Economics of Strategy An Indian Adaptation

Introduction: Strategy and Economics

Why Study Strategy?
Why Economics?
Disciplinary Interdependence
The Need for Principles
So What’s the Problem?
A Framework for Strategy
Boundaries of the Firm
Market and Competitive Analysis
Positioning and Dynamics
Internal Organization
The Book
Endnotes

Economics Primer: Basic Principles

Costs
Cost Functions
Total Cost Functions
Fixed and Variable Costs
Average and Marginal Cost Functions
The Importance of the Time Period: Long-Run versus Short-Run Cost Functions
Sunk versus Avoidable Costs
Economic Costs and Profitability
Economic versus Accounting Costs
Economic Profit versus Accounting Profit
Demand and Revenues
Demand Curve
The Price Elasticity of Demand
Brand-Level versus Industry-Level Elasticities
Total Revenue and Marginal Revenue Functions
Theory of the Firm: Pricing and Output Decisions
Perfect Competition
Game Theory
Games in Matrix Form and the Concept of Nash Equilibrium
Game Trees and Subgame Perfection
Chapter Summary
Questions
Endnotes

Part One: Firm Boundaries

1 The Evolution of Business Principles

1.1 The Emergence of Chicago

1.2 The Ascendance of Mumbai

1.3 Building National Infrastructure: The Transcontinental

1.4 Evolution of the Steel Industry

1.5 The Gaizhi Privatization Process in China

2 The Horizontal Boundaries of The Firm

2.1 Hub-and-Spoke Networks and Economies of Scope in the Airline

2.2 The Division of Labor in Medical Markets

2.3 Learning by Doing in Medicine

2.4 The Pharmaceutical Merger Wave

2.5 Activist Investors in Silicon Valley

2.6 Haier: The World’s Largest Consumer Appliance and Electronics

3 The Vertical Boundaries of The Firm

3.1 What Apple “Makes” and What Its “Buys” for the iPhone

3.2 Licensing Biotechnology Products

3.3 Employee Skills: Make or Buy?

3.4 Disconnection at Sony

3.5 Nightmares at Boeing: The 787 Dreamliner

3.6 Bharti Airtel’s Outsourcing Initiative

3.7 Power Barges

3.8 A Game of Chicken? Specificity and Underinvestment in the

3.9 Walt Disney’s Acquisition of Pixar

4 Integration and Its Alternatives

4.1 Vertical Integration in a Mountain Paradise

4.2 Accountable Care Organizations

4.3 Vertical Integration of the Sales Force in the Insurance

4.4 Franchise Heat in China

4.5 Joint Ventures in Sub-Saharan Africa

4.6 Interfirm Business Networks in the United States: The Women’s

Part Two: Market and Competitive Analysis

5 Competitors and Competition

5.1 The SSNIP in Action: Defining Hospital Markets

5.2 Whole Foods Attempts to Acquire Wild Oats

5.3 The Bottom Drops Out on Cubs Tickets

5.4 Capacity Competition in the U.S. Beef Processing Industry

5.5 Cournot Equilibrium in the Corn Wet Milling Industry

5.6 Electric Markets, Bertrand Competition, and Capacity

6 Entry and Exit

6.1 Google’s Android Initiative

6.2 How the Japanese Broke into the U.S. Car Market

6.3 Jio’s Entry into Wireless Telecom in India

6.4 Emirates Air

6.5 Kellogg’s India Experience

6.6 Limit Pricing by Brazilian Cement Manufacturers

6.7 Entry Barriers and Profitability in the Japanese Brewing

6.8 Predatory Pricing in the Laboratory

6.9 Walmart Enters Germany . . . and Exits

6.10 Contestable Market in India

7 Dynamics: Competing Across Time

7.1 Competitive Dynamics of the Indian Airline Industry

7.2 Committed to a Settlement

7.3 Commitment at Nucor and USX: The Case of Thin-Slab

7.4 What Happens When a Firm Retaliates Quickly to a Price Cut

7.5 Forgiveness and Provocability: Dow Chemicals and the Market

