Part 2 : Structural Analysis of the industry - II.1 Determinants of seller concentration SLIDESHOW 6 Flashcards
What are the relevant factors associated with seller concentration?
1\ Economies of scale
2\ Entry and exit barriers
3\ Regulation
4\ Scope for discretionary sunk cost investment (ad and R&D)
5\ stage reached in the industry’s life cycle
6\ firm’s distinctive capabilities & core competencies
What does it mean to produce and enjoy economies of scale?
Operating at the Minimum Efficient Scale???
What are the effects of entry and exit on seller concentration?
Entry : reduce concentration
Exit : increase concentration
What does it mean to have an industry with scope for ad, product differentiation and R&D?
Raised entry barriers, larger MES and increased seller concentration
How do older industries increase concentration?
Economies of scale or collusions and mergers.
What are the distinctive capabilities of a firm?
1\ architecture –> competitive edge
2\ innovation
3\ reputation
What does the combination size of multiple firms allow?
Cost savings
What are the different types of cost savings?
1\ Rationalization
2\ Economies of scale
3\ R&D
4\ Purchasing economies –> increase in bargaining power (extract lower prices from upstream suppliers)
5\ Productive inefficiency and organizational slack
What are the 2 productive inefficiency types?
1\ Technical inefficiency –> fail to achieve maximum output technically feasible given the set of inputs employed
2\ Economic inefficiency –> fail to employ the most cost-effective combination of inputs given the current levels of factor prices
How can economies of scale be realised?
Through internal expansion
What are merger-specific gains?
Synergies, they include gains arising from the integration of specific hard-to-trade assets owned by the merging firms
Give examples of merger-specific gains
1\ Coordination of joint operations
2\ sharing of complementary skills
3\ Improved interoperability
4\ Network configuration
What does create uncertainty in strategic planning?
Interdependence
How is it possible to reduce uncertainty?
By colluding (explicitly or tacitly)
How do usually horizontal mergers happen?
Significantly undervalue the acquired firm. Moreover, most of mergers didn’t lead to an increase in the profitability of the merged organization
