ecm c40 - Chapter 4 Terms - Chapter 4 Power of Principles:...

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Chapter 4 –Power of Principles: Historical Perspective Infrastructure : includes those assets that assist in the production or distribution of goods and services that the firm itself cannot easily provide. It consists of following main factors: transportation, communication, financing, basic research (R&D) and government (which intervenes/regulates certain economic activities and supplies some infrastructure). Vertical integration: If a firm chooses to perform more of the steps in the vertical chain itself then such a firm is referred to as (more) vertically integrated . The process of undertaking more of the production steps in the vertical chain (i.e. becoming more vertically integrated) is referred to as vertical integration . Horizontal Integration: Organizations are said to be horizontally integrated if they have adopted a strategy to be large in the product (output) market. They can choose large either in terms of physical quantity of a single product (large volume/output - integration based on scale economies) or in terms of the variety of output (integration based on scope economies). Economies of scope: Cost savings that the firm achieves as it increases the variety of activities it performs, such as the variety of goods its produces. This implies TC (Q X ,Q Y ) < TC(Q X ,0) + TC(0,Q Y ), for fixed levels of production of goods Economies of scale : Indicates that average costs decrease as output increases Throughput : The movement of inputs and outputs through a production process. Path Dependence: A process shows path-dependence if past circumstances could exclude certain evolutions in the future. Multi-Divisional Form
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ecm c40 - Chapter 4 Terms - Chapter 4 Power of Principles:...

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