violation of identical sellers assumption identical

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Unformatted text preview: ms can enter and exit the market freely. Suppliers can enjoy high profits by violating free entry. High production experience, huge scale of fixed costs and a strong relationship with the customers can build barrier to entry. But, barriers to exit have another aspect. Even though a supplier suffers a loss because marginal costs are higher than market price, the supplier sometimes does not exit a market due to high exit barrier. Chicken games often happen in high exit barrier industry. Based on the above discussion, a market under perfect competition is similar to the commodity markets such as DRAM market. Applying this framework to the current industry situation, we can diagnose the industry and see the strategic points for profitability. Assumptions Identical Products Many pricing-taking participants Full Information Identical Seller Free Entry Free EXIT Perfect Competition Level of perfect competition Violation of Assumption 00 Figure 4-3 Framework from perfect competition of microeconomics 4-3 Apply framework to DRAM Industry DRAM has the typical characteristics of a commodity: identical products, price taker, full information available and identical sellers. Strategic intuition for DRAM suppliers can be drawn by framework from perfect competition of microeconomics. As DRAM providers try to violate assumptions, DRAM providers can have chances to get profit. DRAM is almost identical in its functionality because it is one of the commodities. But, DRAM providers can differentiate their products as applications are getting diversified. As the market for mobile products such as smart phones and net book is expanding, low power and long standing battery is a very important function for application. This can be a good opportunity to violate the assumption of identical product. Also, the timing of shipment is critical to customers of the DRAM providers because DRAM cannot be substituted by other products. Therefore the enhancement of logistics can give a competitive advantage to the suppliers by violating the assumption of identical supplier. If DRAM providers succeed in violating assumptions of identical product and suppliers, they can pursue price maker. The framework from perfect competition of microeconomics can provide an opportunity for strategic ways to profitability. Individual DRAM providers apply this framework to their respective businesses by considering its typical business environment. The next chapter will discuss a specific case and try to find a strategy for further growth with this framework. Chapter 5 Case Study with framework: Samsung Semiconductor Division The history of the DRAM industry and its features were described in Chapter 2. Then, Chapter3 analyzed the DRAM Industry using Michael Porter's value chain and 5 forces model; also, challenges for facing the DRAM industry were summarized in short. Then, a frame work from microeconomics for profitability was introduced in Chapter 4. Next, Chapter 5 will discuss the present status of DRAM focusing on Samsung Semiconductor Division. Firstly, how Samsung Semiconductor Division (Samsung) has helped the number one position for eighteen years is summarized. In addition to this, the situation of the current industry was explained. Finally, some points which Samsung should consider keep the number one position in the DRAM industry. 5-1 The factors of Samsung to keep number one position in the DRAM industry Samsung has kept the number one position in the DRAM industry after it developed the 64 Megabit memory chip and increased the gap form other competitors in terms of the technology and market share. Also, this gap from the many other institutions in the DRAM industry is expected to increase. Table 5-1 Samsung technology history of new products 64K 256K IM 4M 16M 64M 256M IG 4G Developed Time Nov. 1983 Oct. 1984 July 1986 Feb. 1988 Aug. 1990 Sep. 1992 Aug. 1994 Oct. 1996 Feb. 2001 Developing Duration 6 Month 8 Month 11 Month 20 Month 26 Month 26 Month 30 Month 29 Month 30 Month Gap5.5 years behind 4.5 years behind 2 years behind 6 months behind Ahead Ahead Ahead Ahead Source: Samsung Homepage As mentioned in Chapter2, companies which were leaders in the DRAM industry had continuously changed from the 1970s to 1990s due to various factors: government subsidy, economic recession and change of core competitiveness. In this section, the strategies which Samsung has taken and other factors for leading the industry are described. Also, what assumptions of perfect competition for profitability Samsung has violated will be mentioned here. 5-1-1 Investment for Capability One of the ways in which Samsung has succeeded in the DRAM industry is in its bold investment for capability. Samsung's capital expenditure compared to its sales was 39.8 percent twice higher than the average in the world semiconductor industry between 1987 and 1992. Based on this investment, Samsung established a major presence in the market and it kept investing after 1992. This-investment was focused on new technology o...
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This note was uploaded on 01/22/2014 for the course BUAD 497 taught by Professor Degravel during the Fall '07 term at USC.

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