force vs. factor - strong buyers can also push costs up(ie...

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9/10/2014 Deal with a single value chain...not across different industries The amount of value to capture is called power if value is power how is the person who captured more value more powerful? Value added related to value captured?? A customer is indifferent when the value captured is the same ----------- 9/15/2014 force vs. factor y = alpha + X1 + X2 + … + X5 + e y = potential of firms in the focal industry to earn above normal profits in the long run (not supposed to happen in the perfect competition model) (goal is monopolistic profits) X = f(n) n is technology, political situations, etc govt regulation is a factor barriers to entry is a force The more powerful the force, the lower the profitability of the industry If you have strong buyers, lowers profitability by pushing prices down
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Unformatted text preview: strong buyers can also push costs up (ie. want better quality) strong suppliers push costs up rivalry pushes prices down might also increase costs if they get the suppliers to play together to increase the costs substitutes operate directly on a customer’s wtp threat of entry lowers the prices growth and trends are really disconnected with the ability to earn profits 2 ways for rivals to compete:-keep lowering price-raise the pie (increase wtp by offering more to the consumer) competition is not zero sum zero sum, positive sum, destructive rivalry Just based on the price. ..zero sum different services/features….positive sum. ..no longer competing over the same customer...
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