MGT 100 Exam 2

value created

WTP - opportunity costs

added value of x

value created by all - value created by all but x

operational effectiveness

performing business activities more efficiently than others

strategic positioning

performing different activities in different ways

types of strategic positioning

variety based, needs based, access based

variety based positioning

focus on a subset of products/services

needs based positioning

focus on a specific group of consumers

access based positioning

target a specific area

intended strategies

created with strategic management

emergent strategies

occur when conditions change, causing a need/opportunity to

Porter’s 5 forces

threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitutes, and rivalry

barriers to entry

economies of scale, network effect, intellectual property, fear of retaliation, capital requirements, gov’t policies, switching costs, access to distribution channels, incumbent advantage

how to conduct industry analysis

1. not all forces are created equally - focus on the ones that matter

2. an industry is only as profitable as its strongest force

3. forces are not always obvious

competitive advantage

a firm has a competitive advantage over its rivals if it drives a wider wedge between WTP and costs than its rivals

isolating mechanisms

increasing consumer retention and preventing imitation

value drivers

complements, technology, quality, service, breadth of line, network externalities, corporate social responsibility, delivery, customization, geography, brand, and risk assumption

cost drivers

standardization, vertical integration, organizational practices, low input costs, economies of scale, economies of scope, learning curve

platform/2 sided market

an intermediary that creates value that facilitates exchanges between users

makeup of platform market

firms, buyers, complementors

types of platform markets

transaction, innovation, both

network effects

occur when the value of the product/service increases with the number of users

types of network effects

same side or cross side

same side network effects

value increases with the number of users on own side

cross side network effects

value increases with number of users on the other side

chicken and egg problem

in order to grow and get sellers, you need buyers, but you need sellers in order to get buyers.

strategies to solve chicken and egg problem

subsidies, merchant to platform, marquee users/seeding, envelopment, micro launch, managing expectations

winner takes all

network effects and low marginal costs lead 1 firm to dominate the market

threats to winner takes all

strength of network effects, network clustering, risk of disintermediation, vulnerability of multi-homing

platform pricing

determining subsidy and money sides is crucial

platform openness

how to regulate number of users

platform governance

what can participants do on the platform

establishing trust

buyers have to trust the platform and complementors (solution: reputation systems)

game theory

formally models strategic interactions

components of a game

players, strategies, payoffs

dominated strategy

regardless of what other players do, the other strategies always give a higher payoff

dominant strategy

always gives the highest payoff regardless of other player’s decisions

when to play a dominated strategy

NEVER

when to play a dominant strategy

ALWAYS

Nash equilibrium

a pair of strategies where each player’s response is the best given the other’s response, and no one has a unilateral incentive to change their behavior given others’

characteristics of Nash equilibria

self-enforcing, stable, a game can have multiple, a game can have none in pure strategies

how to find Nash equilibrium

1. make payoff matrix

2. find player A’s best strategy given B’s first strategy

3. find player A’s best strategy given B’s second strategy

4. do the same for player B

5. the point where both players have an optimal choice is Nash equilibrium