Ge273.u9.pp1

1 of 34Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall · Microeconomics · R. Glenn Hubbard, Anthony Patrick O’Brien, 3e.
Chapte

Chapte
CHAPTER
7
Firms,
the Stock Market, and
Corporate Governance
Fernando Quijano
Prepared by:
When Mark Zuckerberg
started Facebook in
2004, he was still a
sophomore in college.
Just five years later,
Facebook had 150
million users.

Chapte
7.1 Types of Firms
Categorize the major types of firms in the
United States.
7.2 The Structure of Corporations and the
Principal–Agent Problem
Describe the typical management structure of
corporations and understand the concepts of
separation of ownership from control and the
principal–agent problem.
7.3 How Firms Raise Funds
Explain how firms raise the funds they need
to operate and expand.
7.4 Using Financial Statements to Evaluate a
Corporation
Understand the information provided in
corporations’ financial statements.
7.5 Corporate Governance Policy
Understand the role of government in
corporate governance.
Appendix: Tools to Analyze Firms’ Financial
Information
Understand the concept of present value and the
information contained on a firm’s income
statement
and balance sheet.
Chapter Outline and
Learning Objectives
CHAPTER
7
Firms,
the Stock Market, and
Corporate Governance

Chapte
Types of Firms
Sole proprietorship A firm owned by a
single individual and not organized as a
corporation.
Partnership A firm owned jointly by two or
more persons and not organized as a
corporation.
Corporation A legal form of business that
provides owners with protection from losing
more than their investment should the
business fail.
Categorize the major types of
firms in the United States.
7.1 LEARNING OBJECTIVE

Chapte
Asset Anything of value owned by a person or a firm.
Limited liability The legal provision that shields
owners of a corporation from losing more than they
have invested in the firm.
SOLE
PROPRIETORSHIP
PARTNERSHIP CORPORATION
ADVANTAGES • Control by owner
• No layers of
management
• Ability to share work
• Ability to share risks
• Limited personal liability
• Greater ability to raise
funds
DISADVANTAGES • Unlimited personal
liability
• Unlimited personal liability • Costly to organize
• Limited ability to raise
funds
• Limited ability to raise funds • Possible double taxation
of income
Who Is Liable? Limited and Unlimited Liability
Table 7-1
Differences among Business Organizations
Types of Firms

Chapte
Types of Firms
Corporations Earn the Majority of Revenue and Profits
FIGURE 7-1
Business Organizations: Sole
Proprietorships, Partnerships,
and Corporations
The three types of firms in the United States are sole proprietorships, partnerships, and corporations.
Panel (a) shows that only 19 percent of all firms are corporations.
Yet, as panels (b) and (c) show, corporations account for a large majority of the total revenue and profits
earned by all firms.

Chapte
How Important Are Small
Businesses to the U.S. Economy?
Making
the
Connection
In a typical year, 40 percent of new jobs
are created by small firms like Yelp.com,
which is a community-based review and
directory website founded by Jeremy
Stoppelman, left, and Russel Simmons.
YOUR TURN: Test your understanding by doing related problem 1.6 at the end of
this chapter.
Entrepreneurs founding small
firms have been the source of
many of the most important
new goods and services
available to consumers.

Chapte
The Structure of Corporations
and the Principal–Agent Problem
Corporate Structure and Corporate Governance
Separation of ownership from control
A situation in a corporation in which the top
management, rather than the shareholders,
control day-to-day operations.
Corporate governance The way in which a
corporation is structured and the effect a
corporation’s structure has on the firm’s behavior.
Principal–agent problem A problem caused by
an agent pursuing his own interests rather than
the interests of the principal who hired him.
Describe the typical management
structure of corporations and
understand the concepts of
separation of ownership from control
and the principal–agent problem.

Chapte
Solved Problem 7-2
Does the Principal–Agent Problem Apply to the
Relationship between Managers and Workers?
Briefly explain whether you agree with the following
argument:
The principal–agent problem applies not just to the
relationship between shareholders and top managers.
It also applies to the relationship between managers
and workers.
Just as shareholders have trouble monitoring whether
top managers are earning as much profit as possible,
managers have trouble monitoring whether workers
are working as hard as possible.
YOUR TURN: For more practice, do related problems 2.4 and 2.5 at the end of
this chapter.
Describe the typical management
structure of corporations and
understand the concepts of
separation of ownership from control
and the principal–agent problem.

