FM advantage in an internet-enabled market environment

Question 1

IME

Answer 1

internet-enabled market environment

Question 2

PME

Answer 2

physical market environment

Question 3

Characteristics of an IME

Answer 3

• Many transactions
• Low information-search costs
• Not a lot of information asymmetry between buyers and sellers

Question 4

What should FM in an IME focus on?

Answer 4

Gaining superior resources, such that they can get close to their customers quickly and make strategic adjustments for FM advantages that are less successful in an IME

Question 5

Which FM advantages are LESS successful in an IME?

Answer 5

information, spatial resource positions, and installed capacity

Question 6

Which FM advantages are MORE successful in an IME?

Answer 6

network externalities, switching costs, and technological leadership and innovation.

Question 7

Definition FM

Answer 7

the first firm to enter a market supported by sizeable investments in the production and distribution of the product, with enough time between the FM and the later entrants such that the FM could achieve advantages.

Question 8

Definition early movers/entrants

Answer 8

when there are multiple FM in short succession

Question 9

Definition FM advantages

Answer 9

the ability of pioneering firms to earn positive economic profits.

Question 10

Definition information products

Answer 10

products whose core attributes can be digitized

Question 11

Definition competitive advantage

Answer 11

the combined value and rarity of all of a firm’s resources and resource interactions

Question 12

Definition network externalities/effects

Answer 12

market exchange, industry-standard, or a product that becomes increasingly valuable to its current and potential users as the installed base increases

Question 13

Definition direct network externalities

Answer 13

the utility of a product to each user depending on the number of product users

Question 14

Complementary products can cause network externalities. What can these be?

Answer 14

Product category specific or firm specific

Question 15

Definition firm specific network externality

Answer 15

each firm has a non-compatibile technology platform

Question 16

Definition product category specific network externality

Answer 16

there are multiple firms within each competing technology platform

Question 17

Where are network externalities more critical and why?

Answer 17

In the IME since buyers will go to the place with the most sellers

Question 18

Definition network utility and why might it be smaller in an IME?

Answer 18

the benefits of the product’s current and potential customers derived from the network size. If customers predominantly derive network externality benefits from having access to a social group, the FM advantages in the IME might be smaller, since customers often have a “wait-and-see” attitude, resulting in slow sales over a long time.

Question 19

Where are switching costs more important?

Answer 19

In the IME since switching is a lot easier there

Question 20

Definition organizational slack and what should a FM do with it?

Answer 20

the resources that are unnecessary to produce a given output. A FM can better reinvest the slack resources into R&D to get a better leadership and innovations position, since the IME changes so quickly.

Question 21

Definition minimum scale of production and the corresponding result for FM and competitors

Answer 21

the smallest volume for which the unit cost reaches a minimum. When the installed production capacity and the size of the market are in the same order of magnitude, the production capacity can be a credible reason for competitors not to enter the market. But this is only the case if there is low demand uncertainty, since if there is a high demand uncertainty, the FM is less likely to make such investments in the production capacity.