Industrial economics 2

The dynamic network is founded on three components: _ and _ and _ .

actors, activities, resources

A dynamic network is a _ of firms that are specialists in some fields and are gathered around a _ called the coordinator.

group, key-firm

The network reduces the market _ and weaknesses and also avoids the _ of highly integrated structures.

imperfections, costs

The networks are _ forms presenting _ management and _ structures.

hybrid, bilateral, governance

Exports and FDI are _ activities while licence is an _ way of coordination.

internalized, externalized

The multinational firm can operate through three modalities in order to serve the abroad market: _ and _ and _ .

exports, licence, foreign direct investment

The paradigm OLI is suggested by _ .

Dunning

The diversification can _ costs by allowing firms to use more _ and intensively their available _ in time.

reduce, efficiently, resources

The master franchise is the type of diversification delegated by _ _ .

partnership networks

When a firm diversifies into an unrelated field of production, this is called _ or _ diversification.

price, conglomerate

When the value of the Gini coefficient is equal to 1, this means that a _ _ produces the _ market _ .

single firm, total, output

The concentration ratio measures the _ market _ of the _ X firms.

cumulative, shares, largest

The concentration is _ if it concerns the production process and the departments.

technical

When the concentration concerns the capital accumulation around the existing departments and activities, it is called _ .

internal

The concentration means that the production of a particular good or service is confined to a _ _ _ .

few large firms

In integration forms, there is the possibility of two effects: an increase in _ _ and an increase in efficiency arising from economies of _ and/or _ .

market, power, scale, scope

Vertical integration can be upstream or _ .

downstream

Conglomerate integration is the combination of two or more firms that are involved in _ product areas.

different

_ integration is the combination, by acquisition or merger, of two or more _ firms that lie at the _ stage of the same _ process.

Horizontal, distinct, same, transformation

When different stages of production are incorporated into a single firm we have the _ integration.

corporate

At the equilibrium of the monopolistic competition, the profit is _ while the firms produce at a cost _ to the minimum of the average cost.

zero, superior

In a monopolistically competitive market it is assumed that if the price is _ to the average cost, positive profit will _ additional _ and when the price is _ than the average cost some rivals will _ the market.

superior, attract, rivals, less, exit

Monopolistic competition models make the hypothesis that each firm takes the _ of its rivals as _ and is unaware of the effect of its _ decision on its rivals.

price, constant, price

In a monopolistic competition market a price change by one firm has only a _ effect on the _ of any other firm.

negligible, demand

Two goods are vertically differentiated in function of the _ rates of substitution. That is the _ parameter which reflects this rate.

marginal, taste

The vertical differentiation depends on the _ between goods. This is a problem of _ .

substitutability, marketing

The product is defined as a set of _ or a bundle of _ _ globally consumed by individuals.

service, specific characteristics

Vertically differentiated goods are ranked in the _ way by consumers. The preferences are then _ .

same, homogeneous

In the horizontal differentiation, the consumers’ preferences are _ .

heterogeneous

The differentiation is horizontal when two goods are differentiated through the differences in their _ .

characteristics

In the Boston Consulting Group’s model, the unit cost of a product _ with the increase of the _ .

decreases, production

Strategic behaviours of firms can take _ or _ forms.

defensive, offensive

acquisition:

When a buyer (a firm) absorbs the assets and liabilities of another firm.

active approach:

It argues direct state involvement in the industrial sector to promote competition domestically.

angel investor:

That is an individual who provides capital for a young start-up business, usually in exchange for convertible debt or ownership equity.

atomistic (agents):

When the individuals’ size is small relatively to the size of the market in which they act.

authority:

When in a contractual relation, one of the parties has the right to decide, to direct and to monitor the behaviour of, punish and reward other parties.

barriers to entry (and to exit):

These are the economic (first order) and/or institutional/regulatory (second order) obstacles which prevent economic agents from entering or exiting a market.

cartel:

Group of firms in the same industry that cooperate in order to determine relative market shares (quotas) and maintain high (monopolistic) prices. That is a form of collusion.

concentration:

That refers to the importance of large products in a market; said to increase when fewer, larger producers dominate a market. That means that the production of a particular good or service is confined to a few large firms. The concentration can be internal (capital accumulation around the existing departments and activities) or external (acquisition of new firms, departments and/or activities).

cost strategy:

That consists in decreasing production costs of a firm for a given level of quality. In this case, the firm can supply at average industry prices in the aim to earn higher profits. It can also supply below the average industry prices in order to augment its market share.

creative destruction: 

That refers to the phenomenon of economic change through the creation of new ways of doing things that endogenously destroy and replace the old ways. It is assumed that new products and new processes are the main source of the capitalist economy’s development. The term “creative destruction” is usually used to emphasize the dynamic nature of the modern economic system and is more readily thought as a positive evolutionary process.

