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ECOS2201-prelect01 - D E R E M E N S EAD E M MUTA T...

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S I D E R M E N S · E A D E M · M U T A T O University of Sydney ECOS2201 Economics of Competition and Strategy Semester 1, 2008 1
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Unit of Study Outline Don Wright Contact Special Consideration Assessment Textbook 2
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Introduction What is Business Strategy (preface xviii-xix)? In military usage Strategic Variables concern long range planning while Tactical Variables concern how operate during war Strategic variables influence what tactical choices are made during war 3
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In business usage, Quantity and Price are Tactical Variables - choices made when firms compete in the market Product Quality, R&D, and Marketing are examples of Strategic Variables - they influence the choice of price and quantity in the future 4
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Two Stage Game First Stage: firms choose strategic variables given these choices, in Second Stage: firms choose quantity and price 5
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The goal of Business Strategy is to create and sustain long-run economic profit In this unit we take the point of view of the firm, in most Economics units we also consider the welfare effects of various business strategies Chapter 1 of text is a Case Study: America on Line ; make more sense later in unit, but read now 6
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Industry Analysis Industry Analysis provides the context in which business strategy is formulated It attempts to assess the basic profitability of an industry over the longer term Porter 1980 identified Five Forces that jointly determine the long-run profitability of an industry 7
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New Entrants Buyer Bargaining Power Supplier Bargaining Power Substitute Products Rivalry 8
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Rivalry summarises the intensity of competition within the industry, it is the internal force that determines prices and profits The other four forces are external to the industry All five forces represent the ability of others to capture a firms profit 9
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Rivalry - firms in an industry compete and the extent of this competition determines each firms profit Entrants - positive long-run economic profits induce entry, this entry erodes these profits Substitutes - the availability of close substitutes increases the elasticity of a firms demand curve and reduces its market power and profit 10
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