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In: Business and Management

Submitted By yanika
Words 394
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This template is modified from Economics of Strategy by D.Besanko, D.Dranove, M.Shanley, S.Schaefer (4th ed.), John Wiley and Sons, 2007, pp. 337‐339. Please refer to this book at the GSOM library if necessary.

Market definition: Segmentation: Internal Rivalry Characteristics Degree of seller concentration Rate of industry growth Significant cost differences among firms Excess capacity Sensitivity of costs to capacity utilization Product differentiation among sellers. Brand loyalty. Cross‐ price elasticity Buyer’s cost of switching Are prices and terms of trade transaction observable? Can firm adjust prices quickly? Large or infrequent sales orders? Facilitating practices Cooperative pricing Exit barriers Conclusion: Threat of Entry Characteristics Significant economies of scale? Importance of reputation and brand loyalty in purchase decision Entrants’ access to distribution channels Entrants’ access to raw materials Entrants’ access to technology / know‐how Entrants’ access to favourable locations Experience‐based advantage of incumbents Current situation Future trend Current situation Future trend


Network externalities Government protection of incumbents Perception of entrants about expected retaliation of incumbents Conclusion: Substitutes and Complements Characteristics Availability of close substitutes Price‐value characteristics of substitutes Price elasticity of industry demand Availability of close complements Price‐value characteristics of close complements Conclusion: Suppliers Characteristics Is supplier industry more concentrated than industry it sells to? Do firms in industry purchase relatively small volumes relative to other customers of supplier? To sales of typical supplier? Few substitutes for suppliers’ input? Relation‐specific investments Credible threat of forward integration Are suppliers able to price discriminate? Conclusion: Buyers

Current situation

Future trend

Current situation

Future trend

Characteristics Current situation Is buyers’ industry more concentrated than the industry it purchases from? Do buyers purchase in large 2

Future trend

volumes? Does a buyer’s purchase volume represent large fraction of typical seller’s sales revenue? Can buyers find substitutes for industry’s product? Do firms in industry make relationship‐specific investments with specific buyers? Is price elasticity of demand of buyer’s product high or low? Do buyers pose credible threat of backward integration? Does product represent significant fraction of cost in buyer’s business? Are prices in the market negotiated between buyers and sellers on each individual transaction or do sellers post a “take‐it‐or‐leave‐it” price that applies to all transactions? Conclusion: Summary

Synthesis: Long‐term profitability and nature of competition in the market Sources


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