Economics of Strategy 7th Edition Dranove Test Bank
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Economics of Strategy 7th Edition Dranove Test Bank
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Product details:
- ISBN-10 : 1119042313
- ISBN-13 : 978-1119042310
- Author: David Dranove
Economics of Strategy, Binder Ready Version focuses on the key economic concepts students must master in order to develop a sound business strategy. Ideal for undergraduate managerial economics and business strategy courses, Economics of Strategy offers a careful yet accessible translation of advanced economic concepts to practical problems facing business managers. Armed with general principles, today’s students–tomorrows future managers–will be prepared to adjust their firms business strategies to the demands of the ever-changing environment.
Table of contents:
Introduction: Strategy and Economics 1
Why Study Strategy? 1
Why Economics? 2
The Need for Principles 2
So What’s the Problem? 3
A Framework for Strategy 5
Boundaries of the Firm 6
Market and Competitive Analysis 6
Positioning and Dynamics 6
Internal Organization 6
The Book 7
Endnotes 7
Economics Primer: Basic Principles 8
Costs 9
Cost Functions 9
Total Cost Functions 9
Fixed and Variable Costs 11
Average and Marginal Cost Functions 11
The Importance of the Time Period: Long-Run versus Short-Run Cost Functions 14
Sunk versus Avoidable Costs 16
Economic Costs and Profitability 17
Economic versus Accounting Costs 17
Economic Profit versus Accounting Profit 18
Demand and Revenues 18
Demand Curve 18
The Price Elasticity of Demand 19
Brand-Level versus Industry-Level Elasticities 22
Total Revenue and Marginal Revenue Functions 22
Theory of the Firm: Pricing and Output Decisions 23
Perfect Competition 25
Game Theory 29
Games in Matrix Form and the Concept of Nash Equilibrium 30
Game Trees and Subgame Perfection 31
Chapter Summary 33
Questions 33
Endnotes 34
Part One Firm Boundaries 35
1 The Power of Principles: An Historical Perspective 37
Doing Business in 1840 37
Business Conditions in 1840: Life without a Modern Infrastructure 39
Transportation 39
Communications 40
Finance 41
Production Technology 42
Government 42
Doing Business in 1910 44
Business Conditions in 1910: A “Modern” Infrastructure 45
Production Technology 45
Transportation 45
Communications 46
Finance 46
Government 46
Doing Business Today 48
Modern Infrastructure 49
Transportation 49
Communications 49
Finance 50
Production Technology 50
Government 50
Infrastructure in Emerging Markets 51
Three Different Worlds: Consistent Principles, Changing Conditions, and Adaptive Strategies 52
Chapter Summary 52
Questions 53
Endnotes 54
2 The Horizontal Boundaries of The Firm 55
Definitions 55
Definition of Economies of Scale 55
Definition of Economies of Scope 57
Scale Economies, Indivisibilities, and the Spreading of Fixed Costs 57
Economies of Scale Due to Spreading of Product-Specific Fixed Costs 58
Economies of Scale Due to Trade-offs among Alternative Technologies 58
Indivisibilities Are More Likely When Production is Capital Intensive 60
“The Division of Labor is Limited by the Extent of the Market” 62
Special Sources of Economies of Scale and Scope 64
Density 64
Purchasing 65
Advertising 65
Costs of Sending Messages per Potential Consumer 65
Advertising Reach and Umbrella Branding 66
Research and Development 66
Physical Properties of Production 67
Inventories 67
Complementarities and Strategic Fit 68
Sources of Diseconomies of Scale 68
Labor Costs and Firm Size 69
Spreading Specialized Resources Too Thin 69
Bureaucracy 69
Economies of Scale: A Summary 70
The Learning Curve 70
The Concept of the Learning Curve 70
Expanding Output to Obtain a Cost Advantage 71
Learning and Organization 73
