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3 Cards in this Set
- Front
- Back
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Market economy economic organisations |
Market mechanism - invisible hand Individuals and firms make independent decisions guided by market price on what to buy. There are contracts and agreements on shorter term specifics Administrative mechanism - visible hand Managers make decisions in regards to production and resources allocation. Contracts and agreements on long term employment. Managerial control. |
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Vertical integration |
Make or buy? Having several parts of the production chain or focusing on what we do best and outsource the rest. Cost saving through linking production. Not explaining why common ownership is necessary. Helps avoid costs of market, but gives administrative costs instead. Cost can depend on differences in scale, managing different kinds of businesses, flexibility of firm, risk etc |
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Diversification |
Product scope. Two parts, growth and risk reduction. Maintaining growth - mature industries give cash flow. Appeals to management, likes being big. Risk reduction - reduces risk of bankruptcy, diversifies risk through portfolio. Competitive advantage from diversification. Economies of scope. When you can use a resource for several different types of product. Diversification makes most sense when a company has exhausted growth potential in traditional industry. |
