Podcast
Questions and Answers
What is the importance of competitor analysis in competitive dynamics?
What is the importance of competitor analysis in competitive dynamics?
- It prevents firms from engaging in cooperative behaviors.
- It allows firms to anticipate rivals' actions and adjust their strategies accordingly. (correct)
- It helps firms to ignore rivals completely.
- It reveals firms' weaknesses to their competitors.
Which of the following factors can influence competitive dynamics?
Which of the following factors can influence competitive dynamics?
- Geographical location
- Consumer sentiment
- Formal institutions (correct)
- Random chance events
What is a potential driver for competitive attacks and counterattacks?
What is a potential driver for competitive attacks and counterattacks?
- Significant changes in market regulations.
- Increased consumer demand for a product.
- A competitor exiting the market.
- Significant advancements in technology. (correct)
Which statement accurately describes how local firms interact with multinational enterprises (MNEs)?
Which statement accurately describes how local firms interact with multinational enterprises (MNEs)?
Which of the following is NOT typically associated with cooperation and collusion in competitive dynamics?
Which of the following is NOT typically associated with cooperation and collusion in competitive dynamics?
What is a cartel?
What is a cartel?
What is mutual forbearance in competition?
What is mutual forbearance in competition?
What do antitrust laws aim to prevent?
What do antitrust laws aim to prevent?
What describes predatory pricing?
What describes predatory pricing?
What does the concentration ratio measure?
What does the concentration ratio measure?
What is the purpose of antidumping laws?
What is the purpose of antidumping laws?
What is cross-market retaliation?
What is cross-market retaliation?
What is the prisoners’ dilemma used to illustrate in business contexts?
What is the prisoners’ dilemma used to illustrate in business contexts?
Which of the following is a characteristic of a price leader?
Which of the following is a characteristic of a price leader?
What do firms need to learn to become contenders in a global market?
What do firms need to learn to become contenders in a global market?
What is the impact of higher interest rates on aggregate demand?
What is the impact of higher interest rates on aggregate demand?
How does fiscal policy enactment compare to monetary policy?
How does fiscal policy enactment compare to monetary policy?
What is a critical characteristic of the U.S. Federal Reserve in relation to political pressures?
What is a critical characteristic of the U.S. Federal Reserve in relation to political pressures?
What can potentially offset the effects of fiscal policy over time?
What can potentially offset the effects of fiscal policy over time?
Which factor primarily allows monetary policy to be flexible and speedy?
Which factor primarily allows monetary policy to be flexible and speedy?
What is the primary objective of fiscal policy?
What is the primary objective of fiscal policy?
What is indicated by a budget surplus?
What is indicated by a budget surplus?
Expansionary fiscal policy is characterized by which of the following actions?
Expansionary fiscal policy is characterized by which of the following actions?
Which of the following describes discretionary fiscal policy?
Which of the following describes discretionary fiscal policy?
What do the terms 'aggregate demand' and 'aggregate supply' refer to in macroeconomics?
What do the terms 'aggregate demand' and 'aggregate supply' refer to in macroeconomics?
What is a characteristic of contractionary fiscal policy?
What is a characteristic of contractionary fiscal policy?
What ultimately determines the economy's macroeconomic equilibrium?
What ultimately determines the economy's macroeconomic equilibrium?
Which type of fiscal policy involves deliberate actions during economic downturns?
Which type of fiscal policy involves deliberate actions during economic downturns?
What is the primary effect of an expansionary fiscal policy?
What is the primary effect of an expansionary fiscal policy?
What does the multiplier effect refer to in the context of fiscal policy?
What does the multiplier effect refer to in the context of fiscal policy?
What is the crowding out effect in economic policy?
What is the crowding out effect in economic policy?
Which of the following is NOT a tool used by the Federal Reserve to implement monetary policy?
Which of the following is NOT a tool used by the Federal Reserve to implement monetary policy?
How does an increase in the reserve ratio affect banks?
How does an increase in the reserve ratio affect banks?
What happens when the Federal Reserve purchases U.S. Treasury bonds?
What happens when the Federal Reserve purchases U.S. Treasury bonds?
Which scenario represents a contractionary monetary policy?
Which scenario represents a contractionary monetary policy?
What is a primary goal of the Federal Reserve when implementing expansionary monetary policy?
What is a primary goal of the Federal Reserve when implementing expansionary monetary policy?
What is the result of contractionary fiscal policy on aggregate demand?
What is the result of contractionary fiscal policy on aggregate demand?
What triggers an increase in interest rates in the economy?
What triggers an increase in interest rates in the economy?
What is the primary purpose of the Fed's low discount rate?
What is the primary purpose of the Fed's low discount rate?
What describes the relationship between fiscal and monetary policy in economic stabilization?
