Basm

Front 1

Make/Buy Trade-off

Back 1

Make in-house when quality needs and costs (opportunity, coordination, transaction "hold-up") are high, and has scale larger than MES to achieve EOS. Buy from market firms when scale is small, non-core business, and cost-adv.

Front 2

4 Benchmark Models

Back 2

1. Perfect (profit=0);
2. Monopoly (profit>0), no free entry;
3. Oligopoly (profit>0), restricted entry, few players, Bertrand or Cournot;
4. Monopolistic (profit=0), free entry, high competition

Front 3

Bertrand Competition

Back 3

Condition
1. Firms compete on price with homogeneous (undifferentiated) products;
2. Firms do not cooperate;
3. Consumers care only about lowest price.

Strategy
Firms tend to charge less than others to gain the whole market (usually achieved with a lower average cost - "limit pricing"). However, the only Nash Equilibrium result is to charge P=MC, where prices are strategic complements.

Front 4

Cournot Competition

Back 4

Condition
1. Firms compete on quantity with homogeneous (undifferentiated) products;
2. Firms do not cooperate;
3. Firms have market power, i.e. one firm's output decision affects the good's price;

Strategy
Duopoly equilibrium is represented with the best response function, where firms produce quantity that is strategically substitutes of each other

Front 5

Limit Pricing

Back 5

In a Bertrand competition, if one firm has lower average cost, it will take the entire market by charging just below the average cost of other firms. It will discourage entrance by making entry not profitable.

However, the quantity used as a threat to deter entry is no longer the incumbent firm's best response once entrant entered the market.

Front 6

Price Matching Guarantee

Back 6

Cooperative pricing that charges higher for loyal customers and warns competitors not to attempt to steal market share by undercutting prices. A form of explicit commitment that does not eliminate competitive pricing, but reduce it by discouraging competitors.

Front 7

Internal rivalry

Back 7

Even when N=2, internal rivalry could be high because of small search costs or switching costs, lack of capacity constraints and/or information frictions, or little product differentiation, etc.

Front 8

Cost Advantage Vs Benefit Advantage

Back 8

1. Demand is elastic
(a) cost advantage using share strategy - underprice
(b) benefit advantage using share strategy - price parity

2. Demand is inelastic
(a) cost advantage using margin strategy - price parity
(b) benefit advantage using margin strategy - premium pricing
A firm can be both if there is product differentiation, learning economy, and large scale.

Front 9

Demand side increasing return (DSIR)

Back 9

A product's value increases when the number of users increases. Such network effect/externalities is usually seen in internet products with "winner takes all" characteristic, for example Facebook or eBay.

Also referred to as "Demand side economy of scale".

Front 10

Multi-side Market

Back 10

1. Two-sided network effects: usage by one side of users increases the value of another side of users. (App developers-users; ebay sellers-buyers)

2. Same-side/direct network effects: usage by some users affects value for other users of the same side. (telephone; fax; social networks; online gamers)

3. Cross-side/indirect network effects: usage of one product affects the value of a complementary product or network, in turn increase its own value. (Office suite-OS; DVDs-DVD players).

4. Local network effects: The structure of an underlying social network affects who benefits from whom. A consumer is influenced by the decisions of a small subset of other consumers. (Instant messaging/Rapid Times Network).

Front 11

Vertical Integration

Back 11

1. To solve market failures/inefficiencies from (a) incomplete contracts; (b) uncertainty; (c) few players; (d) reduce high transaction costs (e) holdup from Relation-specific or site-specific investment
2. To achieve economy of scale: larger scale than MES
3. Make/Buy trade-off
4. To obtain market power by (a) double marginalization; (b) accessing to key inputs; (c) price discounts; (d) owning product lifecycle
6. To comply with regulation/legal/taxes incentives

Front 12

Consumer Surplus Parity

Back 12

Consumers are indifferent because they get the same net utility (benefit minus price paid)

Front 13

Collusive Pricing

Back 13

Firms collude to increase prices to equal to benefit (often to split and secure market share and to discourage entry), loss of sales is minimized, as consumers lack alternative choices at lower prices.

Equilibrium is usually not optimal. In repetitive games, discount rate has to be less than 50% in order for collusion to sustain for 2 firms.

Front 14

Two Part Tariff

Back 14

A price discrimination technique that consists of a lump-sum fee and a per-unit charge

Front 15

Monopolistic Vs Oligopoly Competition

Back 15

In monopolistic competition, there are many sellers and/or many close substitutes for the goods being produced, but nevertheless companies retain some market power, and marginal revenue < price. Oligopoly has fewer players and they strategically interact with each other.

Front 16

Market for Corporate Control

Back 16

Describing investors in equity markets managing corporate takeovers to make turn-around profit

Front 17

Gravitational Shift

Back 17

Completely shifts industrial rules. For example, wireless operator had to purchase from Apple instead of Apple signing exclusive contracts with operator

Front 18

Network Envelopment

Back 18

Combine networks by bundling network goods in one single platform or source. Keeping multi-homing cost high, which means it's costly to participate in multiple platforms.

Possible problem: Negative cross-side effect

Front 19

Winner Takes All Dynamic

Back 19

1. Multi-homing cost is high
2. Network effect is high
3. Platform differentiation is mixed (becoming generic)
4. Advertising market size too small to support more than 1 player

If not a WTA mechanism, better to share profit/market

Front 20

Agency Cost

Back 20

Cost incurred associated with problems such as divergent management-shareholder or corporate-business objectives, and information asymmetry.

Front 21

Economy of Scale

Back 21

1. Achieving lower cost by producing a lot when market demand is aggregated
2. Creating high multi-homing cost
3. Generate network effect

Front 22

Multi-homing

Back 22

Cost to participate in more than one platform/format

Front 23

Relationship-Specific Assets/Investments

Back 23

1. Asset has more value in one relationship than in other
2. Benefits only with complete contracts
3. High transaction cost when with incomplete contracts
4. Bargaining power of the investing side decreases
5. Higher economic rent/profit for non-investing side - higher holdup power "Quasi rent"