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An introduction to strategy …competitive advantage. An overview of corporate strategy Strategic analysis Implementation Sustaining a competitive advantage Strategic behaviour - price, advertising... Oligopolistic markets Types of oligopoly. Strategic analysis. 1. Strategic core

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an introduction to strategy competitive advantage
An introduction to strategy…competitive advantage
  • An overview of corporate strategy
    • Strategic analysis
    • Implementation
    • Sustaining a competitive advantage
  • Strategic behaviour - price, advertising...
    • Oligopolistic markets
    • Types of oligopoly
strategic analysis
Strategic analysis
  • 1. Strategic core
    • specific assets = competitive advantage
  • 2. Analysis of the environment
    • e.g. demand analysis, suppliers, finance, competitors
    • e.g. government policy, potential competitors
    • e.g. social & cultural changes
  • 3. Choosing a strategy
    • market selection e.g. profit, growth, market share
    • product positioning
implementation of strategy
Implementation of strategy
  • Business organisation & control
  • Strategic linkages
    • within and between firms
    • vertical or horizontal linkages
    • e.g. alliances or joint ventures
sustaining a competitive advantage
Sustaining a competitive advantage
  • 1. Anticipate rival’s actions
  • 2. Control rival’s actions
    • erect barriers to entry e.g. limit pricing, patenting
  • 3. Credibility
  • 4. Strategic linkages
  • 5. Sun Zhu (500BC)
    • ‘…he who occupies the field of battle first and awaits his enemy is at ease; he who comes later to the scene and rushes into the fight is weary.’
    • first-mover advantage
oligopoly
Oligopoly
  • Exists when
    • small number of firms
    • interdependence
  • Examples
    • Tobacco, Motor Vehicles, Aerospace
    • ‘local’ petrol station
  • Other characteristics?
characteristics
Characteristics
  • (i) Type of product
      • homogenous or unique
  • (ii) Blockaded entry & exit
      • e.g. scale economies (breweries)
      • e.g. ownership of factors
      • e.g. aggressive tactics (supermarkets, newspapers)
  • (iii) Imperfect information
types of oligoploy
Types of oligoploy
  • (i) Collusive
      • co-operation, non-competition
      • cartels
  • (ii) Tacit collusion
      • e.g. price changes
      • kinked demand model
  • (ii) Non-collusive
      • competition
      • game theory
tacit collusion kinked demand model
Tacit collusion - kinked demand model
  • Predictions
    • Price stability
    • Despite variations in costs
  • Why?
    • Rival firms match price cuts
    • Rivals do not match price rises
  • MC may rise but profit maximising P,Q are unchanged
  • Construction of model
non collusive oligopoly
Non-collusive oligopoly
  • Game theory
    • …how to gain a competitive edge and steal market share
    • Firms = players
    • Behaviour = strategic
    • Rewards = payoffs
  • Simple model - two car dealers
    • Act independently, rational
    • Simultaneous decisions
advertising a price honest dealer
Advertising a price - honest dealer

Dodgy dealer

Honest

dealer

advertising a price honest dealer1
Advertising a price - honest dealer

Dodgy dealer

4. Worst outcome

for ‘Honest’

1.If ‘Dodgy’ = High,

‘Honest’ = greater

profit

Honest

dealer

3. Best outcome

for ‘Honest’

2. Ignoring ‘Dodgy’, profit is lower if ‘Honest’=High

pricing decision interdependent
Pricing decision - interdependent
  • Outcome is uncertain
  • Questions
    • If ‘Honest’ believes ‘Dodgy’ will advertise a low price, what is her best strategy?
      • Answer: Advertise a low price
  • But, ‘Dodgy’ may not advertise a low price
    • What is her best strategy if she believes ‘Dodgy’ will advertise a high price?
      • Answer: Low price
  • For ‘Honest’, low price strategy dominates the high price strategy
dominant strategy
Dominant strategy
  • Definition
    • ‘…is one that is always strictly better than every other strategy for that player regardless of the strategies chosen by other players.’
  • ‘Dodgy’ dealer asks the same questions
    • Payoff matrix
    • Dominant strategy = low price
dominant strategy equilibrium
Dominant strategy equilibrium

‘Dodgy dealer’

‘Honest’

dealer

‘best strategy’ regardless of competitor strategy

nash equilibrium non cooperative
Nash equilibrium - non-cooperative
  • ‘…the outcome resulting from each firm making its optimal decision based on their assumptions about their rivals decisions.’
    • equilibrium also = low price
  • A high, high strategy is superior, but unstable
    • …because one player could switch to a ‘low’ price
    • … to gain market share...