demand pull:

That is the evolution of the demand in a given market which gives firms the effective orientation of their market strategies.

differentiation:

In a given market, when a firm can supply a product which seems to be different regarding the rival substitutable products because its characteristics would make it (for different reasons) not entirely substitutable to other similar products sold in the same market. The differentiation can be objective (horizontal, through the differentiation in its characteristics –consumers’ preferences are then heterogeneous-, or vertical, through the quality differentiation –consumers’ preferences are then homogeneous-) or subjective (through the differences between the buyers’ perceptions about the supplied goods).

diversification:

That refers to the movement of a firm into new, related (horizontal integration) or unrelated (conglomerate) product areas. This means that the firm produces now different products, related or not to each other.

entrepreneurship: 

Usually defined as the action of undertaking economic activities, through a specific organisation, which aim at the creation of market value and which can also concern process of innovation as it involves, in a dynamic setting, creating/discovering new opportunities.

evolutionary approach:

This approach assumes that firms are complex learning organizations that develop different ways to solve similar problems. The evolutionary approach uses the concept of routine which refers to the repetitive activities such that organizational routines imply automaticity in their implementation and in their diffusion aiming to reduce uncertainty and time-spending activities of organization and control.

experience effect:

It assumes that the unit cost of a product decreases when the production increases. This effect is due to the scale economies, the learning-by-doing effect and the product standardization advantages.

externalities:

Externalities arise when social costs and benefits do not coincide with private costs and benefits, that is, when market fails to reflect all the economic costs and benefits resulting from a given activity or when an economic agent fails to take into account the whole effects of his own activities upon others.

finance:

That deals with matters related to raise monetary funds or capital through the issuance and sale of debt and/or equity. It is concerned with resource allocation as well as resource management, acquisition and investment.

financial bootstrapping:

That is a way of dealing internally with the financing issue. That covers different methods for avoiding the use of external financial resources from banks and/or market investors. The use of private credit card debt is the most known form of bootstrapping.

**focus strategy**:

When a firm concentrates on a narrow segment and tries to achieve either a cost advantage or differentiation. A firm using this strategy often enjoys a high degree of customer loyalty which could reduce the threat of competition from rival firms.

industry: 

An industry is a firm or group of firms that produce a well-defined or a closely related set of products.

industry policy:

It relates to the policies aiming direct effects upon industries of an economy. It contains various mechanisms of resource allocation among sectors of production and concerns the implementation of economic policies which impinge on the structural adjustment of industry in order to promote competitiveness and economic development of a country.

innovation:

It is used to express the idea that changes are intentional attempts to derive anticipated benefits from change and is linked to commercial uses. The innovation can be a new idea, new practice, material artefact, any policy, structure, method or process, product or market opportunity that the firms perceive to be new and profitable in economic terms.

integration:

When various steps of the production process are performed by a single firm, we have the vertical corporate integration. The horizontal integration is the combination of two or more distinct firms that lie at the same stage of the same transformation process. The conglomerate integration is the combination of firms that are involved in different product areas.

internalization:

A transaction is internalized when its administration involves the use of authority rather than voluntary bargaining among agents in a market.

invention:

This term is used to define a fundamental technological change, the apparition of which is usually depending on scientific changes which would affect our way of life.

key-firm:

That is a coordinator firm around which some specialist firms are gathered to constitute a network.

laissez-faire approach:

It assumes that information flows on markets are perfect therefore the market is better judge of desirable actions than public decision-makers.

**leniency policy**:

This encourages companies to hand over inside evidence of cartels to the European Commission. The first company in any cartel to do so will not have to pay a fine.

market:

A market consists of an area over which buyers and sellers can negotiate the exchange terms (quantity, price, and other physical and temporal specificities) of some commodities.

merger: 

An arrangement in which the assets and liabilities of two or more companies are absorbed into a newly created company.

monopolistic competition: 

The number of firms in the market is high and each firm supplies a differentiated good. Each firm takes the prices of its rivals as constant and is unaware of the effect of its price decision on its rivals.

multinationalization:

That refers to the (international) internalization process through different forms aiming to go past the national constraints and the competitive constraints on a given market. It can consist in exports, (manufacturing and/or distribution) licences and foreign direct investment.

network:

The networks are hybrid forms presenting bilateral management and governance structures that are situated between the decentralized anonymous market relations and the totally integrated and centralized hierarchical structures. The network is defined as a group of firms related between them by strong exchange relations through specific arrangements aiming to coordinate the strategies of the member-firms.

perfect information:

This means that in a given market, the observed prices give economic agents sufficient information to undertake efficient economic activities. Then the information is symmetric and nobody can fool others by hiding strategic information.

