1 42001: Competitive Strategy Lecture 8: Entry and Entry Deterrence Neale Mahoney
Plan • Amazon: Quiz + discussion • Lecture 8: Entry and Entry Deterence • Break • RyanAir case 2
Quiz 1. Which company successfully sued Amazon for violating a contract that made it the exclusive seller of some products a. Toys “R” Us b. Apple c. The Gap 2.What is Mechanical Turk? a. A crowd-sourcing platform b. The software behind Amazon’s recommendation engine c. A famous art exhibition at company headquarters 3.What was the code name for the Kindle? a. Fiona b. The Seattle Project c. Shakespeare 3
Amazon: AWS Amazon Web Services, or AWS, is today in the business of selling basic computer infrastructure like storage, databases, and raw computing power. The service is woven into the fabric of daily life in Silicon Valley and the broader technology community. Startups like Pinterest and Instagram rent space and cycles on Amazon’s computers and run their operations over the Internet as if the high- powered servers were sitting in the backs of their own offices. Even large companies rely on AWS—Netflix, for example, uses it to stream movies to its customers. AWS helped introduce the ethereal concept known as the cloud, and it is viewed as so vital to the future fortunes of technology startups that venture capitalists often give gift certificates for it to their new entrepreneurs. Various divisions of the U.S. government, such as NASA and the Central Intelligence Agency, are high-profile AWS customers as well. Though Amazon keeps AWS’s financial performance and profitability a secret, analysts at Morgan Stanley estimate that in 2012, it brought in $2.2 billion in revenue. • What are the basic industry economics (Porter’s 5-forces) of AWS? 4
Plan • Amazon: Quiz + discussion • Lecture 8: Entry and Entry Deterence • Break • RyanAir case 5
6 Entry barriers: review • In week 1, we talked about three types of entry barriers: – Economies of scale and sunk costs – Incumbent advantages on the demand and supply sides (i.e. buyer switching costs, access to inputs, access to distribution channels, etc.) – Strategic barriers • We fleshed out the first two in some detail but left the third vague... this week, we return to focus on the strategic dimensions of entry and entry deterrence
7 The basic strategic problem p low p high enter don’t enter ( $0 ,$400 ) Intelligentsia Starbucks ( -$100 ,-$100 ) ( $100 ,$100 )
8 How do we expect incumbents to respond? • Let’s think about the post-entry game – It is clear here that the incumbent would never want to fight • Why might the real-world post-entry game be more complex?
9 Predation • Can anyone define predatory pricing?
10 Predation • Can anyone define predatory pricing? • Predatory pricing = pricing lower than would be profit maximizing in order to (possibly) drive a competitor out of business • Predatory pricing is illegal • How can a firm or regulator detect predatory pricing?
11 Predation • It is very difficult to distinguish predatory pricing from a competitive response •
You've reached the end of your free preview.
Want to read all 49 pages?