Chapte

Chapte
CHAPTER
12
Monopolistic
Competition: The
Competitive Model
in a More Realistic
Setting
Fernando
Quijano
Prepared by:
The coffeehouse market is
competitive because it is
inexpensive to open a new
store. Hundreds of firms in
the United States operate
coffeehouses.

Chapte
Monopolistic
Competition: The
Competitive Model
in a More Realistic
Setting
12.1. Demand and Marginal Revenue for a Firm in a
Monopolistically Competitive Market
Explain why a monopolistically competitive firm has
downward-sloping demand and marginal revenue curves.
12.2 How a Monopolistically Competitive Firm
Maximizes Profit in the Short Run
Explain how a monopolistically competitive
firm maximizes profit in the short run.
12.3 What Happens to Profits in the Long Run?
Analyze the situation of a monopolistically competitive firm
in the long run.
12.4 Comparing Perfect Competition and Monopolistic
Competition
Compare the efficiency of monopolistic competition and
perfect competition.
12.5 How Marketing Differentiates Products
Define marketing and explain
how firms use it to differentiate their products.
12.6 What Makes a Firm Successful?
Identify the key factors that determine a firm’s success.
Chapter Outline and
Learning Objectives
CHAPTER
12

Chapte
Monopolistic competition
A market structure in which barriers
to entry are low and many firms
compete by selling similar, but not
identical, products.
Monopolistic Competition:
The Competitive Model in a More Realistic Setting

Chapte
The Demand Curve for a Monopolistically Competitive Firm
FIGURE 12-1
The Downward-Sloping
Demand for Caffè
Lattes at a Starbucks
Explain why a monopolistically
competitive firm has downward-sloping
demand and marginal revenue curves.
Demand and Marginal Revenue for a Firm
in a Monopolistically Competitive Market
If a Starbucks increases the price
of caffè lattes, it will lose some,
but not all, of its customers.
In this case, raising the price from
$3.00 to $3.25 reduces the
quantity of caffè lattes sold from
3,000 to 2,400.
Therefore, unlike a perfect
competitor, a Starbucks store
faces a downward-sloping
demand curve.

Chapte
Marginal Revenue for a Firm with a Downward-Sloping
Demand Curve
Table 12-1
CAFFÈ LATTES SOLD
PER WEEK (Q)
PRICE (P)
TOTAL
REVENUE
(TR = P x Q)
AVERAGE
REVENUE
(AR = TR/Q)
MARGINAL
REVENUE
(MR = ΔTR/ΔQ)
0
1
2
3
4
5
6
7
8
9
10
$6.00
5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
$0.00
5.50
10.00
13.50
16.00
17.50
18.00
17.50
16.00
13.50
10.00
―
$5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
―
$5.50
4.50
3.50
2.50
1.50
0.50
–0.50
–1.50
–2.50
–3.50
Demand and Marginal
Revenue at a Starbucks

Chapte
Demand Curve
FIGURE 12-2
How a Price Cut
Affects a Firm’s
Revenue
If the local Starbucks reduces
the price of a caffè latte from
$3.50 to $3.00, the number of
caffè lattes it sells per week will
increase from 5 to 6.
Its marginal revenue from
selling the sixth caffè latte will
be $0.50, which is equal to the
$3.00 additional revenue from
selling 1 more caffè latte (the
area of the green box)
minus the $2.50 loss in
revenue from selling the first 5
caffè lattes for $0.50 less each
(the area of the red box).

Chapte
FIGURE 12-3
The Demand and
Marginal Revenue
Curves for a
Monopolistically
Competitive Firm
Demand Curve
Any firm that has the ability to affect
the price of the product it sells will
have a marginal revenue curve that
is below its demand curve.
We plot the data from Table 12-1 to
create the demand and marginal
revenue curves.
After the sixth caffè latte, marginal
revenue becomes negative
because the additional revenue
received from selling 1 more caffè
latte is smaller than the revenue
lost from receiving a lower price on
the caffè lattes that could have
been sold at the original price.

Chapte
How a Monopolistically Competitive
Firm Maximizes Profit in the Short Run
FIGURE 12-4
Maximizing Profit
in a
Monopolistically
Competitive Market

Chapte
Will Apple maximize profits if it
produces 800,000 iPhones per
month?
Does Minimizing Cost Maximize
Profits?
Solved Problem 12-2
Average cost reaches a minimum
at a quantity of 800,000, but profits
are maximized at a quantity of
600,000.
YOUR TURN: For more practice, do related problem 2.6 at the end of this
chapter.

