The economic foundations of theories in strategy
12 important questions on The economic foundations of theories in strategy
What does the large numers assumption means?
- decreasing returns
- a large number of buyers and sellers
- firms are pricetakers
--> nobody has power over price, nobody is a monopolist.
What does the homogeneity assumption mean?
- Demand is homogeneous
- standardized products
--> consumers want the same thing
What does the mobility assumption mean?
- Resources are perfectly mobile
- free entry and exit
--> entry/exit to markets are free
--> idea of production function: how we can combine different input into output.
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What does the rationality assumption mean?
- Buyers and sellers have complete information and maximize their utility and profit
--> homo economicus: the way how we make decisions.
What does the transaction cost assumption mean?
Transactions are costless
--> Transactions without any costs--> problematic and impossible
What are the characteristics of the Neoclassical Economics?
- Input combiner (view of firm)
- Price mechanism (central concept)
- Market imperfections (source of pf differentials)
- Adjust price and production volume (Role of mgt)
What are the characteristics of the Transaction Cost Theory (TCT)?
- Efficiency seeker (view of firm)
- Transaction cost (central concept)
- Efficiency (source of pf differentials)
- Make or buy decisions (role of mgt)
What are the characteristics of the Agency Theory?
- Hierarchy (view of firm)
- Monitoring cost (central concept)
- Efficiency (source of pf differentials)
- Supervision & Control (role of mgt)
What are the characteristics of the Bain-type IO?
- Output restrainer (view of firm)
- S-C-P: industry structure (central concept)
- Market power (source of pf differentials)
- Develop advantageous market position (role of mgt)
What are the characteristics of the Chicago School?
- Efficiency seeker (view of firm)
- Information costs (central concept)
- Efficiency (source of pf differentials)
- Look for efficiencies in production and distribution (role of mgt)
What characterises Schumpeter?
- Seeking new combinations (view of firm)
- Creative destruction (central concepts)
- Innovation (source of pf differentials)
- Make competitors position obsolete= verouderd (role of mgt)
What characterises the Resource- Based View?
- Resource combiner (view of firm)
- Firm heterogeneity (central concepts)
- Costly to copy resources (source of pf differentials)
- Acquire, develop and maintain unique resources (role of mgt).
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