EXTERNAL CONTEXT AND STRATEGY
Focus: Social Context & Firm Strategy
Social Context firms act within networks of already established relationships.
Relationships are often based on shared customs, language, norms, or rules.
Social context can reduce transa
ECP 4403: Industrial Organization
Autumn 2014, FIU
Exam 3 - Key
Print your name:_
Answer all the questions below. No need to show work. (However, partial credit is considered
only if work is shown.) Answers in fractions are accepted.
Part 1. Use the follo
exercises in collusion and merger
1. Four firms complete in the market where demand is P = 260-2Q, Each has marginal cost of 20.
a. compute the Nash equilibrium industry output and price per period.
b. compute the output per period if they collude to act
THE VERTICAL BOUNDARIES OF THE FIRM
Main question: which activities will the firm carry out itself and which will be outsourced?
Vertical chain: process that begins with the acquisition of raw materials and ends with the distribution
THE HORIZONTAL BOUNDARIES OF THE FIRM
Economies of Scale: the production process for a specific good or service exhibits economies of scale over
a range of output when average cost declines over that range. (I.e. when increases in output lead to a
STRATEGY AND STRUCTURE
Organisational structure: arrangements (formal & informal) by which a firm divides up its critical tasks,
specifies how its managers and employees make decisions, and establishes routines and information
flows to support continuing
Sustainable Competitive Advantage
Focus: Sustainable competitive advantage and isolating mechanisms
Sustainable Competitive Advantage:
Competitive advantage vs. Sustainable competitive advantage
- Competitive advantage can be eroded by rivals through imit
The Origins of Competitive Advantage
Focus: Competitive advantage innovation and the evolution of the firm.
Acquiring competitive advantage think about:
Anticipating unmet and unarticulated consumer needs somewhere in the future
Invest in the develop
Strategic Positioning For Competitive Advantage
Focus: Competitive advantage, positioning, organisation & strategy and value creation
Strategic Positioning a firms ability to create value and enjoy a competitive advantage over other
firms depends on how i
PERFORMANCE MEASUREMENT AND INCENTIVES
A crucial issue for all firms is:
Measuring the performance of employees
Making sure that employees perform actions in the interest of the firm.
Problematic due to Agency Problems
COMPETITORS AND COMPETITION
The success of a firms organisation & strategy depends on the characteristics of:
Definition if one firms strategic choice (adversely) affects the performance of another firm.
ALTERNATIVES FOR MAKE-OR-BUY DECISIONS
Technical vs. Agency efficiency
Technical efficiency: achieved when a certain activity is performed using the least-cost production
Agency efficiency: achieved when organisation of activity minimises coordin
Dynamics: Competing Across Time Strategic Commitment
There should an explicit distinction between different strategies:
Tactical decisions vs. strategic commitment
Short term effects
Easy to reverse
E.g. price changes of a product
ENTRY AND EXIT
Entry the beginning of production and sales by a new firm in a market
There are two forms of entry:
By a brand new firm
By an established firm that is diversifying into a new market
Effect of entry on the market:
The market shares of incumb
Consider the Dixit model. In the first period firm 1 chooses its capital investment (capacity) K1. In the
second period firm 2 observes K1 and makes its own investment K2 and they compute in quantities. Let
qi denote firm i output. The market