Chapte
What Happens to Profits in the Long Run?
How Does the Entry of New Firms Affect the Profits of Existing Firms?
FIGURE 12-5
How Entry of New Firms Eliminates
Profits
Panel (a) shows that in the short run Starbucks can charge a price above average total cost (point A) and make a
profit, shown by the green rectangle. But this profit attracts new firms to enter the market, which shifts the demand
and marginal revenue curves to the curves labeled “Long run” in panel (b). At point B, Starbucks breaks even.
Analyze the situation of a monopolistically
competitive firm in the long run.

Chapte
Table 12-2
The Short Run and
the Long Run for a
Monopolistically
Competitive Firm
How Does the Entry of New Firms Affect the Profits of Existing Firms?
What Happens to Profits in the Long Run? Analyze the situation of a monopolistically

Chapte
The Rise and Decline of Starbucks
Making
the
Connection
YOUR TURN: Test your understanding by doing related problem 3.6 at the end
of this chapter.
Starbucks: No longer different
enough?
In a monopolistically
competitive industry,
maintaining profits in the
long run is very difficult.

Chapte
Is Zero Economic Profit Inevitable in the Long Run?
What Happens to Profits in the Long Run?
A firm’s profits will be eliminated in
the long run only if a firm stands still
and fails to find new ways of
differentiating its product or fails to
find new ways of lowering the cost
of producing its product.
Don’t Let This Happen to YOU!
Don’t Confuse Zero Economic Profit with Zero Accounting Profit
of this chapter.

Chapte
Can It Be Profitable to Be
the High-Price Seller?
Solved Problem 12-3
chapter.
Because the greater demand more than offsets the higher costs, the hhgregg store
makes a larger profit.

Chapte
• Monopolistically competitive firms charge a price
greater than marginal cost.
• Monopolistically competitive firms do not produce at
minimum average total cost.
Monopolistic competition and perfect competition share the
characteristic that in long-run equilibrium, firms earn zero
economic profits.
However, there are two important differences between long-
run equilibrium in the two markets:
Compare the efficiency of monopolistic
competition and perfect competition.
Comparing Perfect Competition
and Monopolistic Competition

Chapte
Excess Capacity under Monopolistic Competition
FIGURE 12-6
Comparing Long-Run Equilibrium under
Perfect Competition and Monopolistic
Competition
A monopolistically competitive firm has excess capacity: If it increased its output, it
could produce at a lower average cost.

Chapte
Economists have debated whether monopolistically
competitive markets being neither productively nor
allocatively efficient results in a significant loss of
well-being to society in these markets compared with
perfectly competitive markets.
How Consumers Benefit from Monopolistic Competition
Consumers benefit from being able to purchase a
product that is differentiated and more closely suited
to their tastes.
Is Monopolistic Competition Inefficient?

Chapte
Abercrombie & Fitch: Can the
Product Be Too Differentiated?
Did Abercrombie and Fitch narrow its target
market too much?
Making
the
Connection
of this chapter.
A firm whose strategy of
product differentiation
succeeds will experience
increases in same-store
sales.

Chapte
How Marketing Differentiates Products
Marketing All the activities
necessary for a firm to sell a
product to a consumer.
Brand Management
Brand management The
actions of a firm intended to
maintain the differentiation of
a product over time.
how firms use it to differentiate their
products.
12.5 LEARNING
OBJECTIVE

Chapte
If the increase in revenue that results from the
advertising is greater than the increase in costs, the
firm’s profits will rise.
Advertising
How Marketing Differentiates Products Define marketing and explain
products.
12.5 LEARNING
OBJECTIVE
Defending a Brand Name
A firm can apply for a trademark, which grants legal
protection against other firms using its product’s
name.

Chapte
Google Tries (and Fails) to
Measure the Effectiveness
of Radio Advertising
Making
the
Connection
Does spending on radio
advertising attract
customers?
of this chapter.
products.
A firm’s optimal level of
advertising occurs where the
marginal cost of advertising
equals the marginal revenue
earned from advertising.
12.5 LEARNING
OBJECTIVE

Chapte
What Makes a Firm Successful?
FIGURE 12-7
What Makes a Firm
Successful?
Identify the key factors that
determine a firm’s success.
12.6 LEARNING
OBJECTIVE
The factors under a firm’s control—the
ability to differentiate its product and the
ability to produce it at lower cost—
combine with the factors beyond its
control to determine the firm’s
profitability.

