What determines a firms competitive advantage?
Ability to create more value than competitors
Value = maximum willingness to pay (B) - costs (C)
How is value created and distributed?
value created = B - C > 0
Consumer surplus = B - P (willingness to pay - price)
Producer Surplus = P - C (price - costs)
What are the generic strategies for strategic positioning?
cost leadership
Benefit leadership
Focus leadership
How can leadership be achieved?
Same value with lower costs than competitors
Lower value with significantly lower costs
Offering a distinct product
How can benefit leadership be achieved?
higher value at the same cost
Substantially higher perceived value at slightly higher costs
Exceptionally high perceived value at markedly higher costs
How do firms extract profits through pricing?
cost leaders: Price slightly below competitors unit costs
Benefit leaders: price equals unit costs plus the perceived value differences
What is the Resource-Based View (RBV) of the firm
Competiveness depends on internal resources
Firms compete based on resource strengths and weaknesses
The main types of resources in RBV are…
… physical capital (technology / equipment / …)
… human capital (experience / intelligence / …)
… organizational capital (planning / coordination systems / …)
What two assumptions underlie RBV
heterogeneity: firms have unique resources
Immobility: resources are not perfectly transferable across firms
Name 3 critiques of RBV
lacks managerial implications
May be tautological
Hard to disprove empirically
How does pentoxide economics view firms
Firms are bundles of resources and administrative frameworks
Managerial skill is crucial for resource exploitation
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