Terminologies

Question 1

9. What is a competitive advantage?

Answer 1

when a firm earns a higher rate of economic profit than the average rate of economic profit of other firms competing within the same market.

Question 2

9. Where does a firm’s profitability depends on?

Answer 2

Market economics and the value created by the firm compared to its competitors. The value created depends on its cost and benefits position relative to competitors.

Question 3

9. how is the concept of value creation determined?

Answer 3

by the maximum willingness-to-pay and consumer surplus.

Question 4

9. What is consumer surplus? how is it calculated?

Answer 4

the difference between the price of the product of a firm and the price that a consumer is willing to pay for it.

Question 5

9. When will a consumer buy a product?

Answer 5

When the product provides him with a positive consumer surplus. if he has to choose between two products, the one with the highest surplus is chosen.

Question 6

9. how does the indifference curve work

Answer 6

everything above the indifference curve is lower consumer surplus and everything under the indifference curve is higher consumer surplus. Y-axis is quality and X-axis is Price. quality perceived & price –> value

Question 7

9. What does consumer surplus parity mean?

Answer 7

The point where willingness to pay is equal to the price of the product.

Question 8

9. What is the value created and how is it calculated

Answer 8

Consumer surplus (difference in price and willingness to pay + producer surplus (difference in price and cost to make the product)(firms profit)

VALUE CREATED = CONSUMER SURPLUS + PRODUCER SURPLUS

Or

WILLINGNESS TO PAY - COSTS = VALUE CREATED

Question 9

9. How should a firm create a competitive advantage regarding value creation?

Answer 9

the firm must create more economic value than its rivals by something its competitors cannot replicate. With homogenous products, the firm that offers the highest value-created captures the entire market.

Question 10

9. how can firms create more economic value than its competitors

Answer 10

1. It can configure its value chain differently from competitors.
2. It can configure its value chain the same way as its competitors by performing activities more effectively
   thanks to resources and capabilities they lack

Question 11

9. What 2 types of resources could a competitor lack which could create a competitive advantage if you had them?

Answer 11

1. Firm-specific assets: patents, reputation, firms culture, and workers with firm-specific expertise.
2. Nonspecialized assets or factors of production: buildings, raw materials, or unskilled labor

Question 12

9. What are capabilities?

Answer 12

Capabilities: activities that a firm does outstandingly well compared with other firms.

These capabilities have three aspects in common:

1. Valuable across multiple products or markets
2. Embedded in organizational routines
3. Tacit

Question 13

9. What is cost leadership?

Answer 13

Cost leadership is when a firm creates more value (B-C) than its competitor by offering products that have a lower cost to make than its rivals (C)

Question 14

9. How can cost leadership be achieved?

Answer 14

1. BENEFIT PARITY
   same perceived benefit (B) but with a lower cost (C)
2. BENEFIT PROXIMITY
   Offering a perceived benefit (B) that is not
   much less than competitors by automating processes. The cost will lower (C)
3. QUALITATIVELY DIFFERENT PRODUCT
   staying on the indifference curve but less quality
   Lowers the costs but also the price
   When P1 - C1 > P2-C2 = higher profit margin

Question 15

9. What is benefit leadership?

Answer 15

when a firm creates more value (B – C) than its competitors by offering products that have a higher perceived value (B) than its rivals.

Question 16

9. How can benefit leadership be achieved?

Answer 16

1. BENEFIT PARITY
   same perceived benefit (B) but with a higher value (C)
2. COST PROXIMITY
   Offering (C) that is not much higher than its competitors
3. SUBSTANTIALLY HIGHER PERCEIVED VALUE AND COSTS
   staying on the indifference curve but higher value, higher costs, and higher price.

Question 17

9. what is meant with the consumer surplus bid?

Answer 17

firms increase its consumer surplus, slightly above it competitors, it captures the entire market.

1. A COST LEADER that has BENEFIT PARITY with its rivals CAN LOWER ITS PRICE
2. A BENEFIT LEADER that has COST PARITY with its rivals CAN RAISE ITS PRICE.

Question 18

9. When do cost advantages are more likely gonna happen?

Answer 18

1. consumers are price sensitive
2. nature of the product
3. search good

Question 19

9. When do benefit advantages are more likely gonna happen?

Answer 19

1. consumers are quality sensitive
2. tailor-made products
3. economies of scale and learning
4. experience good

Question 20

9. what are examples of cost drivers

Answer 20

1. Related to firm size, scope and cumulative experience: such as scale/scope economies and learning curves
2. independent of firm size, scope and cumulative experience: input prices, expenses on advertising etc.
3. related to organization on the transaction: Agency costs, hold up, coordination

Question 21

9. what are examples of benefits drivers?

Answer 21

1. Physical characteristics of the product:
   performance, quality, durability
2. quantity and characteristics of the services: complementary goods, customer consulting, maintenance contracts
3. sale or delivery characteristics:
   delivery, availability, location
4. consumers perceptions or expectations: the reputation of the company and financial stability
5. subjective image: packaging, labeling.