Session 14 Flashcards
What are the components to be assesed when determining to what extent firms are competitors
- Market commonality
- Resource Similarity
They affect the drivers of competitive behavior (firm’s awareness, motivation, ability to attack/respond)
Direct competitors = high commonality and similarity
What is market commonality?
Number of markets with which a firm and a competitor are jointly involved and the level of importance these individual markets are to competitors
What is multimarket competition
When competing firms compete in many markets
What is resource similarity?
how comparable the competitors’ tangible and intangible resources are to our own
Similar types and amounts: similar strengths and weaknesses and use similar strategies
Difficult to do if critical resources are intangible
What is a payoff matrix
Used in game theory. Reoresents games involving simultaneous moves with no communication. Single-period simultaneous game, the dominant strategy is one that is optimal regardless of what the rival does.
Repeated games may influence current move due to threat of future retaliation.
What is prisoners’ dilemma?
Example of two people:
Cooperate/cooperate (1,1)
Cooperate/Defect (3,0)
Defect/cooperate(0,3)
Defect/defect (2,2)
Chosen option is both defect and they are both worse off
Happens withprice wards, real estate, shipping, anywhere with high entry/exit barriers
What is a first mover?
Firm that takes initial action to build/defend its competitive advantage or improve its market position
Tend to be: aggressive, willing to experiment, take higher level of risks
What are the incentives to be a first mover?
Gain loyalty of customers, market share and proprietary technology (patents)
What is necessary to be a first mover?
Invest a lot in R&D and rapidly and successfully product and market a stream of innovative products
What is a second mover?
Firm that responds to the first mover’s action. Normally through imitation
How does the second mover implement their strategy?
- Study customers’ reactions to product innovations
- find mistakes first movers made
- take time to develop processes and technology that are more efficient and create additional value
Still need to respond quick enough to be successful second mover
What are late movers
Firm that responds to a competitive action a significant amount of time after the first/second mover’s response.
What are the characteristics of later movers?
- achieve less than 1st/2nd movers
- require more time to understand how to create value
- typically only earn average returns
What are the two types of competitive landscapes?
- slow-cycle markets
- Fast-Cycle Markets
What is a slow-cycle market?
- Comp advantages are shielded from imitation for a long period of time
- imitation costly
- competitive advantages are sustainable
- firms concentrate on competitive action and responses to protect, maintain, and extend proprietary competitve advantage
What are fast-cycle markets?
- comp advantage arent shielded for imitation
- imitation happens quickly and somewhat expensively
- comp advantages are not sustainable
- non-proprietary technology is diffused rapidly
Why are M&A strategies becoming more popular?
Research:
- Shareholders of acquired firms earn above average returns from acquisition
- Shareholders of acquiring firms earn returns close to -
- acquiring firm stock price almost immediate falls
Hard to know the worth of a target firm, which increases likelyhood of paying a premium.
Value of target < premium = negative outcome
What is a merger?
strategy where two firms agree to integrate their operations on a relatively coequal basis
What is an acquisition
Strategy where one firm buys controlling (or 100%) interest in another firm to make them a subsidiary busness. (most common)
What are takeovers?
Special type of acquisition where a firm does not solicit the acquiring firm’s bid
Where do you gain infomration on M&A motives?
company filings, press releases, news, consulting firm reports, M&A conference calls, etc
