Chapter 17 (Readings & Lectures)

"Those who have a good back-up plan have a greater _____

Bargaining power"

"Threat to entry depends on what the ______

Barriers to entry the market are"

"Improve your bargaining power is to improve your next _____"

Best alternative

"Ones next best alternative is the value of your ____ option ___ of this deal

Best; outside"

"Trying to offer unique products is a trick that businesses use to ______

Boost their profitability

Non-Price Competition = Product Differentiation (Concept)

Business compete for customers by making their products unique in some way

Type of Competition: Price Competition (Concept)

Businesses compete by lowering prices which leads to lower

Customers Define Market Power (Concept) "Customers that say to jump and companies can only respond by asking how high"

Buyers bargaining power

Non-Price Competition (Definition)

Competing to win customers by differentiating your product by market positioning which makes it harder for rivals to win business even with a cut price

Price Competition (Definition)

Competing to win customers by offering lower prices

(END) Existing competitors use price _____ and non-price competition

Competition

(END) "Six forces shape ____ and ______ are existing competitors, potential entrants, potential substitutes, suppliers, and customers and government"

Competition; Profitability

(Practice Question) Which of the following is an example of non-price competition that lead to market power? A. Customer Service B. Product Quality C. Advertising D. All of the above

D

(END) Relationship-specific investment _____ bargaining power and leads to the hold-up problem

Decreases

Force One: Existing Competitors (Purpose)

Define the type and intensity of existing competition

Force Three: Potential Substitutes (Concept)

Destroy profitability when new categories and technologies impact industries

Bargaining Power (Concept)

Determine the next best alternative

"You should position your product so that it is (1) ______ than your competition and (2) _____ the most customers Trade-off between the demand-side considerations (attract the most customers) and supply-side (as different from your competitors)

Different; attracts

Pure Price Competition (Concept)

Drives your economic profit to zero

"Profit margin is small when you have an relatively ______ curve this happens when there is _____ market power" (Review)

Elastic; less

Price (Concept Review)

Equal to average revenue

(Practice Questions) Market that has a lot of firms producing similar goods is experiencing which of the fives forces

Existing competitors

"When there is no market power the demand curve is ____

Flat

Product Differentiation (Concept)

If a company wants to avoid intense price competition by differentiating their products in the minds of the consumers and not have to charge the lowest price

(TLE) Force #5: Bargaining of Customers (Concept)

If customers enjoy/dislike the product can affect your profits

Pure Price Competition (Key Idea)

If the only thing you are competing on is price the only ones that are benefitting are consumers

Market Structure Shapes Advertising , Free Rider Problems

If you do informative advertising in a highly competitive market

"If your customers are _____ between your coffee and coffee from somewhere else, then the customers are going to have all the _______"

Indifferent; Bargaining power

Force #1: Competition From Existing Rivals (Concept)

Intensity and type of competition when you have more competition (not a monopoly) you will have less market power

Relationship-Specific Investments (Concept Definition)

Investments that are more valuable if the current business relationship continues

"The more you can stand out the ____ market power

More

Force One: Existing Competitors (Concept)

More rivals yield more intense competition

"Your bargaining power is your ability to ______ a better deal"

Negotiate

"Economic profit attracts ______

New competitors until they come out to zero"

Hold-Up Problem (Concept Definition)

Once you have made a relationship-specific investment, the other side may try to renegotiate so that they get abetter deal

Force One: Existing Competitors (Extreme Case, Definition)

Perfect competition where there is no market power (soy and corn)

(TLE) Force #3: Threat of Potential Substitutes (Concept)

Potential substitutes that can enter the market and lower your profits

Profit Margin, Definition (Review)

Price less than the average cost

Profit Margin (Concept) | (Review) "Is a per-unit measure"

Price less the average cost

(END) The _____ positioning trade-off is between the demand side and the supply side

Product

Profit Margin, Long Run (Review)

Profit margin = 0

"The difference between marginal cost and price is the _____

Profit margin"

Six Forces, Frameworks (Definition)

Profitability that a business has and the sources and threat to it

"Hold-up problem follows from making ______ investments"

Relationship-specific

(Practice Questions) Toyota has on going relationships with its part manufacturers, due in large part because the manufacturers believe that Toyota will not try to renegotiate lower prices. This isan example of

Reputation and repeated interaction

"In profit margin your firms demand curve is also the average _____ curve since the average revenue per unit is the _____ (Review)

Revenue, price"

Advertising (Objective)

Shift and steepen your demand curve

Six Forces, Frameworks (Concept)

Show the types and intensity of the competition in a certain market

"Price competition is most likely when you and your rivals sell ______, when it's not easy to _____ and when ______ are low"

