Competitive Solutions: The Strategist's Toolkit / Edition 1

Competitive Solutions: The Strategist's Toolkit / Edition 1

5.0 3
by R. Preston McAfee
     
 

"A fascinating read-combining economics and strategy. Just what we need at Samsung."—John Shin, Senior Consultant in Strategy and Leadership, Samsung Electronics, Ltd.

"Preston McAfee has produced a superb, remarkably comprehensive book on competitive strategy. It is accessible, accurate, and entertaining! Students will stay awake reading it. At its

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Overview

"A fascinating read-combining economics and strategy. Just what we need at Samsung."—John Shin, Senior Consultant in Strategy and Leadership, Samsung Electronics, Ltd.

"Preston McAfee has produced a superb, remarkably comprehensive book on competitive strategy. It is accessible, accurate, and entertaining! Students will stay awake reading it. At its core are numerous examples from actual business settings that are clearly relevant to today's strategist."—Peter Cramton, University of Maryland

"This is a very good book that goes a long way toward filling the need for a work on the economics of competition. It has the potential to substantially improve courses in competitive strategy. The coverage is wonderful, the examples are interesting, the informal arguments are excellent, and the style is engaging."—Mark Satterthwaite, Kellogg School of Management, Northwestern University

"The very readable style, accessibility, and richness and recentness of examples differentiate this book from some of its competitors in a way that should make it popular with students. McAfee clearly knows his subject well, understands the connections between the theoretical and empirical scholarship in the economics of strategy and the practical challenges faced by strategists, and draws on the latest academic literature and a variety of relevant examples in making his points."—Eric Zitzewitz, Stanford Business School

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Product Details

ISBN-13:
9780691124032
Publisher:
Princeton University Press
Publication date:
07/25/2005
Edition description:
New Edition
Pages:
424
Product dimensions:
5.70(w) x 8.80(h) x 1.10(d)

