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Strategy - Coggle Diagram
Strategy
Chapter 4: Game theory and strategy
The profitability of the following actions depends on what your competitors do:
Whether you want to enter a market (geographical or product)
Setting capacity or production volumes
Integrate vertically or horizontally
Nash Equilibrium
:
A combination of strategies such that no individual player can deviate unilaterally from their current strategy to improve their pay-offs
Dynamic Games
:
Games with a time aspect
E.g. if one firm acts before the other, this has important implications; the second firm can play the game knowing what the first has done
Chapter 5: Oligopolistic models of competition
Bertrand Competition
:
Two firms produce identical products and choose the price simultaneously and then produce to satisfy demand
Three part profit function, depending on one's own price and the rivals
Both players will want to undercut their rival by the smallest amount possible for any range or 'normal prices'
In a price-setting market with two symmetric firms selling undifferentiated goods, the unique Nash Equilibrium is marginal cost, which is the competitive outcome
Cournot competition
:
Firms must set quantities first and then prices
If a rival produces slightly more than another company, market prices will be slightly lower but sales will not jump discontinuously
Bertrand vs. Cournot vs. Stackelberg
Bertrand:
Price competition does not generate any profit
A change in price by firm 1 will lead to a change in price by firm 2 in the same direction
The unique Nash equilibrium is marginal cost
Cournot:
Quantity competition generate profit
There are no 'jumps' in the profit function
Prices will be above marginal cost and below the monopoly price
Stackelberg:
Quantity competition, leader chooses first, and then follower
The follower's problem: finding the best response function
The leader's problem: knowing the reaction function is enough
Strategic complements and substitutes
Strategic complements
When one person's choice makes another person more likely to choose the same thing. It's like if you and your friend are deciding whether to go to the same restaurant.
If your friend goes, "I want pizza," and you really like pizza, too, you're more likely to say, "Yeah, let's get pizza!" So, your choices are complementary because they go well together.
Strategic substitutes
The opposite. It's when one person's choice makes another person more likely to choose something different. Imagine you and your friend are playing a game, and you both can choose "A" or "B."
If your friend picks "A," and you know that "A" is a good counter to "B," you might decide to choose "B" because it counters your friend's choice. Your choices are substitutes because they work against each other.
So, complements mean your choices go together, and substitutes mean your choices go against each other. It's like peanut butter and jelly (complements) versus peanut butter and pickles (substitutes) in a sandwich!
Chapter 6: Resource-based view of the firm
Tangible vs. Intangible resources
Tangible resources:
Assets that can be observed and quantified
Machinery
Capital
Production facilities
Technology
Physical resources
Intangible resources:
Assets that are deeply rooted in the history of the firm, accumulated over time and which are difficult to quantify or observe
Culture
Innovation
Reputation
Brand names
Management skills
Organisational routines
Examples of resources as sources of competitive advantage:
Contractual architecture
Reputation
Innovation
Strategic assets
Contractual architecture:
Architecture is the set of structure, style and routines which a firm employs in dealings with employees and other firms
It is the set of spot, long-term and relational contracts that a firm is involved in
Internal architecture: employment relations (career paths, blinded contracts)
External architecture: with suppliers, partners, institutions (suppliers, knowledge sharing, flexibility)
Reputation:
An aggregate of many personal and collective judgments about a company's or an industry's credibility, reliability, responsibility and competence based on a common set of values
Search goods: goods where quality is important and can only be ascertained by inspecting the goods personally
Experience goods: product characteristics, where quality is difficult to observe only on consumption
Chapter 3: Analysis of market structure
5 Techniques of Market Definition:
Cross-price elasticity of demand
If the price of another good goes up by 1%, how will the demand for my product change?
Powerful tool to asses the relationship of two products if the data is available
PED = (% Change in Quantity Demanded) / (% Change in Price)
Price correlation analysis
Track prices over an extended period of time
Switching/diversion ratio analysis
If a time series of prices is not available, ask consumers directly
Survey like: "If what you have just purchased was not available, what other option would you have chosen?"
Shock analysis
Experiment: sudden and unexpected change in one market and analyse the reaction in the related market
Technological change, new product etc.
Bidding studies
When prices are not public, or low transaction "who competes in the same market"
E.g. Big 4 (other four accountancy firms were bidding for very similar projects or accounts)
Chapter 1: Introduction
Types of Strategy:
Corporate strategy
Business strategy
Competitive strategy
Chapter 7: Strategic asymmetries
Chapter 9: Value chain analysis
Chapter 8: Organisation design
Chapter 2: Evolution of strategic management as an interdisciplinary field
Chapter 12: Strategic partnerships
Chapter 10: Vertical integration and transaction cost
Chapter 11: Collusion