FM advantage in an internet-enabled market environment Flashcards
IME
internet-enabled market environment
PME
physical market environment
Characteristics of an IME
- Many transactions
- Low information-search costs
- Not a lot of information asymmetry between buyers and sellers
What should FM in an IME focus on?
Gaining superior resources, such that they can get close to their customers quickly and make strategic adjustments for FM advantages that are less successful in an IME
Which FM advantages are LESS successful in an IME?
information, spatial resource positions, and installed capacity
Which FM advantages are MORE successful in an IME?
network externalities, switching costs, and technological leadership and innovation.
Definition FM
the first firm to enter a market supported by sizeable investments in the production and distribution of the product, with enough time between the FM and the later entrants such that the FM could achieve advantages.
Definition early movers/entrants
when there are multiple FM in short succession
Definition FM advantages
the ability of pioneering firms to earn positive economic profits.
Definition information products
products whose core attributes can be digitized
Definition competitive advantage
the combined value and rarity of all of a firm’s resources and resource interactions
Definition network externalities/effects
market exchange, industry-standard, or a product that becomes increasingly valuable to its current and potential users as the installed base increases
Definition direct network externalities
the utility of a product to each user depending on the number of product users
Complementary products can cause network externalities. What can these be?
Product category specific or firm specific
Definition firm specific network externality
each firm has a non-compatibile technology platform
Definition product category specific network externality
there are multiple firms within each competing technology platform
Where are network externalities more critical and why?
In the IME since buyers will go to the place with the most sellers
Definition network utility and why might it be smaller in an IME?
the benefits of the product’s current and potential customers derived from the network size. If customers predominantly derive network externality benefits from having access to a social group, the FM advantages in the IME might be smaller, since customers often have a “wait-and-see” attitude, resulting in slow sales over a long time.
Where are switching costs more important?
In the IME since switching is a lot easier there
Definition organizational slack and what should a FM do with it?
the resources that are unnecessary to produce a given output. A FM can better reinvest the slack resources into R&D to get a better leadership and innovations position, since the IME changes so quickly.
Definition minimum scale of production and the corresponding result for FM and competitors
the smallest volume for which the unit cost reaches a minimum. When the installed production capacity and the size of the market are in the same order of magnitude, the production capacity can be a credible reason for competitors not to enter the market. But this is only the case if there is low demand uncertainty, since if there is a high demand uncertainty, the FM is less likely to make such investments in the production capacity.
