Economics of Business Strategy

Economics of Business Strategy

John Wilson, John Lipczynski

Language: English

Pages: 344


Format: PDF / Kindle (mobi) / ePub

This new textbook examines how industry environment and business strategies determine company performance. It provides an introduction to the economics of business strategy, introducing key concepts drawn from microeconomics, industrial organisation, business economics, business environment, organisation studies and strategic management. The book is written for the growing number of courses at MBA, undergraduate, and foundation level where readers require not only an integrated theoretical framework in economics and management, but also the practical skills and knowledge to examine how and why firms behave in certain ways in the real world.





















return for their R&D investments. Thus firms face the potential risk of ‘gambler’s ruin’, whereby an investment can lead to no tangible asset to sell off in the event of failure. • By granting monopoly status, patents tend to protect innovating firms rather than inventing firms, and some firms may use a strategy of pre-emptive patenting to limit competition. It might be argued that greater competition is needed at the innovation stage to help the diffusion process. • It is also important to

Cambridge University Press. Part Four Analysis of Government Policy 11 Government and Business Objectives By the end of this chapter, the reader should be able to understand: • why governments intervene in industry • the rationale for competition policy and be aware of the evolution of such policies in the UK and Europe • and assess the pros and cons of privatisation and how privatised industries have been regulated in the UK • the differences between rate of return and price

have been forwarded in favour of privatisation. These are now discussed in turn. Increased competition in product and service markets The privatisation of industries has often been accompanied by increased competition. The introduction of competition leads companies to strive to minimise costs. The reduction in costs is likely to lead to a reduction in prices and a wider choice of products and services available to consumers. Overall, market forces will lead to less bureaucracy, waste and

objectives (discussed in Case Study 3.1), its organisational form (further discussed in Chapters 9 and 10) and the type of product sold (in Chapter 7) can all affect the price charged. The emphasis in much of this text is on marginal cost pricing, where the firm sets a price at the profit-maximising level of output (i.e. where marginal costs are equal to marginal revenues). Empirical research suggests that firms often follow other types of pricing strategy. Most early evidence suggested that

understand the term. The theory of perfect competition as we have described earlier begins the study of competition by assuming that all market participants know all the relevant facts. This is perhaps unrealistic as it excludes discussion of many real-world features of rivalry, which are central to the notion of competition in practice. Paradoxically, competition under perfect competition is at its most intense where there is actually no rivalry. Nonetheless, perfect competition remains very

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