The Learning Curve versus Economies of Scale 74
Diversification 75
Why Do Firms Diversify? 76
Efficiency-Based Reasons for Diversification 76
Scope Economies 76
Internal Capital Markets 77
Problematic Justifications for Diversification 78
Diversifying Shareholders’ Portfolios 78
Identifying Undervalued Firms 78
Reasons Not to Diversify 79
Managerial Reasons for Diversification 79
Benefits to Managers from Acquisitions 79
Problems of Corporate Governance 80
The Market for Corporate Control and Recent Changes in Corporate Governance 81
Performance of Diversified Firms 83
Chapter Summary 85
Questions 86
Endnotes 88
3 The Vertical Boundaries of The Firm 90
Make versus Buy 90
Upstream, Downstream 92
Defining Boundaries 94
Some Make-or-Buy Fallacies 94
Avoiding Peak Prices 95
Tying Up Channels: Vertical Foreclosure 96
Reasons to “Buy” 98
Exploiting Scale and Learning Economies 98
Bureaucracy Effects: Avoiding Agency and Influence Costs 101
Agency Costs 101
Influence Costs 102
Organizational Design 104
Reasons to “Make” 104
The Economic Foundations of Contracts 104
Complete versus Incomplete Contracting 105
Bounded Rationality 105
Difficulties Specifying or Measuring Performance 106
Asymmetric Information 106
The Role of Contract Law 106
Coordination of Production Flows through the Vertical Chain 107
Leakage of Private Information 109
Transaction Costs 110
Relationship-Specific Assets 111
Forms of Asset Specificity 111
The Fundamental Transformation 112
Rents and Quasi-Rents 112
The Holdup Problem 113
Holdup and Ex Post Cooperation 115
The Holdup Problem and Transaction Costs 115
Contract Negotiation and Renegotiation 115
Investments to Improve Ex Post Bargaining Positions 116
Distrust 116
Reduced Investment 117
Recap: From Relationship-Specific Assets to Transaction Costs 117
Summarizing Make-or-Buy Decisions: The Make-or-Buy Decision Tree 118
Chapter Summary 119
Questions 119
Endnotes 122
4 Integration and Its Alternatives 124
What Does It Mean to Be “Integrated”? 124
The Property Rights Theory of the Firm 124
Alternative Forms of Organizing Transactions 125
Governance 127
Delegation 128
Recapping PRT 128
Path Dependence 129
Making the Integration Decision 129
Technical Efficiency versus Agency Efficiency 130
The Technical Efficiency/Agency Efficiency Trade-off 130
Real-World Evidence 134
Double Marginalization: A Final Integration Consideration 136
Alternatives to Vertical Integration 138
Tapered Integration: Make and Buy 138
Franchising 138
Strategic Alliances and Joint Ventures 140
Implicit Contracts and Long-Term Relationships 143
Business Groups 145
Keiretsu 145
Chaebol 147
Business Groups in Emerging Markets 148
Chapter Summary 149
Questions 150
Endnotes 151
Part Two Market and Competitive Analysis 153
5 Competitors and Competition 155
Competitor Identification and Market Definition 156
The Basics of Market Definition and Competitor Identification 156
Putting Competitor Identification into Practice 157
Empirical Approaches to Competitor Identification 158
Geographic Competitor Identification 160
Measuring Market Structure 162
Market Structure and Competition 163
Perfect Competition 163
Many Sellers 164
Homogeneous Products 164
Excess Capacity 165
Monopoly 166
Monopolistic Competition 168
Demand for Differentiated Goods 168
Entry into Monopolistically Competitive Markets 169
Oligopoly 170
Cournot Quantity Competition 171
The Revenue Destruction Effect 174
Cournot’s Model in Practice 175
Bertrand Price Competition 175
Why Are Cournot and Bertrand Different? 177
Bertrand Price Competition When Products Are Horizontally Differentiated 179
Evidence on Market Structure and Performance 181
Price and Concentration 181
Chapter Summary 182
Questions 182
Endnotes 184
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