Similar products; observe price; switching cost

Product Position: Purpose is to not face price competition, idea is offering a product that is _____ to his competitors so they can lure _____ customers (be close to all customers) you while also trying to be ______ 1. Supply 2. Demand

Similar; more; unique

"When you have more market power, there is a shift from flat to ___ now the marginal revenue intersects with marginal ____ causing the price to be ______ as now the demand curve is more ________

Steep, cost, higher, inelastic"

"The more you are able to advertise and create a clear differentiation the ____ your demand curve will be which means that you have _____ market power by being more _____"

Steeper; greater; inelastic

"Elasticity is a measure of how good your ______ are" (Review)

Substitutes

Force Four: Bargaining Power of Suppliers (Definition)

Suppliers can threaten your success by charging you higher prices

"The other side's next best alternative determine ______ bargaining power"

Their

Potential Entrants (Definition Concept)

When companies are worried about entering this causes any economic profits to eventually evaporate

Force Five: Bargaining Power of Buyers (Concept)

When one customer is a large portion of your bossiness they have a large market power

Price Competition (Largest Impact)

When poduct is very similar and the prices can be easily absorbed

Force One: Existing Competitors (Extreme Case, Who Wins)

Whoever can offer the lowest price when the

"Profits go to ____ in a perfectly competitive market"

0

Hold-Up Problem, Solutions

1. Contracts that are long-term where both parties are committed during the duration of the relationship 2. Reputation and repeated interactions 3. Vertical integration (insourcing)

Market Structure Shapes Advertising Strategies 2 1. Ensure advertising boosts your demand | Only firms selling ____ products should advertise 2. Increase your firm demand not ___ demand | Advertising should emphasize the _____ value your firm offers

1. Differentiated 2. Unique

Force Six: Government (Features, 2)

1. Enhance via subsidies (bank that subsides loans for export and importing) and tax breaks 2. Destroy by making companies pay or the federal government can set fares/regulations/ policies

Monopoly, Causes 3 (Review)

1. Natural monopoly 2. Patents 3. Government licenses

Force Two: Potential Competitors, Threat of Entry (Features, 3)

1. New entry can increase supply and intensify competition 2. Threat of entry depends on the extent to which barriers to entry shield existing businesses from competition by new entrants 3. Strategic management can deter entry

Force Five: Bargaining Power of Suppliers (Issues, 2)

1. Refusing to do business 2 Raising the prices of inputs

Six Forces, Frameworks Features 2

1. Revealing underlying sources of profitability 2. Showing potential threats to profitability

Types of Goods Determine Advertising, 3 1. Search good = _____ advertising (easily evaluate before buyer) | _____ advertising (informs potential customers about a product) 2. Persuasive advertising: Manipulate customers to believe ____ (_____ goods) not informative

1. Search; Informative 2. They'll enjoy the product; experience

Six Forces, Frameworks Strategic Actors 6

1. Suppliers: Seller bargaining power 2. Existing Competitors: Intensity and type of competition 3. Potential Substitutes: Threat of substitutes products or services 4. Customers: Buyer bargaining power 5. Government: Can enhance or destroy profitability 6. Potential Entrants: Threat of new entry

Long-Term Profitability, Determinants 2

1. Type and intensity of competitive forces 2. Decisions you make in response to those forces

Force Three: Potential Substitutes (Features, 5) 1. Potential substitutes can come from unrelated industries

2. Substitutes come from innovations that offer better performance 3. But often the distribution comes in the form of a chapter alternative 4. Substitutes are bigger threat when switching costs are low 5. Complements can point to new opportunities

Force Four: Bargaining Power of Suppliers (Concept)

Ability of your suppliers to charge your high prices depends on the amount of bargaining power they have

Bargaining Power (Concept)

Ability to negotiate a new deal which is determined by your opportunity cost principle (your next best alternative)

Advertising (Definition)

An approach to positioning your product

"Product differentiation can improve ones _____

Market power"

(TLE) Force #4: Bargaining of Suppliers (Concept)

Analyze the best alternative which can be affected by suppliers and make an offer based on what you can take

Potential Substitutes (Concept)

As markets evolve and new technologies come out which cause competition for your existing product

(TLE) Force #2: Threat of New Businesses, Potential Competitors (Concept)

Large profits will attract new customers which are prevented by patents and government regulation to prevent people from entering and even lowering their prices

(Practice Question) Successful advertising will make your firm's demand curve

Less elastic

(END) The hold-up problem can be overcome with ______, reputation and repeated interactions, or vertical integration

Long-term contracts

Force Two: Potential Competitors, Threat of Entry (Concept)

Look over their shoulder and worry about new entrances (existing businesses or start-ups)

Hold-Up Problem, Primary Issues

Lower investment in actions that would lower bargaining power

"When there is intense competition the price will drop very close until it equals _______, this is a race to the bottom"

Marginal cost