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Unformatted text preview: Chapter 08 - Economics Of Strategy: Creating And Capturing Value CHAPTER 8 ECONOMICS OF STRATEGY: CREATING AND CAPTURING VALUE CHAPTER SUMMARY This chapter is the first of two chapters on strategy. It concentrates on the basic ways firms can create and capture value. Chapter 9 uses game theory to study strategic interactions among a small number of identifiable rival firms. Chapter 8 presents a framework for discussing how firms create value. It also discusses the conditions under which a firm can capture value (either by having market power or, in certain cases, having superior factors of production). The economics of diversification are examined, and a framework for strategy formulation is presented. A mini-case ( Wal-Mart.com ) highlights some of the issues in the chapter and the answers for the associated discussion questions are included below. Most managerial economics books focus on a very limited set of decisions (for example, pricing, input selection and output), taking the market product, and its characteristics, as given; they also assume that a firm produces only one product. This chapter uses basic economic principles to analyze a broader set of corporate policies. CHAPTER OUTLINE STRATEGY VALUE CREATION Production and Producer Transaction Costs Managerial ApplicationDell Computers: Reducing Producer and Consumer Transaction Costs Consumer Transaction Costs Managerial ApplicationCreating Value: Reducing Consumer Waiting Time Managerial ApplicationReducing Consumer Transactions Costs: Kraft Lunchables Managerial ApplicationTerrorist Attacks Affect Value Creation in the Airline Industry Other Ways to Increase Demand Product Quality Price of Complements Historical ApplicationGiving Away Razors to Increase Demand for Blades Price of Substitutes Managerial ApplicationAirlines Restrict Cell Phone Use New Products and Services Managerial ApplicationTechnology and Value Cooperating to Increase Value Managerial ApplicationAdvanced Photo System 8-1 Chapter 08 - Economics Of Strategy: Creating And Capturing Value Converting Organizational Knowledge into Value Managerial ApplicationSonic Drive-Ins Convert Wetware to Software Opportunities to Create Value CAPTURING VALUE Market Power Entry Barriers Historical ApplicationCreating but Not Capturing Value: Eli Whitney Degree of Rivalry Managerial ApplicationCompetition and the Number of Competitors Threat of Substitutes Managerial ApplicationItalian Textiles and Chinese Competition Buyer and Supplier Power Managerial ApplicationSugar Prices Market Power and Strategy Superior Factors of Production Producer Surplus Captured by Superior Assets Second-Price Auctions Team Production Team Capabilities and Organizational Architecture Managerial ApplicationTeam Capabilities at Sharp Corporation Academic ApplicationFlexible Manufacturing and Team Capabilities A Partial Explanation for Wal-Marts Success Managerial ApplicationEconomic Profits without Market Power: A...
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