Chapte
Although not first to market, Bic
ultimately was more successful
than the firm that pioneered
ballpoint pens.
Is Being the First Firm in
the Market a Key to Success?
Making
the
Connection
of this chapter.
Identify the key factors that
determine a firm’s success.
12.6 LEARNING
OBJECTIVE
The firms that were first to introduce a
product ultimately lost out to
latecomers who did a better job of
providing consumers with products
that were more reliable, less
expensive, more convenient, or
otherwise provided greater value.

Chapte
Starbucks Faces
McCompetition
AN INSIDE LOOK
>>
The effect of entry on price, quantity, and profits at Starbucks.

Chapte

Chapte
CHAPTER
13
Oligopoly:
Firms in Less
Competitive Markets
Fernando
Quijano
Prepared by:
Today, in the
software and
computer
industries, fewer
than 10 firms
account for the
great majority of
sales.

Chapte
CHAPTER
13
Oligopoly:
Firms in Less
Competitive Markets
13.1 Oligopoly and Barriers to Entry
Show how barriers to entry explain
the existence of oligopolies.
13.2 Using Game Theory to Analyze
Oligopoly
Use game theory to analyze the
strategies of oligopolistic firms.
13.3 Sequential Games and Business
Strategy
Use sequential games to analyze
business strategies.
13.4 The Five Competitive Forces
Model
Use the five competitive forces
model to analyze competition in an
industry.
Chapter Outline and
Learning Objectives

Chapte
Oligopoly: Firms in Less Competitive Markets
Oligopoly A market structure
in which a small number of
interdependent firms compete.

Chapte
Oligopoly and Barriers to Entry
RETAIL TRADE MANUFACTURING
INDUSTRY
FOUR-FIRM
CONCENTRATION
RATIO INDUSTRY
FOUR-FIRM
CONCENTRATION
RATIO
Discount department stores 95% Cigarettes 95%
Warehouse clubs and
supercenters
92% Beer 91%
Hobby, toy, and game stores 72% Aircraft 81%
Athletic footwear stores 71% Breakfast cereal 78%
College bookstores 70% Automobiles 76%
Radio, television, and other
electronic stores
69% Computers 75%
Pharmacies and drugstores 53% Dog and cat food 64%
Table 13-1
Examples of Oligopolies in
Retail Trade and
Manufacturing
13.1 LEARNING
OBJECTIVE

Chapte
Barriers to Entry
Barrier to entry Anything that
keeps new firms from entering an
industry in which firms are earning
economic profits.
Economies of Scale
Economies of scale The
situation when a firm’s long-run
average costs fall as it increases
output.
13.1 LEARNING
OBJECTIVE

Chapte
FIGURE 13-1
Economies of Scale
Help Determine the
Extent of Competition in
an Industry
Barriers to Entry
Economies of Scale
An industry will be competitive if the
minimum point on the typical firm’s
long-run average cost curve (LRAC1)
occurs at a level of output that is a
small fraction of total industry sales,
such as Q1.
The industry will be an oligopoly if
the minimum point comes at a level
of output that is a large fraction of
industry sales, such as Q2.
13.1 LEARNING
OBJECTIVE

Chapte
If production of a good requires a
particular input, then control of that
input can be a barrier to entry.
Government-Imposed Barriers
Patent The exclusive right to a
product for a period of 20 years
from the date the product is
invented.
Barriers to Entry
Ownership of a Key Input
13.1 LEARNING
OBJECTIVE

Chapte
Using Game Theory to
Analyze Oligopoly
Game theory The study of how people make
decisions in situations in which attaining their
goals depends on their interactions with
others; in economics, the study of the
decisions of firms in industries where the
profits of each firm depend on its interactions
with other firms.
13.2 LEARNING
OBJECTIVE

Chapte
Analyze Oligopoly
All games share three key characteristics:
1. Rules that determine what actions
are allowable
2. Strategies that players employ to
attain their objectives in the game
3. Payoffs that are the results of the
interaction among the players’
strategies
Business strategy Actions taken by a firm
to achieve a goal, such as maximizing
profits.
13.2 LEARNING
OBJECTIVE

Chapte
Analyze Oligopoly
A Duopoly Game: Price Competition between Two Firms
FIGURE 13-2
A Duopoly Game
HP’s profits are in blue, and
Apple’s profits are in red.
HP and Apple would each
make profits of $10 million per
month on sales of desktop
computers if they both
charged $1,200.
However, each firm has an
incentive to undercut the other
by charging a lower price.
If both firms charge $1,000,
they would each make a profit
of only $7.5 million per month.
13.2 LEARNING
OBJECTIVE
Don’t Let This Happen to YOU!
Don’t Misunderstand Why Each Manager Ends Up Charging a Price of $1,000
YOUR TURN: Test your understanding by doing related problem 2.14 at the
end of this chapter.