planning approach:

It argues that welfare can be improved through centralized planning and states that the industry policies must aim to improve the structural solidity and soundness of domestic industries.

price-elasticity:

It measures the sensibility of the demand to a variation of the price charged by firms. That also gives the extent to which a firm can increase its price without reducing the demand of the market (the monopoly power).

price-taker: 

This means that the firm can alter its rate of production and sales without significantly affecting the market price.

public goods:

A public good is defined through two characteristics: it is a non-rival good (consumption by an individual does not reduce the quantity available to others) and a non or partially exclusive good (it is impossible to exclude from consumption individuals who have not paid for the product). In the case of public goods, the state intervention is assumed to be necessary for the social welfare.

relevant market:

It is a well-defined and well-identified market of a good or a group of related goods which allows firms and/or competition policies to determine accurately the degree of competition in the market.

scale and scope:

This is related to the possibility for the firm to realize scale or scope economies. Usually when the firm is small, the scale of production is low and then paying back the development cost may take more time than the case in which the fixed cost of R&D may be spread over the numbers of units sold, giving an advantage to larger firms.

structure of the market:

This is related to the degree of the competition prevailing in a market. It is defined by the competitors’ number, their relative market shares, the entry and exit conditions, the links between substitutable goods, the interdependencies among different stages of activities in the market, the state of the information, etc.

supportive approach:

It assumes the superiority of market forces but acknowledges the possibility of imperfect information and transaction costs. It advocates policies to help markets function more effectively and argues for intervention to improve the allocation and enforcement of property rights in order to foster the positive economic changes.

sweat equity: 

That refers to a firm’s partner’s contribution to a project in the form of effort.

technology push:

According to the available level and state of technology in a market, firms

may try to use different opportunities to develop new technologies.

**venture capital**:

It is used by new young firms with limited experience that are not large enough to raise capital on financial markets and not considered to be able to secure a bank credit. A *venture capitalist* is a person or investment firm that makes venture investments, and these venture capitalists are expected to bring managerial and technical expertise as well as capital to new innovative projects. Venture capital is provided to early-stage, high-potential but high risk start-up companies.

In the Schumpeterian distinction, the invention is the _ of a new technical _ and the innovation is its _ to _ . 

discovery, knowledge, application, industry

The innovation can be pushed by _ or pulled by _ . 

technology, demand

In the Schumpeterian analysis, the innovation is related to the _ of the market. 

concentration

The R&D intensity is given by the ratio between _ and _ . 

R&D spending, firm size

Returns to research mean the total _ that the _ and all other firms using the _ get because o the invention. 

profits, inventor, invention

Appropriability of the returns to research describes an inventor’s ability to _ the _ . 

capture, profits

_ firms achieve a greater increase in price and decrease in _ from their _ than smaller _ . But the research results per _ of research are _ for larger firms. 

larger, cost, research, firms, unit, less

The _ approach assumes that firms are complex learning _ that develop different ways to solve similar problems. 

evolutionary, organizations

In the evolutionary approach, the routine refers to the _ _ such that organisational routines imply automaticity in their _and also in their _. 

repetitive activities, implementation, diffusion

The strategic adaptation theory argues that there exists a dialectic _ between organizations and their _ . 

interaction, environment

There is a fundamental interaction between _ and organizational change. 

technical

Innovation expresses the idea that changes are _ attempts to derive anticipated _ from change and is linked to _ uses. 

intentional, benefits, commercial

In general terms, innovation means the developing of new services allowing to the product _ , new _ allowing to the diversification, new manufacturing processes reducing production _, and new business processes (_ processes). 

differentiation, products, costs, (commercialization)

When the organisational innovations occur within a firm, they are called _ _ innovations. 

intra-organizational

Industry policies relates to the policies whose main direct effect is upon _ . 

industries

In the laissez-faire and supportive approaches, the state is acting as an _ to the _ . 

adjunct, market

In the active and planning approaches, the state acts to _ the industrial structure taking a _ role in the economy. 

shape, proactive

The laissez-faire approach assumes that _ _ on markets are perfect. Appropriate policies are those aimed at promoting a _and liberalized environment. 

information flows, competitive

The supportive approach assumes the superiority of market forces but also acknowledges the possibility of _ information and _ costs. 

imperfect, transaction

The active approach argues for more direct _ _; in the industry in order to promote competition _ . 

state involvement, domestically

The planning approach argues that welfare can be improved through _ _ . Then the industry policies must aim to improve the structural solidity of _ industries. 

centralized planning, domestic

When the nature of the technology prevents more than one firm from entering and competing in the industry without substantially increasing costs, there is a _ monopoly and the state should _ by regulating it. 

natural, intervene