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[International Strategy] > Lecture 1 (SET) > Flashcards

Lecture 1 (SET) Flashcards

1
Q

SET doesn’t explain what?

A

firms profits in the long run, diversity of strategy, firm’s structure

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2
Q

SET: why firms exist?

A

(Coarse) firms reduce transaction costs, which cannot be reached through market transactions

For long-term transactions, when going to the market would be too bothersome

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3
Q

Coarse Firm description

A

a firm can be seen as an exchange place (as markets) where resources are exchanged, coordination is not done by prices but using authority.

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4
Q

6 coordination mechanisms (organizational configurations) of Mitzberg

A
  1. Direct supervision
  2. Standardization of work processes
  3. Standardization of outputs
  4. Standardization of skills/knowledge
  5. Standardization of norms
  6. Mutual ajustment
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5
Q

Direct supervision (organizational mechanism)

A

-One person gives orders to others, one step at a time
-Owner directs production and allocation of resources
-Authority as direct supervision
-Inefficient as organization grows

[Entrepreneurial organization]

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6
Q

Standardization of work processes (organizational mechanism)

A
  • “How to work” tutorials
  • production routines (leads to standard inputs)
    [Machine organization]
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7
Q

Standardization of outputs (organizational mechanism)

A
  • Specifies results but not the way they should be achieved
  • Output expectations for divisions but autonomy in how to reach these goals
    [Diversified organization]
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8
Q

Standardization of skills (organizational mechanism)

A

-Work coordinated by standard related training
-Well trained individuals
[Professional organization]

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9
Q

Standardization of norms (organizational mechanism)

A

-Norms (ideology) and same beliefs shared across organizational members
-Standardization of norms. Strong values and culture
[Missionary organization]

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10
Q

Mutual adjustment (organizational mechanism)

A

-informal communication, flexible structure, incouraged creativity and innovation
-trust-based organiozations
[innovative organizations]

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11
Q

Downside of organizational specialization

A

Silo effect

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12
Q

Silo effect

A

Consequence of overly specialized company.

Internal competition and asynchronized information on progress and actions

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13
Q

Coordinator between agents

A

Price system

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14
Q

What solves information problems?

A

Organizations

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15
Q

Market

A

Place that gives buyers and sellers possibility to trade

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16
Q

Atomicity

A

Many small buyers and sellers

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17
Q

Economic problem

A

situation where needs are not met as a result of scarcity of resources

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18
Q

Optimal allocation

A

Best use of scarced resources

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19
Q

Economic aspect

A

any situation where (optimal) use of resources is considered

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20
Q

Division of labour

A

splitting a task into seperate tasks

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21
Q

Economies of specialization

A

cost efficient economy in which division of labour takes place

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22
Q

Exchange

A

Transfer of the right to use goods or services

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23
Q

Sufficient statistic

A

all information delivered for a transaction to be made

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24
Q

environment

A

context of trade offs between market and organizational coordination

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25
Q

SET stands for, and assumptions

A

Standard economic theory

ideal markets, economic transactions between agents are coordinated by prices

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26
Q

Agents

A

buyers and sellers

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27
Q

Why agents are price takers?

A

They use an externally fixed price (demand=supply)

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28
Q

Market price fairness

A

Market prices are by nature fair for all agents

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29
Q

Agents behaviour in the exchange contract

A

Agents always behave as agreed. (otherwise costly penalties)

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30
Q

Control of contracts

A

No cheating. no need for quality, delivery, conditions control

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31
Q

Ideal market on these conditions:

A

Atomicity, Free entry and exit of firms, perfect information, product homogeneity

32
Q

Product homogeneity

A

standardized (alike) products

33
Q

Homo economicus (Economic person)

A

Fully rational, complete information, self-interested, no space for cooperation, ethics not considered

34
Q

Agents’ goal

A

Wealth maximization. Attain specific goals to greatest extent at lowest possible cost

35
Q

Black boxes

A

Holistic entities without borders, single unified entity, no people inside the firm

36
Q

Ideal firm

A

Black box, any size, SINGLE goal (profit maximization), no strategy (adapt or die)

37
Q

Paradox of profits

A

firms cannot make any profit in the long run

38
Q

Firms’ actions determined by?