Chapte
Payoff matrix A table that shows the payoffs that each firm
earns from every combination of strategies by the firms.
Collusion An agreement among firms to charge the same
price or otherwise not to compete.
Analyze Oligopoly
A Duopoly Game: Price Competition between Two Firms
Dominant strategy A strategy that is the best for a firm, no
matter what strategies other firms use.
Nash equilibrium A situation in which each firm chooses the
best strategy, given the strategies chosen by other firms.
13.2 LEARNING
OBJECTIVE

Chapte
Cooperative equilibrium An equilibrium in a
game in which players cooperate to increase their
mutual payoff.
Noncooperative equilibrium An equilibrium in a
game in which players do not cooperate but pursue
their own self-interest.
Prisoner’s dilemma A game in which pursuing
dominant strategies results in noncooperation that
leaves everyone worse off.
Analyze Oligopoly
Firm Behavior and the Prisoner’s Dilemma
13.2 LEARNING
OBJECTIVE

Chapte
Solved Problem 13-2
Is Advertising a Prisoner’s Dilemma
for Coca-Cola and Pepsi?
13.2 LEARNING
OBJECTIVE
YOUR TURN: For more practice, do related problems 2.11, 2.12, and 2.13 at
the end of this chapter.
Given that Coca-Cola is advertising, Pepsi’s best strategy is to
advertise. Therefore, advertising is the optimal decision for both
firms, given the decision by the other firm.

Chapte
Is There a Dominant Strategy
for Bidding on eBay?
Making
the
Connection
On eBay, bidding the maximum value you place on an
item is a dominant strategy.
13.2 LEARNING
OBJECTIVE
YOUR TURN: Test your understanding by doing related problem 2.15 at the
end of this chapter.

Chapte
FIGURE 13-3
Changing the Payoff Matrix
in a Repeated Game
Analyze Oligopoly
Can Firms Escape the Prisoner’s Dilemma?
Wal-Mart and Target can change the
payoff matrix for selling PlayStation 3
game consoles by advertising that they
will match their competitor’s price. This
retaliation strategy provides a signal that
one store charging a lower price will be
met automatically by the other store
charging a lower price.
In the payoff matrix in panel (a), there is
no matching offer, and each store
benefits if it charges $300 when the
other charges $500.
In the payoff matrix in panel (b), with the
matching offer, the companies have
only two choices: They can charge $500
and receive a profit of $10,000 per
month, or they can charge $300 and
receive a profit of $7,500 per month.
The equilibrium shifts from the
prisoner’s dilemma result of both stores
charging the low price and receiving low
profits to both stores charging the high
price and receiving high profits.
13.2 LEARNING
OBJECTIVE

Chapte
Analyze Oligopoly
Can Firms Escape the Prisoner’s Dilemma?
Price leadership A form of implicit
collusion in which one firm in an
oligopoly announces a price
change and the other firms in the
industry match the change.
13.2 LEARNING
OBJECTIVE

Chapte
American Airlines and
Northwest Airlines
Fail to Cooperate on a Price Increase
Making
the
Connection
The airlines have trouble
raising the price this business
traveler pays for a ticket.
13.2 LEARNING
OBJECTIVE
Airlines therefore continually
adjust their prices while at the
same time monitoring their rivals’
prices and retaliating against them
either for cutting prices or failing to
go along with price increases.
YOUR TURN: Test your understanding by doing related problems 2.17 and
2.18 at the end of this chapter.

