Cases Flashcards
In the easygroup case which sources of scale, scope, and learning economies are in the cinema industry?
Scale and Scope:
Advertising: Showing ads before the movie start, Fixed costs of producing advertisements generate scale economies
Scope economies: Selling of food and drinks before the movie start
Inventories: By achieving a high volume of business with the sales of the concession stand they achieve a lower ratio of inventory to sales. This creates economies of scale
Trade off among alternative technologies: By switching from the fleapits to the multiplexes they achieved economies of scale because of the better use of personnel, staggered starting times and more efficient use of ushers and cleaning staff.
Cube-squared rule: The volume of cinema goers is proportional to the vessel (cinema hall) therefor more seats in one hall creates economies of scale
Learning:
The multiplex environment enabled cinema operators to employ the mandatory number of employees to manage additional revenue-generating activities such as concession stands and ticket booths. This is firm specific learning because they learned how to use their personnel more efficient.
In the easygroup case which sources of scale, scope, and learning economies are not relevant?
Product-specific fixed costs
Research and development
What core capabilities did easygroup transfer to the cinema business?
- Use technology to cut costs and improve quality
- Not play by traditional market rules
- Not bundle products
- Provide good value to the customer
- Sell direct to the consumer, internet sales
- Use, fit and build the “easy” brand
- Be a simple offering
To what extent could the diversification into the cinema business benefit from scope economies
This is unrelated diversification and turns the easygroup in a conglomerate.
Inregards to scope economies they could benefit from the spread of their own managerial talent by spreading underutilized organizational resources. By employing a dominant general management logic they could benefit from the way they conceptualize the business and allocate critical resources
What efficiency and non-efficiency reasons apply to this diversification decision by easygroup
Scope economies: Spreading of managerial talent.
Internal capital markets: using the 71.6 million pounds of profit.
Benefits to managers from acquisitions: they enjoy running larger firms.
What efficiency and non-efficiency reasons DO NOT apply to this diversification decision by easygroup
Diversifying shareholders portfolios
Identifying undervalued firms
Compare the applicability of the easyGroup business model in the airline industry and the cinema industry. To do so apply exhibit 18 to the industries. Also make use of exhibits 6 and 8. What problems do you see for cinema business.
They see advertising as a cost while in the cinema business they gain a net 1% profit from it.
They see catering as a cost too while the concession stand generates a 14% net profit to cinema’s
The cinema is less price sensitive than airplanes this is because there is a stronger horizontal differentation regarding the preferences in movies. Therefor significantly increasing the occupancy rate is way harder to do.
Why did the easygroup fail
The cutting of the concession stand, cutting of the advertising and believing the market was more price sensitive and vertically differentiated.
Name 3 reasons that facilitate competition in the easygroup case
There any many entrants into the market because they believe their post entry profit will their sunk entry cost. By an increase of firms in the market, it will lower the price aswell which causes more competition
Because their are impediments to coordination like lumpiness of orders ( the time a blockbuster movie comes out ) it is hard to set an collusive price and there for more profitable to cheat.
The ticket price is a strategic complement. And therefor by altering the price of the ticket in anyway like an advertising campaign which reduces prices due economies of scale, is an tough commitment.
Name 3 reasons that block competition in the easygroup case
Horizontal differentiation which leads to customers being less price sensitive, this is due to them having idiosyncratic preferences
As the cinema industry is an monopolostic competition
There many sellers however they think there actions wont influence others
The refusal of price cutting by distributors also block competition
There is an blockaded entry at the moment in the market
Regarding the meastro pizza case discuss the various entry barriers
Meastro started with limit pricing by making the pizza’s so cheap and domino had to follow
By preventing further imitation meastro due to guaranting that the pizza would be done in 10 minutes or 30 riyal discount they raised the switching costs
Then meastro started with capitalising on their reputation with the saudi people and strenghtening their relationship
The entrance of domino caused that meastro had to deal with production barriers as the needed to rapidly scale production and deal with fighting dominoes on superior locations, which caused them to earn less EBITDA in 2016 then 2015.
Meastro has incurred sunk costs aswell because they were operating 70 stores in 2015, selling this and paying off employees would be very costly in regards to labor agreements.
Predatory pricing is not relevant because they did not undercut dominoes after they matched their price in the beginning
Holding excess capacity is also not relevant because demand was growing for the whole of 2015.
Reading through the Maestro Pizza case, there are periods where domino’s pizza case and Maestro pizza were copying each other’s strategies and there were periods where they tried to differentiate. When and how did they do that?
First dominoes copied them in their pricing scheme, then after that maestro retalitated by setting up the strategy of that it would be done in 10 minutes otherwise a 30 riyal discount
Then Maestro had an reputation strategy to strengthen their relationship with their customers. Then dominoes attack with ads trying to differentiate themselves regarding quality and size of the pizza.
In the meastro case consider both the price and non-price dimensions of their strategic choices. Finally, recall the discussion on demand for differentiated goods. How could this model be used to illustrate the Maestro Pizza case?
The pizza’s are horizontally differentiated good because in this scenario the pricing is all equal at one point. In regards to the degree to horizontal differentiation is the magnitude of search costs. Because dominoes started to put locations next to the maestro one, the search cost were extremely low and that also reduced the degree of horizontal differentiation, this lead to lower prices and lower profits for all which is also shows in exhibit 5.
Does the aggressive pricing strategy by Domino’s qualify as predatory pricing and, knowing what we know now (Maestro is still active in Saudi Arabia), what are the (long-term) costs and (potential) benefits of Domino’s strategy?
Yes, because they have the capacity to keep up with the demand which maestro had not. By leaving the price on the price that maestro set, they are forced to continue with minimal profit which stumps their chances to increase their capacity to keep up with demand. The long term cost however is that dominoes have to abide to this price aswell.
In regards to the philips case, what are sources of philips first mover advantage in the cd pressing market in 1983-1984.
Reputation and buyer uncertainty: philips owned polygram and there for could use classical titles and new titles like abba to sway the uncertain buyer to buy the CD because of the reputation of artists.
Learning Curve: if philips is the first one selling one CD it will always have a higher output than it competitors, there they will move further down the line achieve lower unit costs
