Topic 5

Question 1

How can firms manage black swan events?

Answer 1

• ‘Black swan’ approach to the problem

Prepare for the impact, always have a plan B in place

Use survivor psychology to counteract shock

Assemble a Black Swan Response team

Pursue R&D vs. Engineering Perspectives

Optimize communications

Question 2

Search Good v Experience Good

Answer 2

In a search good the characteristics are apparent to the consumer pre purchaser, not so for experience goods.

Question 3

Dissipative advertising

Answer 3

• In the short run, advertising attracts consumer to both types of firms (high or low quality), but if cost is large enough, it can’t be recouped immediately
• Only through repeat purchase can a high-quality firm cash in on advertising while repeat purchases are not accessible to low-quality firms.
• Self-selection and dissipative advertising signals high quality

Question 4

Optimal Advertising

Answer 4

Question 5

Classic ILC (Industrial Life Cycle)

Answer 5

In the initial phase: industry demand is low and firms try to compete via product innovation (heterogeneous goods / homogeneous pricing).

– In the more mature stage: firms no longer compete extensively on product innovation, but they differentiate their product on price, service and process innovation (homogeneous goods / heterogeneous price-service-process)

Early stages: compete via extensive product innovation (heterogeneous

goods / homogeneous pricing)

 Late stages: compete via price, service and process innovation, not product innovation (homogeneous goods / heterogeneous price-processes)