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STR203, Week 4 Notes

by: Danielle Katan

STR203, Week 4 Notes STR203

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Danielle Katan

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Notes from 2/2 and 2/4
Economic Theory of Organizations
Class Notes
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This 3 page Class Notes was uploaded by Danielle Katan on Thursday February 4, 2016. The Class Notes belongs to STR203 at a university taught by Gilbert in Spring 2016. Since its upload, it has received 54 views.

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Date Created: 02/04/16
STR203     February  2,  2016     *Disclaimer:  These  notes  are  intended  to  be  supplemental  to  the  provided   PowerPoint  presentations,  refer  to  blackboard  for  reference.     Every  market  à  only  so  much  profit  can  be  created,  limited     5  constituents  –  all  profit  split  among  them     Porters  5  forces     Price  competition  for  similar  models  –  capture  customer  attention     Ex.  trucking  company     Buying  power  –  large  leasing  company  à  “squeeze  down  price”  –Gilbert     Ex.  trucks,  parts,  new  entrants  (assemble  parts)   Supplier  capturing  majority  of  industry  value     • Intel  chips  (semiconductors)     • Microsoft  (operating  system)   • Boeing  (aircraft)   • A  lot  of  buying  power     • Walmart-­‐  large  buying  capabilities     o Sam’s  club  –  owned  by  same  people,  coordination     • Costco     • General  Electric     • Disney     Rivals     • Many  rivals  -­‐  most  observable,  some  employee  swap   o Different  if  commodity     o If  price  changes,  everyone  will  change  their  price,  many  rivals  –   notice  and  react     • Not  many  rivals  –  unnoticed  changes   o Equilibrium  and  balance     • Dominant  rival  –  big  player  in  market,  control  price,  “enforcer”   • Ex.  Saudi  nation  controls  gas  prices  –  gas  prices  are  low  as  a  result  of   lowering  prices  to  hurt  smaller  rivals  trying  to  play  around/work  with   competitors   Southwest  Airlines     • Point  to  point  vs.  spoke  and  hub     o Had  some  spoke  and  hub  because  of  acquisition     • Points  of  competition  –  price,  meals,  seating,  etc.;  end  up  being  investment   areas     • Decided  on  one  class  of  service,  eliminate  extras     o Improve  operating  margins     • They  value  –  friendly  service,  convenience  (storage),  more  departures,   increase  experience,  simple  and  cool     • Presented  attributes  differently  but  same  business,  convenience     • Picked  point  to  point,  fewer  locations     • Secondary  airports  –  lower  cost,  less  traffic/  hassle,  concentration  of  spare   parts  (only  use  one  kind  of  plane)     o Walmart  also  uses  secondary  locations  –  money  in  the  methodology     • Accountability  –  employees  on  flight  to  assure  service/audit     • Strategy  à  what’s  important  to  customer  is  also  important  ot  staff     • Driven  by  speed,  arriving  at  destination  on  time     Messaging  has  to  match  delivery,  execution  tied  to  performances     Margins  –  study  and  understand  other  competitors     Analytics  are  very  important  for  decision-­‐making       February  4,  2016   Supplier  power  –  protected,  advantage     • Legal  –  copyright/patent  position     o Patents  are  publically  available  while  under  review,  companies  are   getting  smarter  about  releasing  method  patents,  keeping  more  things   internally     • Physical  –  location,  etc.     • Knowhow     o Ex.  Southwest  airlines  method  –  did  actions  that  all  airlines  do   differently     • Contracts     Security  –  intranet  within  companies,  difficulties  for  cloud  computing     Buyers  –  care  about  whether  product  meets  requirements/distribution  capabilities,   different  than  a  consumer  who  may  care  about  brands     Threat  of  new  entrant  –  barriers  restricting  entry,  ex.  Legal,  physical,  knowhow,   capital  intensity   Schumpeter  –  entrepreneurs  create  value;  new  capability,  delivery  system  or  ease  of   use     • Thought  recessions  were  good,  force  certain  underperforming  firms  out  of   system     • Reshaping  attributes  delivered  to  a  customer     • Inventions  –  high  risk  factor  vs.  innovation  –  new  feature     • Different  configuration  creates  opportunity     • Didn’t  use  the  word  “entrepreneur,”  rather  individual  risk  takers     • Encourage  competition  à  drives  innovation     Clayton  Christensen  –  Disruptive  technology     Used  to  take  108  men  5  days  to  fill  a  ship  with  timber,  now  it  takes  8  men  1  day   (introduction  of  machinery  and  containers)  –  creative  destruction     Kodak  –  new  market  (slightly  digitized  products)  wasn’t  growing  as  quickly  as  the   older  film  market  had     • Took  huge  revenue  cuts,  needed  cash,  took  blows  to  cash  flow     o Decrease  dividends,  corporate  spending   • “When  you  come  to  a  fork  in  the  road,  take  it!”  –Yogi  Berra     • Should  have  promoted  digitized  products  as  a  separate  brand,  or  license  out   technology  to  other  photo  giants     Organizations  don’t  have  smooth  paths,  “lurching  forward”     Not  everything  that  changes  is  creative  destruction  –  first  isn’t  necessarily  best     Many  early  tech  developments  not  successful       Ex.  Apple  early  table,  the  “Newton”  or  video  chat  phones   Important  how  you  shape  product  in  marketplace,  ex.  Corporate  vs.  personal   intended  use/price  range     Gerber-­‐  population  births  going  down,  developed  new  product  “Gerber  Singles”     Everything  developed  is  not  necessarily  an  advance     Economic  perspective:     • Buyer  power  –  buyer  size  vs.  industry  as  a  whole,  and  buyer’s  margins     • Seller  –  similar  substitutes,  cost  of  switching     • Rivals  –  growth  rate  of  industry,  intensity     o High  fixed  costs?  Struggle  if  revenue  decreases     • New  entrants  –  unrecoverable  capital  from  startup,  prices  lowered?  How   similar  are  alternatives?     • Value/price  –  trying  to  capture  consumer  surplus     Who  gets  the  surplus?   • Buyers  and  sellers  –  haggling  determines  who  gets  surplus     o If  buyer  understands  sellers  cost  structure  or  company,  can  put  up  a   better  argument     • More  buyers  (2  buyers  1  seller)  –  seller  loses  surplus  (seems  counterintuitive   with  next  example,  said  he  would  explain  further  in  next  class)   o Buyer  power  –  depends  on  market  share;  strength  if  large  part  of   market  or  they  have  info  that  can  capture  greater  reward     • More  sellers  (1  buyer  2  sellers)  –  buyer  gets  surplus,  sellers  compete  and   drive  prices  down    


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