MGSC01H3 Lecture 1: Lecture 1
Document Summary
Strategy is a firm"s choice of where to compete and how to compete. Good firm strategy leads to sustained higher profits than competitors and thus better return on investment. Classic framework: attractive industry structure: high returns for the average firm. Identify the players: example: everyday groceries > urban customers, neighborhood. Assess the strength of each force: rivalry among existing competitors: threat of price wars is high if: Cross price elasticity formula: scarcity/threat of complements: complementary industries offer cooperation opportunities. Two industries offer complementary products if the cross-price elasticity between the 2 products is negative. Examples: web browser and internet search engine, gaming console and game software (xbox was able to enter the market dominated by ps2 with halo bundling) Is cooperating with a complement necessarily good: similar to supplier power - if a complement industry is too powerful (concentrated market, high switching costs, etc), then it diminishes industry profit. Assess the recent & future changes in each force.
