms try out new ideas)
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49
Q

Factors driving variation

A
  1. Prior routines –> Path dependency
  2. Information available & bounded rationality
  3. Satisfying rather than optimizing
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50
Q

Corporate strategy

A

Defines the scope of the business in terms of the industries and markets in which it competes

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51
Q

Business Strategy

A

Is concerned with how the firm competes within a particlular industry or market

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52
Q

Funcional strategy

A

The detailed deployment of resources at the operational level (eg. Marketing)

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53
Q

Competetive advantage

A

A firm has a competetive advantage if it is able to create more economic value than rival firms

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54
Q

Economic value

A

Is the difference between the percieved benefits gained by a customer that purchases a firms products or services and the full eonomic cost of these products and services

55
Q

Sustainable competetive advantage

A

A firm posesses a sustainable competetivea advantage when it has value creating processes and positions that cannot be duplicated or imitated by other firms

56
Q

Industry

A

A group of firms producing products that are closely related

57
Q

-

A

–

58
Q

Product differentiation

A

Providing something unique that is more valuable to customers than the cost of providing it

59
Q

Establishing a competetive advantage (2-conditions)

A
  1. Scarcity

2. Relevance

60
Q

Developing resources and capabilities

A
  1. Replicate capabilities internally

2. Develop new capabilities

61
Q

How can firms develop new capabilities?

A
  1. Develop internally
  2. Mergers and Acquisitions
  3. Strategic alliances
62
Q

Strategic alliance

A

A cooperative relationship between firms involving the sharing of resources in pursuit of common goals

63
Q

Organizational learning (def)

A

A change in the firm that occurs as a function of experience

64
Q

Exessive experience?

A
  1. Experience quickly yields redundant knowledge
  2. exessive experience leads firms to overlook alternate technologies/processes adopted by younger, more agile & alert commpetitors
65
Q

Causal ambiguity

A

Weak awareness of the causal linkages between the actions taken and the outcomes achieved

66
Q

Sources of causal ambiguity

A
  1. Process complexity and interdependence
  2. Elapsed time since process development
  3. Unclear outcomes, outcomes with fuzzy performance
67
Q

Assumptions of the ideal market

A
  • There is atomicity; many small buyers and sellers (no one can influence the price)
  • There is free entry/free exit of firms
  • There is perfect information
  • Products of homogeneous
68
Q

Management under SET

A
  • Firms cannot change
  • There is no room for differentiation = isomorphism
  • No room for competetive advantage
69
Q

Six coordination mechanisms of Mintzberg

A
  1. Direct supervision
  2. Standardization of work processes
  3. Standardization of outputs
  4. Standardization of skills
  5. Standardization of norms
  6. Mutual adjustment
70
Q

Assumption of game theory

A
  • Players aim to maximize profits
  • Rationality – Players are perfect calculators
  • Common knowledge (Each player knows the rules of the game)
71
Q

Entry game

A

A number of players have to decide simultaneously whether or not to enter a market

72
Q

Agency theory assumptions

A
  • Self-interest

- Opportunistic

73
Q

Monitoring

A

Observing the behaviour of agents

74
Q

Bonding

A

Arrangements that penalise agents (managers) for acting in ways that violate the interests of principals (shareholders) or reward them for achieving principals goals (signalling))

75
Q

Transactional cost ecomiomics assumptions

A
  • Bounded rationality

- Opportunistic behavior

76
Q

Advantages of internal production

A
  • Ability to negotiate on a long term basis a fair - internal - price, for the benefits of the whole firm
  • No costly last minute surprise about quality, availablility, since information is available within the firm
  • Relationships between “internal” suppliers and “internal” buyers are coordinated via authority
77
Q

Location specificity

A

buyers and sellers locate fixed assets in close proximity to minimize transport and inventory costs, or to make the process possible

78
Q

Equipment specificity

A

One party or both parties have to use equipment that is dedicaed to a particulat (limited) use

79
Q

Human capital specificity

A

Emoloyees develop skills that are specialized to a particular relationship or a given organizatin

80
Q

carrying capacity

A

Environments maximal load. It is the maximum population size of the species that the environment can sustain indefinitely, given the resources available in the environment / habitat

81
Q

Niche partitioning

A

The environment is eventually shared in various areas to give room for all members, which are selected in/out by natural selection

82
Q

Inertia

A

Such an evolution, from generalist to sepcialist, is slow, difficult, and often unsuccessful

83
Q

Corporate strategy

A

Defines the scope of the business in ters of the industries and markets in which it competes

84
Q

Return on Equity

A

A measure of how well a compay used reinvested earnings to generate additional earnings

85
Q

Return on assets

A

How much money the company makes with its assets and an indicator of how profitable a company is

86
Q

Return on Sales

A

A firms operating profit margin, detects operational efficiency

87
Q

The intensity of industry competition and industrys profit potential is a function of these 5 main factors

A
  1. Threat of new entrants
  2. Suppliers
  3. Buyers
    4: Product substitutes
  4. Intensity of competition among rivals
88
Q

Economies of scale

A

Deter entry by forcng the entrant either to come in on large scale or to accept a cost disadvantage

89
Q

How can firms develop new capabilities

A
  1. Develop internally
  2. Mergers and acquisitions
  3. Strategic alliances
90
Q

Cost leadership

A

requires doing things more efficiently. Cost leadership is a term used when a company projects itself as the cheapest manufacturer or provider of a particular product or commodity in a competition. It is difficult to deploy the strategy because the management must constantly work on reducing cost at every level to remain competitive. It greatly benefits from economies of cscale,