Table of Contents

Preface xiii

Preamble xiii

Contents xvi

What Is Strategy? xviii

Acknowledgments xix

Chapter 1. Introduction 1

Executive Summary—Introduction 7

Chapter 2. Industry Analysis 9

The Five Six Forces 9

Entry 11

Buyer Bargaining Power 16

Supplier Bargaining Power 18

Substitute Products 18

Rivalry 19

Complements-The Sixth Force 23

Strategies for Complements 26

Industry Structures 27

Fragmented Industry 28

Dominant Firm 30

Tight Oligopoly 33

Loose Oligopoly 34

Executive Summary -Industry Analysis 34

Chapter 3. Firm Strategies 36

Value/Cost Strategies 36

Quality Choice without Competition 37

Games and Best Responses 38

The Effects of Competition on Quality Choice 42

Accommodation and Dissuasion 44

Low-Cost Strategy 45

Cream-Skimming 47

Coherent Strategies 48

The Three-Layer Model 50

Stuck in the Middle 56

Dealing with Competitors 57

Executive Summary—Firm Strategies 58

Chapter 4. Differentiation 61

Competition in Differentiated Products 63

Creating Synergies 70

Quality Complementarities 74

Networks 75

Technological Races 78

Patent Strategy 80

Hedonic Prices 85

Executive Summary—Differentiation 89

Chapter 5. Product Life Cycle 91

Introduction 95

Growth 97

Maturity 98

Decline and Replacement 101

Summary of the Product Life Cycle 105

The Life Cycle for Durable Goods 108

Executive Summary—Product Life Cycle 112

Chapter 6. Cooperation 113

Cooperation on a Variety of Issues 113

Tacit Collusion 116

Shared Interest 116

Punishment 119

Recovery 124

Problems of Tacit Cooperation in Price 127

Confessions 128

Many Producers 129

Differentiated Products 129

Reaction Time 130

Environmental Randomness 132

Motivating Managers 132

Efficient Allocation within a Cartel 133

Unenforceable Contracts 135

Risky Communication 135

Small or Failing Firms 135

Entry and Substitutes 136

Competition in Other Dimensions 137

Solutions to Tacit Cooperation Problems 138

Industry Association 138

Published Price Lists 139

Exclusive Territories 139

Preannouncing Future Price Increases 140

The Capture Theory 140

Incrementalism 141

Multimarket Contact 142

Multilevel Contact 144

Unused Capacity 144

Grow or Crush Small or Bankrupt Firms 145

Executive Summary—Cooperation 146

Chapter 7. Organizational Scope 148

Make or Buy Decisions 151

Tapered Integration 158

The Multidivisional Firm 160

Transaction Costs 163

Prices or Quantities 170

Net Present Value 172

Project Selection and Risk Assessment 179

Executive Summary—Organizational Scope 184

Chapter 8. Incentives 187

Agency 188

Efficiency Wages 191

Making Firms More Aggressive 192

Agent Selection 193

Managing Creative Talent 194

Multitasking 195

Common Agency 199

Tournaments and Yardstick Competition 201

Ratchet Effect 202

Executive Summary—Incentives 203

Chapter 9. Antitrust 204

Major Laws 204

Sherman Act (1890) 205

Clayton Act (1914) 206

FTC Act (1914) 209

Exemptions and Special Treatment 210

Predation, Foreclosure, and Tying 211

Mergers 214

DOJ Guidelines for Horizontal Mergers 216

Vertical Mergers and Antitrust Enforcement 221

Executive Summary—Antitrust 224

Chapter 10. Elementary Statistics 225

Opinion Polls 226

The Precision of Statistics 234

The Normal Distribution or Bell Curve 236

Conditional Probabilities and Correlation 239

The Predator Theory of Tornadoes 244

Sample Selection Bias 246

The Hot Hand 247

Option Values 251

Scenario Analysis 255

Executive Summary—Elementary Statistics 258

Chapter 11. Pricing 260

Illustrative Examples 262

International Pricing by the Pharmaceutical Companies 262

Methyl Methacrylate 262

Hand-Me-Down by Armani 264

IBM LaserPrinter E 264

Sony MiniDisc 265

An Electric Utility's Individualized Pricing 265

IBM's Punchcard Metering 266

Buying Paint from an Airline 266

Direct Price Discrimination 268

Indirect Price Discrimination 273

Coupons 273

Quantity Discounts 274

Product Branding 276

Product Bundling 277

Peak-Load Pricing 278

Yield Management 281

Theatrical Yield Management 284

Robert Crandall on Airline Pricing 285

Competition and Price Discrimination 288

How to Soften Price Competition 289

Opportunism and Exclusive Dealing 289

Create Competition by Licensing 292

Vertically Integrate with the Buyers 292

Long-Term Contracts 292

Exclusive Contracts 293

Most-Favored-Customer Clauses 293

Uniform, Simple Contracts 294

Pricing of Complements 295

Price Dispersion and the Theory of Sales 297

Executive Summary—Pricing 300

Chapter 12. Auctions 303

Bidding 303

The English Auction 304

The Sealed-Bid Auction 305

The Winner's Curve 307

Updating 311

Selling Strategy and Auction Design 312

When to Auction? 320

Executive Summary—Auctions 322

Chapter 13. Signaling 324

Signaling in Action 324

Law Firms' Marbled Buildings 324

Service Plans and Warranties 325

The $25,000 Rolex Watch 327

Body Language 327

Education 328

Full Product Line 331

Appearing Informed in an Auction 333

Tylenol Recall 333

Lemons 337

Introductory Offers and Advertising 340

Entry Deterrence 342

Leadership 344

Acting Tough 345

Vaporware 348

Product Failures 349

Signaling Psychosis 350

Executive Summary—Signaling 351

Chapter 14. Bargaining 353

Basic Theory 353

Delay 356

The War of Attrition 357

Lawsuits 360

Drug Wars 361

BSB versus Sky TV 364

Holdup 364

Contract Design and Verification 366

Verification and Observability 367

Renegotiation Proofness 369

Breach Penalties 370

Strategic Ambiguity 372

Delegation 373

Exploding Offers 373

Multilateral Bargaining 374

Cheap Talk 376

Executive Summary—Bargaining 378

Chapter 15. Last Words 379

Sustaining Competitive Advantages 379

Endnotes: Sources and Caveats 381

Index 393

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