Dynamics: Competing Across Time

15 important questions on Dynamics: Competing Across Time

What is the essence of strategy in the view of Ghemawat?

The essence of strategy, in the view of Ghemawat is that the choice of a strategy is manifested in a few commitment-intensive investments.

Name the four aspects of the framework to analyze commitment-intensive decisions by Ghemawat.

1. Positioning analysis
2. Sustainability analysis
3. Flexibility analysis
4. Judgement analysis

Explain positioning analysis in the framework designed by Ghemawat.

Positioning analysis can be likened to determining the direct effects of the commitment. It involves analyzing whether the firm’s commitment is likely to result in a product market position in which the firm delivers superior benefits to consumers or operates with lower costs than competitors.
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Explain sustainability analysis in the framework designed by Ghemawat.

Sustainability analysis can be likened to determining the strategic effects of the commitment. It involves analyzing potential responses to the commitment by competitors and potential entrants in light of the commitments that they have made and the impact of those responses on competition.

Explain flexibility analysis in the framework designed by Ghemawat.

The culmination of positioning and sustainability analysis, in Ghemawat’s view, should be a formal analysis of the NPV of alternative strategic commitments. Positioning analysis provides the basis for determining the revenues and costs associated with each alternative.

Explain flexibility analysis in the framework designed by Ghemawat.

Flexibility analysis incorporates uncertainty into positioning and sustainability analysis. As discussed, flexibility gives the firm option value. Ghemawat points out that a key determinant of option value is the learn-to-burn ratio.

Explain judgement analysis in the framework designed by Ghemawat.

The final part of Ghemawat’ s framework is judgment analysis: taking stock of the organizational and managerial factors that might distort the firm’s incentive to choose an optimal strategy. Ghemawat notes that firms can make two types of errors in making commitment-intensive choices: (l) Type I errors—rejecting an investment that should have been made and (2) Type II errors—accepting an investment that should have been rejected.

What is the learn-to-buy ratio?

This is the ratio of the “learn rate”—the rate at which the firm receives new information that allows it to adjust its strategic choices—and the “burn rate”—the rate at which the firm invests in the sunk assets to support the strategy.

Name four practices in which firms can facilitate cooperative pricing.

1. Price leadership
2. Advance announcement of price changes
3. Most favored customer clauses
4. Uniform delivered price

Explain price leadership in cooperative pricing strategy.

Price leadership is a way to overcome the problem of coordinating on a focal equilibrium. In price leadership, each firm gives up its pricing autonomy and cedes control over industry pricing to a single firm.

Explain advance announcement of price changes in pricing strategy.

In some markets, firms will publicly announce the prices they intend to charge in the
future. For example, in chemicals markets firms often announce their intention to raise
prices 30 or 60 days before the price change is to take effect. These preannouncements
can benefit consumers, such as when cement makers announce prices weeks ahead of the
spring construction season, enabling contractors to bid on projects more intelligently.

Explain most favorite customer clauses in pricing strategy.

A most favored customer clause is a provision in a sales contract that promises a buyer
that it will pay the lowest price the seller charges. There are two basic types of most
favored customer clauses: contemporaneous and retroactive.

Explain uniform delivered prices in pricing strategy.

In many industries, such as cement, steel, or soybean products, buyers and sellers are
geographically separated and transportation costs are significant. In such contexts, the
pricing method can affect competitive interactions.

What is a tough commitment?

Tough commitments conform to the conventional view of competition as an effort to outdo one's rivals.

What is the puppy-dog ploy?

If the tactical variables are strategic complements and the commitment causes rival firms to behave more aggressively. The firm now has to forsake the commitment or underinvest in it.

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