Chapte
FIGURE 13-4
Oil Prices, 1972 to mid–
2009
Cartel A group of firms that collude by agreeing
to restrict output to increase prices and profits.
Analyze Oligopoly
Cartels: The Case of OPEC
The blue line shows the price of a
barrel of oil in each year.
The red line measures the price of
a barrel of oil in terms of the
purchasing power of the dollar in
2009.
By reducing oil production, OPEC
was able to raise the world price of
oil in the mid-1970s and early
1980s. Sustaining high prices has
been difficult over the long run,
however, because members often
exceed their output quotas.
13.2 LEARNING
OBJECTIVE

Chapte
FIGURE 13-5
The OPEC Cartel with
Unequal Members
Analyze Oligopoly
Cartels: The Case of OPEC
Because Saudi Arabia can
produce much more oil than
Nigeria, its output decisions have
a much larger effect on the price
of oil.
In the figure, Low Output
corresponds to cooperating with
the OPEC-assigned output quota,
and High Output corresponds to
producing at maximum capacity.
Saudi Arabia has a dominant
strategy to cooperate and produce
a low output.
Nigeria, however, has a dominant
strategy not to cooperate and
instead produce a high output.
Therefore, the equilibrium of this
game will occur with Saudi Arabia
producing a low output and
Nigeria producing a high output.
13.2 LEARNING
OBJECTIVE

Chapte
FIGURE 13-6
The Decision Tree for
an
Entry Game
Sequential Games and
Business Strategy
Deterring Entry
HP earns its highest return if it
charges $600 for its netbook and
Apple does not enter the market.
But at that price, Apple will enter
the market, and HP will earn only
16 percent.
If HP charges $275, Apple will
not enter because Apple will
suffer an economic loss by
receiving only a 5 percent return
on its investment.
Therefore, HP’s best decision is
to deter Apple’s entry by
charging $275.
HP will earn an economic profit
by receiving a 20 percent return
on its investment.
Note that the dashes indicate the
situation where Apple does not
enter the market, and so makes
no investment and receives no
return.
13.3 LEARNING
OBJECTIVE

Chapte
Solved Problem 13-3
Is Deterring Entry Always a Good Idea?
13.3 LEARNING
OBJECTIVE
chapter.
Deterrence is worth pursuing only if the payoff is higher than for
other strategies. In this case, expanding the market for netbooks
by charging a lower price has a higher payoff, even given that
Apple will enter the market.

Chapte
FIGURE 13-7
The Decision Tree
for a Bargaining
Game
Sequential Games and
Business Strategy
Bargaining
Dell earns the highest profit
if it offers a contract price of
$20 per copy and TruImage
accepts the contract.
TruImage earns the highest
profit if Dell offers it a
contract of $30 per copy
and it accepts the contract.
TruImage may attempt to
bargain by threatening to
reject a $20-per-copy
contract. But Dell knows
this threat is not credible
because once Dell has
offered a $20-per-copy
contract, TruImage’s profits
are higher if it accepts the
contract than if it rejects it.
13.3 LEARNING
OBJECTIVE

Chapte
FIGURE 13-8
The Five
Competitive
Forces Model
The Five Competitive Forces Model
Michael Porter’s model
identifies five forces that
determine the level of
competition in an industry:
(1) competition from
existing firms,
(2) the threat from new
entrants,
(3) competition from
substitute goods or
services,
(4) the bargaining power of
buyers, and
(5) the bargaining power of
suppliers.
industry.
13.4 LEARNING
OBJECTIVE

Chapte
Competition among firms in an industry can lower
prices and profits.
Competition in the form of advertising, better
customer service, or longer warranties can also
reduce profits by raising costs.
Firms face competition from companies that
currently are not in the market but might enter. We
have already seen how actions taken to deter entry
can reduce profits.
Competition from Existing Firms
The Threat from Potential Entrants
industry.
13.4 LEARNING
OBJECTIVE

Chapte
Firms are always vulnerable to competitors
introducing a new product that fills a consumer
need better than their current product does.
If buyers have enough bargaining power, they can
insist on lower prices, higher-quality products, or
additional services.
If many firms can supply an input and the input is
not specialized, the suppliers are unlikely to have
the bargaining power to limit a firm’s profits.
Competition from Substitute Goods or Services
The Bargaining Power of Buyers
The Bargaining Power of Suppliers
industry.
13.4 LEARNING
OBJECTIVE

Chapte
Can We Predict Which Firms
Will Continue to Be Successful?
Making
the
Connection
Unfortunately, Circuit City’s
excellence as a company
didn’t last.
industry.
13.4 LEARNING
OBJECTIVE
Is it possible to draw general
conclusions about which business
strategies are likely to be
successful in the future?
of this chapter.

Chapte
Hewlett-Packard Uses New Technology to
Boost Sales of Personal Computers
AN INSIDE LOOK
>>
Dell decides whether to sell touch-sensitive personal computers.

Ge273.u9.pp1

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