Pre-recorded lectures
13 important questions on Pre-recorded lectures
Porter/ Bain type IO
5 forces -> generic strategies -> profitability
Two central question underlie the choice of competitive strategy / How does Porter see CA?
The second [FIRM EFFECT] is the determinants of relative position within an industry’ (1985: 1)
How does Porter explain differences in performance?
- Barriers to competition at the level of industries positively affect the average profitability of the firms in those industries
Strategic group effect
-Mobility barriers between strategic groups within anindustry positively affect the average profitability of the firms in those strategic groups (the strategicgroup effect)
Firm effect
- Positions of differentiation and/or low cost positively affect the relative profitability of individual firms within an industry or strategic group
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Major changes from 1985 Porter ->
Porter moves from the cross-sectional problem to the longitudinal problem
Cross-sectional problem =
related to positions at one moment in time
Longitudinal problem =
how firms get into those positions
Porter's value chain (1985)
- Value drivers: gets you the differentiation
- Cost drivers: gets you the low cost
- General idea: if you want to have differentiation/low cost positions, it comes down to what a firm does.
Porter's overall idea of strategy (Cross sectional to longitudinal)
- What are the ultimate causes in a longitudinal explanation?
--> Initial conditions
--> Managerial choices
Here we recognize Porter’s thinking in terms of structure and conduct:
--> Initial conditions =
local competitive conditions (Porter’s Diamond)
--> Managerial choices =
entrepreneurship (looking for new combinations, i.e.
innovation)
- ‘... the essence of strategy is choice.’
Porter 1996: what is strategy?
- The essence of strategy is choosing to perform activities differently than competitors do
- The entrepreneurial edge is finding new positions
- A sustainable strategic position requires trade-offs (they create the need for choice and purposefully limits what the company does)
- Competitive advantage arises from fit across activities.
Resource-based view (High & Low church)
- Core RBV (barney;Pateraf)
The Low Church (Aguments about: not resources (but capabilities) knowledge.
- Capabilities view (Diederickx)
- Knowledge-based view (grant)
- Dynamic Capabilities view (Teece)
Popular versions:
- Stalk et al. (1992): organizational capabilities
Ricardian logic of RBV
- Rent is an above normal return (a source of economic profit) that is ‘price determined
Assumptions land, labor, capital
- All markets are perfectly competitive
o Factor market for labor
o Factor market for capital
o Product market for end-products
-The most productive land is brought into production first
Note following about Land, Labor Capital
- Therefore, there are no negative consequences to social welfare (value creation is maximized)
- Ricardian rents are about the appropriation of value (how welfare is distributed)
- Ricardian rents are ‘price determined’ (landowner A earns an economic profit without doing anything
– i.e. simply by virtue of owning the land).
How did landowners come to earn the land?
- Having a heterogeneous resource for which you did not pay the full economic cost
Why would resources be inimitable?
- They can be fixed in supply
- They can be inelastic in supply
- They may be causally ambiguous
- They may be socially complex
- They may be path dependent (‘time compression diseconomies’)
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