Chapter 1 Exam notes

Key Terms and Definitions

  1. Risk: The potential for loss or the variability in returns associated with an investment.

  2. Average Returns: Returns that are equal to expected returns from similar risk investments; considered unsatisfactory long-term.

  3. Above-Average Returns: Returns that exceed expectations based on risk, central to corporate existence.

Definitions to Know

  • Globalization: Economic interdependence among countries.

  • Technology Diffusion: The speed at which new technology becomes available.

  • Perpetual Innovation: Continuous evolution of technologies.

  • Disruptive Innovation: Technologies that create new markets while displacing existing ones.

Hypercompetition

  • Two Main Drivers of Hypercompetition: 1) Rapid market changes leading to volatility. 2) Increased innovation demands.

Basic Assumptions

  • I/O Economics Model Assumptions: Companies in the same industry have similar resources and strategies; decision-makers are rational in pursuit of profits.

  • Resource-Based Theory Assumptions: Resource variations lead to competitive advantages, and resources are not easily movable across firms.

Associated Scholars

  • I/O Economics Primary Scholar: Michael Porter.

  • Resource-Based View Primary Scholar: Dr. Jay Barney.

Resources, Capabilities, and Competencies

  • Resources: Assets a company possesses (can be tangible or intangible).

  • Capabilities: The firm's capacity to deploy resources effectively.

  • Competencies: Collective skills or processes that provide competitive advantages.

  • Sequence: Resources → Capabilities → Competencies → Competitive Advantages.

  • Tangible Resources: Physical assets like machinery, buildings.

  • Intangible Resources: Non-physical assets like brand reputation, intellectual property.

SWOT Analysis

  • SWOT: Strengths, Weaknesses, Opportunities, Threats.