ch04 - Further Topics in Industry and Competitive Analysis...

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Unformatted text preview: Further Topics in Industry and Competitive Analysis Extending 5-forces analysis o Does industry matter? o Complements o Dynamic competition Game Theory Competitor Analysis Segmentation Strategic Groups OUTLINE Does Industry Matter? Percentage of variance in firms return on assets explained by: Industry effects Firm-specific effects Unexplained variance Schmalensee (1985) 19.6% 0.6% 80.4% Rumelt (1991) 4.0% 44.2% 44.8% McGahan & Porter 1997) 18.7% 31.7% 48.4% Hawawini et al (2003) 8.1% 35.8% 52.0% The Value Net COMPANY CUSTOMERS SUPPLIERS COMPLEMENTORS COMPETITORS SUPPLIERS POTENTIAL ENTRANTS SUBSTITUTES BUYERS INDUSTRY COMPETITORS Rivalry among existing firms Bargaining power of suppliers Bargaining power of buyers Threat of new entrants Threat of substitutes COMPLEMENTS The suppliers of complements create value for the industry and can exercise bargaining power Five Forces or Six? Introducing Complements Dynamic Competition Porter framework assumes: (a) industry structure drives competitive behavior (b) Industry structure is (fairly) stable. But, competition also changes industry structure: Schumpeterian Competition: A perennial gale of creative destruction where firm strategies continually transforms industry structure innovation overthrows established market leaders Hypercompetition: intense and rapid competitive moves.creating disequilibrium through continuously creating new competitive advantages and destroying, obsolescing or neutralizing opponents competitive advantages Implication: Under dynamic competition, 5-forces framework is less usefulCompetitive behavior and industry structure jointly determined by underlying conditions of technology, demand & costs The Contribution of Game Theory to Competitive Analysis Main value: 1. Framing strategic decisions as interactions between competitors 2. Predicting outcomes of competitive situations involving a few, evenly-matched players Some key concepts: 1. Competition and CooperationGame theory can show conditions where cooperation more advantageous than competition...
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This note was uploaded on 08/18/2011 for the course BADM 449 taught by Professor Fertig during the Spring '11 term at University of Illinois at Urbana–Champaign.

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ch04 - Further Topics in Industry and Competitive Analysis...

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