What describes the relationship between fiscal and monetary policy in economic stabilization?
Which factors can lead to an increase in aggregate demand after an expansionary fiscal policy is implemented?
Which factors can lead to an increase in aggregate demand after an expansionary fiscal policy is implemented?
Which statement best describes the impact of inflation on aggregate demand?
Which statement best describes the impact of inflation on aggregate demand?
Flashcards
Competitive Dynamics
Competitive Dynamics
Actions and responses of competing firms.
Competitor Analysis
Competitor Analysis
Predicting rivals' actions and planning how to deal with them.
Cooperation
Cooperation
Working together with other companies in the same industry.
Collusion
Collusion
Companies secretly working together to limit competition.
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MNEs
MNEs
Multinational Enterprises (large companies operating in many countries).
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Explicit collusion
Explicit collusion
Companies openly agreeing to limit competition, such as setting prices or dividing customers.
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Cartel
Cartel
A group of companies that work together to fix prices and control output.
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Prisoners' Dilemma
Prisoners' Dilemma
A game theory situation where individual incentives lead to suboptimal outcomes for everyone involved.
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Game Theory
Game Theory
The study of how people make decisions in competitive situations.
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Concentration Ratio
Concentration Ratio
The percentage of total market sales held by the biggest firms.
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Price Leader
Price Leader
The dominant company in an industry that sets prices for others to follow.
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Predatory Pricing
Predatory Pricing
Setting prices below cost to drive rivals out of the market.
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Contender
Contender
A firm learning rapidly and then expanding overseas
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Defender
Defender
Firm with low pressure to globalize, strengths in understanding local markets
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Fiscal Policy
Fiscal Policy
Using government spending and taxes to influence the economy.
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Expansionary Fiscal Policy
Expansionary Fiscal Policy
Increasing government spending or cutting taxes to boost economic activity.
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Contractionary Fiscal Policy
Contractionary Fiscal Policy
Reducing government spending or raising taxes to slow down economic growth.
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Budget Surplus
Budget Surplus
When government revenue exceeds spending.
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Budget Deficit
Budget Deficit
When government spending exceeds revenue.
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Discretionary Fiscal Policy
Discretionary Fiscal Policy
Deliberate changes in government spending or taxes to achieve economic goals.
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Aggregate Demand
Aggregate Demand
Total demand for goods and services in an economy.
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Aggregate Supply
Aggregate Supply
Total supply of goods and services in an economy.
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What happens to the economy when interest rates increase?
What happens to the economy when interest rates increase?
Higher interest rates discourage borrowing, leading to decreased investment, consumption, and net exports. This reduces aggregate demand, causing real GDP and price level to fall.
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How does monetary policy affect the economy?
How does monetary policy affect the economy?
Monetary policy, controlled by central banks, uses tools like interest rates to influence the money supply and credit availability to stabilize economic activity.
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Why is monetary policy often faster than fiscal policy?
Why is monetary policy often faster than fiscal policy?
Monetary policy adjustments are made by smaller decision-making bodies and can be implemented immediately, unlike fiscal policy which requires lengthy legislative processes.
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What is the advantage of the Fed's independence?
What is the advantage of the Fed's independence?
Political independence allows the Federal Reserve to base its policy decisions on economic considerations rather than short-term political pressures.
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Crowding-out effect
Crowding-out effect
Increased government spending can lead to higher interest rates, reducing private investment and partially offsetting the intended stimulus from fiscal policy.
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Multiplier Effect
Multiplier Effect
The idea that an initial increase in government spending leads to a larger increase in overall economic activity.
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Monetary Policy
Monetary Policy
Actions taken by the central bank to influence the money supply and interest rates.
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Open Market Operations
Open Market Operations
The buying and selling of government bonds by the Fed to control the money supply.
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Discount Rate
Discount Rate
The interest rate at which commercial banks can borrow money directly from the Fed.
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Reserve Ratio
Reserve Ratio
The percentage of deposits that banks are required to hold in reserve.
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Expansionary Monetary Policy
Expansionary Monetary Policy
A policy that aims to stimulate the economy by increasing the money supply and lowering interest rates.
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Contractionary Monetary Policy
Contractionary Monetary Policy
A policy that aims to slow down economic growth by decreasing the money supply and raising interest rates.
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What happens to AD when government spending increases by $20 billion?
What happens to AD when government spending increases by $20 billion?
AD increases by $20 billion due to the direct impact of government spending. However, the multiplier effect amplifies this initial increase, causing AD to shift further to the right beyond the initial $20 billion. The crowding out effect may partially offset this expansion by raising interest rates and disincentizing private investment.
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How does the Fed influence money supply through open market operations?
How does the Fed influence money supply through open market operations?
