Competitive Solutions

by McAfee, R. Preston

• ISBN13: 9780691124032
• ISBN10: 0691124035
• Format: Paperback
• Copyright: 2005-07-25
• Publisher: Princeton Univ Pr

Summary

Competitive Solutionsis an entertaining and wideranging introduction to successful business methods applied to a variety of real-world situations. Rejecting the one-size-fits-all premise that underlies so many guides to business strategy, Preston McAfee develops the intellectual tools and insights needed to confront many marketplace problems. Drawing on his broad experience as a consultant for major U.S. companies, as well as extensive research, McAfee emphasizes cooperation, pricing, litigation, and antitrust as vital to a firm's competitive posture--and focuses more attention on these elements than do most business strategy accounts. McAfee begins by considering strategy as successfully applied by America OnLine, an example that introduces many of the tools discussed in greater depth throughout the book. From here he moves to industry analysis: By examining the context for developing a strategy, he points out uses of positioning and differentiation that enable a firm to weaken price competition and deter rivals from stealing customers. McAfee's exploration of a product's life cycle proves an invaluable guide to positioning new technology in order to maximize the potential for future customers. In the centerpiece of the book, McAfee lays out a how-to manual for cooperation, providing tactics crucial for setting standards, lobbying the government, and fostering industry growth. Writing in a conversational manner, McAfee also addresses such deep topics as organizational design and employee compensation and incentives. More detailed discussions examine antitrust enforcement, which is an increasingly important constraint on strategy, as well as strategies for pricing, bidding, signaling, and bargaining. This book is a fascinating examination of modern business strategy and its application in many different settings. Students of business and economics--as well as executives and managers--will recognizeCompetitive Solutionsas an indispensable resource as well as a definitive vision of the strategic firm: one in which each element of company strategy reinforces the other elements.