A

Prices of inputs and outputs

39
Q

Changing firms’ strategy

A

Results in death of firm. Adapt or die

40
Q

Isomorphism

A

Similarity of the processes or structure of one organization to those of another.

Same input and output prices = same costs and profits for all. Same optimal behaviours and decisions = same structure

41
Q

Where does no room for differentiation lead to?

A

Isomorphism

42
Q

In what environment markets can operate?

A
  1. conditions for markets to exist
  2. markets shaped by pressures
  3. is the selection mechanism for determining which markets can survive
43
Q

Impersonal exchange

A

Exchange between parties with no knowledge of each other and occurring over time and space

44
Q

What is the starting point of society

A

Division of labour

45
Q

Recite market/organization mix in order

A

Division of labour
⌄
Specialization
⌄
Coordination
⌄ ⌄
Market Organization
^ ^
Information
^
Environmental pressure and selection

46
Q

What are the ideal types of coordination of exchange transactions?

A

Markets and organizations

47
Q

Process of market interaction

A

Process of agents interacting and consequently creating demand/supply

48
Q

Law of demand

A

If prices go up, demand goes down

49
Q

Law of supply

A

If the prices go up, supply should rise as well

50
Q

Supply curve

A

Relationship between price and quantity supplied

51
Q

Market equilibrium

A

intersection point of demand curve (D) and supply curve (S)

52
Q

What happens to demand curve if demand rises not because of price related reasons? (E.G. war, population growth)

A

The whole demand curve shifts upwards, paralel to the old demand curve (P.S. - new equilibrium)

53
Q

Transitive

A

If agent chooses A over B, and B over C, they should choose A over C also

54
Q

Indifference curves

A

Curve showing agent’s preference for different choices

55
Q

What does it mean if there are 2 choices of consumption bundles on the same indifference curve?

A

Agent prefers both of them equally (derives the same utilty)

56
Q

Utility

A

Satisfaction that consumers derive from having goods

57
Q

Budget line

A

All possible bundle combinations one can buy with given budget

58
Q

What is Production function and what does it describe?

A

Direct relation betwen quantity produced (Q), capital (K) and amount of labour (L).

Describes combination of inputs (K and L) and output that firm can produce with those inputs

59
Q

Perfect competition

A

imaginary market condition where all consumers have access to the same products and information

60
Q

Pareto-optimal

A

Situation where no
one can be made better off by changing the allocation of resources without anyone becoming worse
off (It does not mean that everyone’s wants are satisfied to the same extent)

61
Q

coordination mechanism of enterpreneurial organization

A

Direct supervision

62
Q

coordination mechanism of machine organization

A

standardization of work processes

63
Q

coordination mechanism of professional organization

A

standardization of skills

64
Q

coordination mechanism of diversified organization

A

standardization of outputs

65
Q

coordination mechanism of innovative organization

A

mutual adjustment

66
Q

coordination mechanism of missionary organization

A

standardization of norms

67
Q

internal market of goods meaning

A

exchange of resources or goods within an organization from one
division to another

68
Q

internal capital market meaning

A

corporate management where allocation of its funds are made to the divisions on the basis of those divisional plans that
fit best with corporate policy and generate the highest returns

69
Q

internal labour market meaning

A

place where divisions compete for the best human resources and may also bid up their
potential salaries

70
Q

Collusion

A

Conspiracies by the few suppliers in oligopolistic markets to set prices higher than
would result under free market interaction

71
Q

Tacit collusion

A

Collusion without anything being said

72
Q

e-commerce

A

online retail

73
Q

Enterprise
resource planning (ERP) systems

A

software used for managing internal operations (marketing, sales, product planning, inventory management)

74
Q

Platform organization

A

organization that predominantly uses a digital platform as coordinating
mechanism

75
Q

Platform organization characteristics

A

Digital platforms can be easily explained

Network effects accelerate the growth of platform organizations

New and successful digital platforms give their platform organizations a first mover
advantage

Successful platform organizations achieve high market valuations

76
Q

Why successful platform organizations achieve high market valuations

A

Because of their
exponential growth, but also because they can operate with relatively low costs

[International Strategy] (10 decks)

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