Lecture 3 market dynamics Flashcards
three perspectives market entries and firm dynamics
industrial economics –> simple approach
labor economics –> based on employment
austrian economics –> entry is the result of individual decision making
creative destruction
if you don’t innovate, others will, and you will die
Disruptive innovation
Innovation that helps create a new market and value network, or take part in an established market
Industry Life Cycle
describes the growth patterns of firms in an industry through five phases
Introduction, Growth, Shakeout, Maturity, Decline
Introduction stage
core: research and development, necessary to create a product category that will attract customers, barriers to entry are high, strategic objective: market acceptance & growth
growth stage
Demand increases rapidly, first time buyers rush to purchase
a common set of features (emerges from competition, government or agencies
product innovation and process innovation
Shakeout stage
the rate of growth declines,
firms begin to intensely compete,
weaker firms forced out,
only the strongest firms survive
maturity stage
only a few large firms remain
they enjoy economies of scale
process innovation has reached a maximum
market has reached maximum size
decline stage
demand falls rapidly
innovation efforts cease
What causes shakeout?
Emergence of dominant design
followed by pursuit of scale economies
technology side explanations of shakeout
dominant design
price reduction after process refinement
increasing returns to scale
demand side explanations of shakeout
innovation shock
dominant category
integrative submarket
What is the best time to enter an industry?
First mover advantage
window opportunity and timing of entry
Window of opportunity and timing of entry
that capabilities and knowledge gained at earlier stages in an industrys development might not be useful – in fact, might become liabilities – in the competitive environment triggered by the emergence of a dominant design
Christensen & Roosenboom
Attackers advantage
firms that solve a customer ‘pain or problem’ or offer something that the customer desires or values tend to have market success. but in a dynamic environment, the customer problem or desire can change easily over time.
