Week 2- External Environment

Week 2- External Environment - External Factors Determining...

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External Factors Determining Competitive Advantage Instructor: Mahka Moeen M&O Department Spring 2012 1
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The Components of a Company’s Macro-Environment 2 L e g i s l a t o n d R u S c V f y P p D m r h T The Economy at Large COMPANY Suppliers Substitutes Buyers New Entrants Rival Firms IMMEDIATE INDUSTRY AND COMPETITIVE ENVIRONMENT
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Structure-Conduct-Performance Framework 3 Production Structure Conduct Demand Performance
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A tale of two motels…
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Efficient-Markets Principle In perfectly efficient markets, no firm realizes returns greater than opportunity cost. Necessary conditions for efficient markets: Easy to enter Easy to imitate What causes some industries to be more profitable than others? Barriers to entry Barriers to imitation 5
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Barriers to Entry Economies of Scale and Scope Capital Requirements and High Sunk Costs Experience and Learning Curve Advantages Ownership of Scarce Resources Proprietary Technology Government Policy and Regulation Reputation Buyer Switching Costs Access to Distribution Channels Intended Excess Capacity Exit Barriers 6
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Implications of S-C-P For a firm to continue to enjoy superior economic performance Threat of entry should be low Presence of economic profits signals opportunities to potential entrants Free entry and exit ensures increase/decrease in economic profits till they reach zero Barriers to entry prohibit competitive forces from working, and allow existing firms to earn above normal rates of return Competitive barriers should be high Existing firms have low incentive to engage in price competition and low rivalry 7
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Structure-Conduct-Performance (SCP) Industry Type Industry Attributes Firm Conduct Options Expected Performance Perfect Competition
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This note was uploaded on 04/09/2012 for the course BMGT 495 taught by Professor Kiyatkin during the Spring '08 term at Maryland.

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Week 2- External Environment - External Factors Determining...

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