When the Fed purchases bonds, it injects reserves into the banking system, which allows banks to make more loans and increase the money supply. When the Fed sells bonds, it withdraws reserves from the banking system, reducing the money supply and decreasing lending.
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What are the main goals of expansionary and contractionary monetary policies?
What are the main goals of expansionary and contractionary monetary policies?
Expansionary monetary policy aims to stimulate economic growth by lowering interest rates and increasing the money supply. Contractionary monetary policy aims to reduce inflation by raising interest rates and decreasing the money supply.
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Course Information
- Course Mentor: Wade Roberts
- Education: PhD in Economics, University of Utah
- Expert Fields: Development, Labor, Public Health, Gender
- Current Research (Cambodia): Microfinance, Poverty, Inequality, Socioeconomics
Chapter 11: Managing Global Competitive Dynamics
- Learning Objectives:
- Understand industry conditions for cooperation and collusion.
- Outline how formal institutions affect domestic and international competition.
- Articulate how resources and capabilities influence competitive dynamics.
- Identify drivers for attacks, counterattacks, and signaling.
- Discuss how local firms compete with multinational enterprises (MNEs).
- Participate in leading debates concerning competitive dynamics.
- Draw implications for action.
Competition, Cooperation, and Collusion
- Competitive dynamics: Actions and responses of competing firms.
- Competitor analysis: Anticipating rivals' actions to adjust plans and deal with responses.
- Collusion: Collective attempts to reduce competition.
- Explicit collusion: Firms directly negotiate output and pricing, dividing markets.
- Cartel: An output- and price-fixing entity involving multiple competitors
- Trust: A cartel where members need to trust each other to honor agreements.
- Antitrust laws: Laws in various countries to outlaw trusts.
- Prisoners' Dilemma: A game where two suspects face the risk of confessing or staying silent.
- Game theory: Studies interactions between parties that compete and/or cooperate.
Cooperation and Collusion (continued)
- Concentration ratio: Percentage of total industry sales by top firms (e.g., top 4, 8, or 20).
- Price leader: Dominant firm setting acceptable prices and margins.
- Capacity to punish: Price leader's resources to deter defection.
- Market commonality: Degree of overlap between rival markets.
- Multimarket competition: Firms competing with the same rivals in multiple markets.
- Mutual forbearance: Multimarket firms respecting one another's influence and leading to tacit collusion.
- Cross-market retaliation: If a firm attacks in one market, rivals can retaliate in other markets.
- Industry Characteristics and Possibility of Collusion:
- Collusion possible: Few firms, industry price leader, homogeneous products, high barriers to entry, high market commonality.
- Collusion difficult: Many firms, no industry price leader, heterogeneous products, low barriers to entry, lack of market commonality.
Institutions, Resources, and Competitive Dynamics
- Institution-Based View: Domestic competition (competition/antitrust policy), International Competition (trade/antidumping policy)
- Resource-Based View: Value, Rarity, Imitability, Organization
International Domestic Retail Price Comparisons
- Table showing the ratio of domestic retail prices to world prices across various countries (e.g., Australia, Canada, Germany) for various goods and services.
Formal Institutions Governing Domestic Competition
- Competition policy: Institutional mix of competition and cooperation.
- Antitrust policy: Policies to combat monopolies and cartels.
- Collusive price setting: Monopolists or collusion parties setting prices above the competitive level.
- Predatory pricing: Setting prices below cost to eliminate rivals to raise prices later.
- Dumping: Selling goods below cost or home market prices.
- Antidumping laws: Outlaw exporting goods at below-cost prices to eliminate local rivals abroad.
Resources Influencing Competitive Dynamics
- Resource similarity: Extent to which a competitor possesses similar strategic endowments (type and amount) to the focal firm.
Attack, Counterattack, and Signaling
- Attack: Initial actions to gain competitive advantage.
- Counterattack: Actions in response to an attack.
- Blue ocean strategy: Avoiding attacking core markets to avoid bloody price wars.
Local Firms Versus Multinational Enterprises
- Defender: Low pressures to globalize with strengths in local market understanding.
- Extender: Low globalization pressures with transferable skills and assets.
- Dodger: High globalization pressures with local industries.
- Contender: Industries with rapid learning followed by overseas expansion.
How Local Firms in Emerging Economies Respond to Multinationals
- Figure showing a framework to analyze local firms' responses to MNEs based on industry pressures and competitive assets.
Tips on Competitive Intelligence and Counterintelligence
- Be cautious about potential espionage in foreign countries.
- Be careful with cell phones and internet service.
- If offered extravagant accommodation, book your own instead.
Implications for Action
- Understand rules of domestic and international competition.
- Strengthen resources and capabilities to compete and/or cooperate effectively.
- Develop competitor analysis skills.
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