Scribd
Upload
28 views

Chapter 2 - Market Imperfections and Value: Strategy Matters

This document discusses market imperfections and strategies for achieving competitive advantage. It summarizes Porter's five forces model for assessing industry attractiveness. Firms can establish sustainable competitive advantage by changing industry characteristics, creating barriers to entry, or developing product or cost advantages. The document also outlines ways to reduce threats from new entrants, buyers, suppliers, and substitutes. Developing the right strategy is key to utilizing market imperfections and creating wealth.

Uploaded by

Kazi Hasan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
28 views

Chapter 2 - Market Imperfections and Value: Strategy Matters

This document discusses market imperfections and strategies for achieving competitive advantage. It summarizes Porter's five forces model for assessing industry attractiveness. Firms can establish sustainable competitive advantage by changing industry characteristics, creating barriers to entry, or developing product or cost advantages. The document also outlines ways to reduce threats from new entrants, buyers, suppliers, and substitutes. Developing the right strategy is key to utilizing market imperfections and creating wealth.

Uploaded by

Kazi Hasan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 11

Chapter 2 --Market Imperfections

and Value: Strategy Matters

Conditions necessary for a perfectly competitive


product market and resource market:
No

market power
no producer is large enough to influence prices
Identical product
Identical cost
No restrictions on entry or exit
Complete information
like information and expectations

Sustainable Competitive
Advantage
Sustainable competitive advantage is the
elimination of perfect competition for a
sustainable period of time so as to provide
economic profit
Depends on:

Industry

characteristics
Company actions
Product features or cost advantages

Assessing the Industry -Porters Five Forces


Threat of new entries
Bargaining power of buyers
Bargaining power of suppliers
Threat of substitutes
Rivalry among existing firms

Competitive Strategy. Free Press, 1980

Ways to Reduce the Threat of


New Entries
Economies of scale
Patents, copyrights, & trade secrets
Regulation
Switching cost to customer
Stability of demand
Time needed to add capacity
Customer loyalty

Ways to Decrease the


Bargaining Power of Buyers
Product differentiation
Information available to buyers
Customer interest in features vs. price
Price as a percent of buyers income
Switching costs for buyer
Difficulty of copying product advantages

Factors Influencing the Bargaining


Power of Suppliers

Five factors in the market for inputs


Threat

of new suppliers entering


Bargaining power with regard to our suppliers
Bargaining power of our suppliers
Threat that we will switch to substitute inputs
Rivalry among existing suppliers

Threat of vertical integration

Threat of Substitutes

Examples include:
Drive

vs. fly
Oil vs. gas heat
Chicken vs. beef
Home equity loan vs. auto loan

The closer the substitutes, the more limited


the power of the seller

Rivalry Among Firms

Goals of competitors
Profit

vs. size, for example

Strength of competitors
Cost

advantage or disadvantage
Financial strength

Intelligence of competitors

Creating Competitive
Advantage on 3 Fronts

Change or take advantage of some industry


characteristics or market imperfection
Create

barriers to entry

Create some form of product advantage


Distribution

advantage

Create some form of cost advantage


Pricing

strategy
Information management

Using Strategy to Create Wealth

Steps to strategic planning

Establish goals
Assess the environment -- opportunities and threats
Assess the organization -- strengths and weaknesses
Develop a strategy
Develop operating processes that support the strategy -marketing, distribution, production, capital budgeting, financing
Implement, monitor and control
Evaluate and reward

Summary

Wealth creation is impossible in a perfect market


Porters five forces can be used to evaluate the industries
in which the firm operates or plans to to enter
A strategy should be developed that allows the firm to
utilize market imperfections to establish a sustainable
competitive and consequently an economic profit or
positive net present value
Economic profit comes from competitive advantage in:
Dealing with customers
Dealing with financial markets

You might also like