Competitor Class Main Takeaways

Exam period is the best time – > No assignment due, plenty of gatherings, flexible schedule

Main tasks this week – phone interviews with companies that don’t come to campus, last kick of informational interviews, pre-Christmas gatherings

Competitor was one of the two classes I found useful this term. Before I forget everything about school, I felt obligated to draw down some notes from that class.

1. Think about value creation and value capture

  • Value is often created when there is high willingness to pay and low production cost; value is captured by firms that could secure resources.
  • We should often ask, ” Is the competitive advantage sustainable and extendable over time?”

2. The importance of differentiation

  • To escape from Cournot or Bertrand competition, a firm should try to different its offerings from its competitors’. Rivalry that gravitates solely to price can be destructive to profitability.
  • One strategy is “be where the demand is but where the competition isn’t.” This is why expanding business to emerging and frontier markets is key to growth for many multi-national companies, and innovation to push demand curve outward is crucial. During job interviews, I should also think about how I could differentiate myself from other MBA students and what I can bring to the table.
  • The less substitutes the better (live in a city where most guys/girls are not good looking), the more differentiated the product the better (build personal strengths – wealth, look, kindness, whatever matters), the higher switching cost the better (probably why people have kids, this no longer works).

3. Value Net

  • When analyzing companies, always think about what constrain the industry’s profit. Look at their competitors, what are they doing that put them above the competition/differentiate them from other players?
  • Always start looking at a company by asking the question “how do they make money”? This was what Reza taught us years ago, but still the key to solving most problems.
  • Growth does not equal to profit -> Some industry structure allows expansion of the profit pool, some does not; Analyze a value chain by thinking how players divide aggregate profits.
  • A good company is one that could extract profits from the value chain above what would prevail in perfectly competitive market.

4. Co-opetition

  • When playing a game, think about the following: Who are the players, what’s the rule, tactics, scope of the game. Where is the added value.
  • Companies are complementors in making the market, competitors in dividing the market. Complementors collude on price, competitors collude on quantity.
  • The difference between cooperation and collusion is: cooperation’s goal is to try to make the pie bigger, collusion’s goal is to work to divide up the pie.

5. Coordination and Innovation

  • There is often a trade-off between these two. Companies tend to fall into competency trap because they keep doing what they know how to do.
  • Franchising is a model that sits between owner-owned and chain owned models that try to coordinate practices that realize economy of scale while maintaining good incentive to grow.
  • Engine of Innovation: Variations -> Selection -> Retention

 

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