91
Q

Product differentiation

A

Defined as providing something unique that is more valuable to customers than the cost of providing it. It is less vulnerable to being overturned by changes in environment

92
Q

Negatives of exessive experience

A
  1. Experience leads redundant knowledge
    (firms wont try new, better ideas)
  2. Experience lock-ins (exessive experience often leads firms to overlook alternate technoligies/processes
93
Q

-

A

-

94
Q

Main assumptions underlying standard microeconomic theory

A
  • Firms are viewed as holistic entities (a single unified entity)
  • Firms are supposed to have a single objective
  • There is perfect information
  • Behaviour of producers and consumers is described as maximizing behavior
95
Q

Mutual adjustment

A

Achieves coordination by the simple process of informal communication

96
Q

Direct supervision

A

In which coordination is achieved by having one person issue orders or instructions to several others whose work interrelates

97
Q

Standardization of work processes

A

Which achieves coordination by specifying the work processes of people carrying out interrelated tasks

98
Q

Standardization of outputs

A

Which achieves coordination by specifying the results of different work

99
Q

Standardization of skills

A

Different peices of work are coordinated by virtue of the related training the workers have received

100
Q

> Standardization of norms

A

In which ti is the norms determining the work that are controlled, usually for the entire organization, so that everyone functions according to beliefs

101
Q

Machine organization

A

In this firm all processes and products are standardized

102
Q

Proffesional organization

A

Firms relying on professional work

103
Q

Diversified organization

A

This firm specifies the output expected from its divisions and then leaves them considerable autonomy as to how they attain these goals

104
Q

Innovative organizatino

A

Organizations that rely primarily on remaining innovative in their given market

105
Q

Missionary organizatino

A

Organisations that rely on a strong sense of shared common values and beliefs

106
Q

Platform organization

A

An organization that predominantly uses a digital platform as coordinating mechanism

107
Q

contingent claims contract

A

an agreement on a specification of quality levels and prices that are
dependent on the actual quality levels of next year’s products. The specific terms of the contract are
made contingent on the uncertainty involved

108
Q

The fundamental paradox of information

A

The value of information can only be realized by revealing it to another party, but such disclosure destroys its value

109
Q

Ecological simulation

A

A selection process using the average game pay-offs of the various strategies as fitness criteria determines the evolution of the population

110
Q

Anchoring

A

The tendency rto rely too heavily on one (early) piece of information when making decisions

111
Q

Framing

A

If you ask someone to make a choice between two alternatives the answer may depend on how you fram the question

112
Q

Mentall accounting

A

The process whereby people code, categorize and evaluate economic outcomes

113
Q

The endowment effect

A

The tendency to value goods that we already hold to consume higher than our willingness to pay for these goods before owning the

114
Q

Prospect theory

A

Prospect theory assumes that losses and gains are valued differently, and thus individuals make decisions based on perceived gains instead of perceived losses. Also known as the “loss-aversion” theory, the general concept is that if two choices are put before an individual, both equal, with one presented in terms of potential gains and the other in terms of possible losses, the former option will be chosen.

115
Q

Four possible strategies toward making rational decisions:

A
  1. Debiasing: training individuals to be aware of decision biases and to reduce or even eliminate these biases and their actual decisions
  2. Nudging: Any way of altering peoples behaviour in a predictable way without forbidding any options
  3. Encouraging dissent:
  4. Routines
116
Q

shirking

A

When one person puts in less effort than the rest

117
Q

The decision process in four steps:

A
  1. Initiation (generation of proposals for resource utilization and structuring of contracts)
  2. Ratification (process culminating in choosing which of the initiatives is to be implemented
  3. Implementation (execution of ratified decision)
  4. Monitoring (measurement of the performance of decision agents and implementation of rewards
118
Q

Strategy of cost leadership

A

The firm tries to manufacture and distribute products at the lowest possible unit cost

119
Q

Resource-based view of the firm

A

Include: Human, financial, tangible and intangible resources

120
Q

A dynamic capability

A

The capacity of an organization to purposefully create, extend, or modify its resource base

121
Q

Vertical integration

A

Moving into the production of previous stages or subsequent stages. It is sometimes thought that technological factors determine whether or not two subsequent stages in a production process will be vertically integrated

122
Q

transitivity

A

if a person, group, or society prefers some choice option x to some choice option y and they also prefer y to z, then they furthermore prefer x to z.

123
Q

quasi-resolution of conflict

A

instead of resolving conflict, organizations break problems into pieces and farm pieces out to different units.

124
Q

S-C-P

A

structure-Conduct-performance

125
Q

Tautological

A

Covering all possibilities

126
Q

Boundaries of a firm

A

The activities the firm does its self vs those it does through market transactions

127
Q

behavioral uncertainty

A

When you dont know how someone is going to act

128
Q

Ideal organizations

A

forms of coordination of transactions that do not use prices to communicate information between the transacting parties.

129
Q

ideal markets

A

Use prices to communicate information between transacting parties

130
Q

The VRIN network

A
  • Valuable (enables a firm to operate efficiently)
  • Rare (difficult to acquire the same resource)
  • Inimitable (difficult to replicate)
  • Non-substitutable (no substitute resources available)
131
Q

Economies of scope

A

When the joint production of two goods is less costly than the cost of producing these goods seperately

132
Q

horizotal-multi nationalization

A

Becoming involved in the same activities in a different country

133
Q

bargaining power of participants depends on

A

The uniqueness of their contribution

134
Q

Experimential learning

A
  1. Failure experience > success experience
  2. ones own experience > someone elses experience
  3. Complete experience > partial experience
  4. Close experience > distant experience

Foundations of International Strategy (1 decks)

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