7.6 Are Most Favored Nation Agreements Anticompetitive?

7.7 The Evolution of the Chinese Down Apparel Industry

8 Business Platforms and Competition

8.1 Not-for-Profit: Public Administrative Platforms in India

8.2 Google Search Platform

8.3 Encyclopedia Britannica and the Online Competition

8.4 Indian E-commerce War: Amazon, Flipkart and Snapdeal

8.5 Behavioral Impact of Food-delivery Platforms

8.6 Economics of Twitter

8.7 Pricing of Online Advertisements

8.8 Yahoo!’s Business Woes

9 Industry Analysis

9.1 Air India and the Indian Airline Industry in 2009

Part Three: Strategic Position and Dynamics

10 Strategic Positioning for Competitive Advantage

10.1 The Division of Value Creation for Gilead Sciences’ Sovaldi on

10.2 Kmart versus Walmart

10.3 The Emergence of Uber . . . and the Demise of the Taxi?

10.4 Creating Value at Enterprise Rent-a-Car

10.5 Measuring Capabilities in the Pharmaceutical Industry

10.6 Competing on Cost Without Cost Advantage: The Story of

10.7 “Haute Pot” Cuisine in China

10.8 Strategic Positioning in the Airline Industry: Four Decades of

11 Information and Value Creation

11.1 A Warranty for Surgery

11.2 The Evolution of Branding in Appliance Retailing

11.3 Teachers Teaching to the Test

11.4 Calorie Posting in New York City Restaurants

11.5 Hospital Report Cards

11.6 The Netflix Challenge

11.7 Big Data and Product Targeting

12 Sustaining Competitive Advantage

12.1 Coffee, Tea, or Starbucks?

12.2 Sports Dynasties

12.3 Cola Wars in Venezuela

12.4 Building Blocks of Sustainable Advantage

12.5 Patent Racing and the Invention of the Integrated Circuit

12.6 The Rise of the Swiss Watch Industry

12.7 Tale of India’s IT Outsourcing and Automobile Industries

Part Four: Internal Organization

13 Performance Measurement and Incentives

13.1 Differences in Objectives in Agency Relationships: Yahoo! and

13.2 Hidden Action and Hidden Information in Garment Factory Fire

13.3 “Target and Terror” in English Hospitals

13.4 Herding, RPE, and the 2007–2008 Credit Crisis

13.5 Quitters Never Win

13.6 Teams and Communication in Steel Mills

14 Strategy and Structure

14.1 ABB’s Matrix Organization

14.2 Organizational Structure at AT&T

14.3 Multi-divisional Structure of ITC Limited

14.4 Steve Jobs and Structure at Apple

14.5 Strategy, Structure, and the Attempted Merger Between the

14.6 Structure Does Not Always Follow Strategy: Case of

14.7 Multinational Firms: Strategy and Infrastructure

14.8 Reorganization at Rhône-Poulenc S.A

15 Environment, Power and Culture

15.1 The Sources of Presidential Power

15.2 Power and Poor Performance: The Case of the

15.3 Power in the Boardroom: Why Let CEOs Choose

15.4 Cultural Clash at Infosys

15.5 Corporate Culture and Inertia at ICI

15.6 Corporate Culture at Aetna: Yoga and the CEO

15.7 Corporate Culture at Ford

15.8 Preserving Culture in the Face of Growth: The Google IPO

Chapter Summary

Questions

Endnotes

Glossary

Name Index

Subject Index

Economics of Strategy focuses on the key economic concept’s students must understand and master to develop a sound business strategy. With a thorough and deep analysis, this Indian adaptation introduces the emerging business phenomena such as online network applications, business platforms, and big data. The inclusion of a completely new chapter on Business Platforms and Competition will help students in comprehending the role of platforms in today’s competitive business era.