Chapter 17: Economics of Strategic Management Exam 3

These flashcards cover the key concepts from Chapter 17 on the Economics of Strategic Management, focusing on the Five Forces Framework, non-price competition, and bargaining power.

What are the five forces that determine business profitability?

Existing competitors, potential entrants, potential substitutes, bargaining power of suppliers, and bargaining power of buyers.

What influences the intensity of competition within a market?

The number of competitors producing similar goods and the market structure such as monopoly or perfect competition.

What is the goal of non-price competition?

To differentiate products based on features, quality, service, etc., rather than competing solely on price.

What factors can increase the threat of new entrants into a market?

Low barriers to entry, attractive profit margins, and favorable market conditions.

How do substitutes impact business profitability?

Substitutes can limit pricing power and reduce profits, especially when switching costs are low.

What is bargaining power of suppliers?

The ability of suppliers to influence the prices they charge or the terms of sale.

How can powerful buyers affect a company?

They can force prices down, thus limiting the company's profitability.

What are relationship-specific investments?

Investments that are valuable only if the current business relationship continues.

What is the hold-up problem?

When one party tries to renegotiate a deal to gain more advantages after a relationship-specific investment has been made.

What strategies can help overcome the hold-up problem?

Long-term contracts, maintaining a good reputation, and vertical integration.

What are the key predictors of bargaining power?

Your next best alternative and the respective opportunity costs of that alternative.

How does advertising influence market power?

Advertising aims to increase demand and can create brand loyalty, making customers less sensitive to price changes.

What is the trade-off between positioning your product close or far from rivals?

Close positioning may increase quantity sold, while far positioning can enhance profit margins.

What are the components of effective product positioning?

Understanding customer needs and competitor differences to establish a strong market presence.

What is non-price competition?

Competition that focuses on differentiating products through attributes other than price.