Table of Contents

Preface	xiii
Preamble	xiii
Contents	xvi
What Is Strategy?	xviii
Acknowledgments	xix
Introduction	1	(8)
Executive Summary---Introduction	7	(2)
Industry Analysis	9	(27)
The Six Forces	9	(18)
Entry	11	(5)
Buyer Bargaining Power	16	(2)
Supplier Bargaining Power	18	(1)
Substitute Products	18	(1)
Rivalry	19	(4)
Complements---The Sixth Force	23	(3)
Strategies for Complements	26	(1)
Industry Structures	27	(7)
Fragmented Industry	28	(2)
Dominant Firm	30	(3)
Tight Oligopoly	33	(1)
Loose Oligopoly	34	(1)
Executive Summary---Industry Analysis	34	(2)
Firm Strategies	36	(25)
Value/Cost Strategies	36	(12)
Quality Choice without Competition	37	(1)
Games and Best Responses	38	(4)
The Effects of Competition on Quality Choice	42	(2)
Accommodation and Dissuasion	44	(1)
Low-Cost Strategy	45	(2)
Cream-Skimming	47	(1)
Coherent Strategies	48	(9)
The Three-Layer Model	50	(6)
Stuck in the Middle	56	(1)
Dealing with Competitors	57	(1)
Executive Summary---Firm Strategies	58	(3)
Differentiation	61	(30)
Competition in Differentiated Products	63	(11)
Creating Synergies	70	(4)
Quality Complementarities	74	(1)
Networks	75	(3)
Technological Races	78	(2)
Patent Strategy	80	(5)
Hedonic Prices	85	(4)
Executive Summary---Differentiation	89	(2)
Product Life Cycle	91	(22)
Introduction	95	(2)
Growth	97	(1)
Maturity	98	(3)
Decline and Replacement	101	(4)
Summary of the Product Life Cycle	105	(3)
The Life Cycle for Durable Goods	108	(4)
Executive Summary---Product Life Cycle	112	(1)
Cooperation	113	(35)
Cooperation on a Variety of Issues	113	(3)
Tacit Collusion	116	(11)
Shared Interest	116	(3)
Punishment	119	(5)
Recovery	124	(3)
Problems of Tacit Cooperation in Price	127	(11)
Confessions	128	(1)
Many Producers	129	(1)
Differentiated Products	129	(1)
Reaction Time	130	(2)
Environmental Randomness	132	(1)
Motivating Managers	132	(1)
Efficient Allocation within a Cartel	133	(2)
Unenforceable Contracts	135	(1)
Risky Communication	135	(1)
Small or Failing Firms	135	(1)
Entry and Substitutes	136	(1)
Competition in Other Dimensions	137	(1)
Solutions to Tacit Cooperation Problems	138	(8)
Industry Association	138	(1)
Published Price Lists	139	(1)
Exclusive Territories	139	(1)
Preannouncing Future Price Increases	140	(1)
The Capture Theory	140	(1)
Incrementalism	141	(1)
Multimarket Contact	142	(2)
Multilevel Contact	144	(1)
Unused Capacity	144	(1)
Grow or Crush Small or Bankrupt Firms	145	(1)
Executive Summary---Cooperation	146	(2)
Organizational Scope	148	(39)
Make or Buy Decisions	151	(9)
Tapered Integration	158	(2)
The Multidivisional Firm	160	(3)
Transaction Costs	163	(7)
Prices or Quantities	170	(2)
Net Present Value	172	(7)
Project Selection and Risk Assessment	179	(5)
Executive Summary---Organizational Scope	184	(3)
Incentives	187	(17)
Agency	188	(7)
Efficiency Wages	191	(1)
Making Firms More Aggressive	192	(1)
Agent Selection	193	(1)
Managing Creative Talent	194	(1)
Multitasking	195	(6)
Common Agency	199	(2)
Tournaments and Yardstick Competition	201	(2)
Ratchet Effect	202	(1)
Executive Summary---Incentives	203	(1)
Antitrust	204	(21)
Major Laws	204	(10)
Sherman Act (1890)	205	(1)
Clayton Act (1914)	206	(3)
FTC Act (1914)	209	(1)
Exemptions and Special Treatment	210	(1)
Predation, Foreclosure, and Tying	211	(3)
Mergers	214	(10)
DOJ Guidelines for Horizontal Mergers	216	(5)
Vertical Mergers and Antitrust Enforcement	221	(3)
Executive Summary---Antitrust	224	(1)
Elementary Statistics	225	(35)
Opinion Polls	226	(8)
The Precision of Statistics	234	(2)
The Normal Distribution or Bell Curve	236	(3)
Conditional Probabilities and Correlation	239	(7)
The Predator Theory of Tornadoes	244	(2)
Sample Selection Bias	246	(1)
The Hot Hand	247	(4)
Option Values	251	(7)
Scenario Analysis	255	(3)
Executive Summary---Elementary Statistics	258	(2)
Pricing	260	(43)
Illustrative Examples	262	(6)
International Pricing by the Pharmaceutical Companies	262	(1)
Methyl Methacrylate	262	(2)
Hand-Me-Down by Armani	264	(1)
IBM LaserPrinter E	264	(1)
Sony MiniDisc	265	(1)
An Electric Utility's Individualized Pricing	265	(1)
IBM's Punchcard Metering	266	(1)
Buying Paint from an Airline	266	(2)
Direct Price Discrimination	268	(5)
Indirect Price Discrimination	273	(5)
Coupons	273	(1)
Quantity Discounts	274	(2)
Product Branding	276	(1)
Product Bundling	277	(1)
Peak-Load Pricing	278	(3)
Yield Management	281	(7)
Theatrical Yield Management	284	(1)
Robert Crandall on Airline Pricing	285	(3)
Competition and Price Discrimination	288	(1)
How to Soften Price Competition	289	(1)
Opportunism and Exclusive Dealing	289	(6)
Create Competition by Licensing	292	(1)
Vertically Integrate with the Buyers	292	(1)
Long-Term Contracts	292	(1)
Exclusive Contracts	293	(1)
Most-Favored-Customer Clauses	293	(1)
Uniform, Simple Contracts	294	(1)
Pricing of Complements	295	(2)
Price Dispersion and the Theory of Sales	297	(3)
Executive Summary---Pricing	300	(3)
Auctions	303	(21)
Bidding	303	(9)
The English Auction	304	(1)
The Sealed-Bid Auction	305	(2)
The Winner's Curve	307	(4)
Updating	311	(1)
Selling Strategy and Auction Design	312	(10)
When to Auction?	320	(2)
Executive Summary---Auctions	322	(2)
Signaling	324	(29)
Signaling in Action	324	(13)
Law Firms' Marbled Buildings	324	(1)
Service Plans and Warranties	325	(2)
The $25,000 Rolex Watch	327	(1)
Body Language	327	(1)
Education	328	(3)
Full Product Line	331	(2)
Appearing Informed in an Auction	333	(1)
Tylenol Recall	333	(4)
Lemons	337	(3)
Introductory Offers and Advertising	340	(2)
Entry Deterrence	342	(2)
Leadership	344	(1)
Acting Tough	345	(3)
Vaporware	348	(1)
Product Failures	349	(1)
Signaling Psychosis	350	(1)
Executive Summary---Signaling	351	(2)
Bargaining	353	(26)
Basic Theory	353	(3)
Delay	356	(1)
The War of Attrition	357	(7)
Lawsuits	360	(1)
Drug Wars	361	(3)
BSB versus Sky TV	364	(1)
Holdup	364	(2)
Contract Design and Verification	366	(7)
Verification and Observability	367	(2)
Renegotiation Proofness	369	(1)
Breach Penalties	370	(2)
Strategic Ambiguity	372	(1)
Delegation	373	(1)
Exploding Offers	373	(1)
Multilateral Bargaining	374	(2)
Cheap Talk	376	(2)
Executive Summary---Bargaining	378	(1)
Last Words	379	(2)
Sustaining Competitive Advantages	379	(2)
Endnotes: Sources and Caveats	381	(12)
Index	393