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Business Strategy Class Notes
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Business Strategy Class Notes
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Lecture 1Business Strategy
Strategy = the study of how firms are able to generate above-normal profits in the markets,
while others are eager to make money too
Strategic Profit (Economic Rent )= Accounting Profit – Opportunity Costs
Efficient markets should not allow for strategic profits – they incentivise competition until
only normal profits are attainable.
Airline Industry example
Characteristics:
Low differentiation possible
Demand argument = oil prices
,Firm strategies differ depending on their time-orientation:
Samsung is viewed as highly profitable now
Tesla is viewed as highly profitable in the future
Strategic Profit
PESTEL, SWOT
Porter’s Five forces = describes barriers to obtain strategic profits, competition
forces and overall industry structure (strengths and weaknesses)
o Find the industry that brings your company the best strategic profits
, Lecture 2
Industry Analysis – Entrants, Rivals, Substitutes, Customers, Suppliers
1. Entrants – barriers
Investment Hurdles
o Capital-intensive industries see fewer entrants even if profits are high
o High fixed costs associated with start-up deter entry (space exploration, semi-
conductor industry)
Retaliation
o A credible threat of retaliation of incumbent firms may stifle entry
o Regulators aim to constrains retaliatory threats such as “dumping” sales
below costs but cannot legislate on the entirety of strategies available to
incumbent firms
Patents
o Taxi licences, medical/law practice certifications, wireless spectrum auctions,
toll road concessions, waste disposal contracts
Pioneering Advantages = barriers to more competition through market entry
o Brand
Benefits captured by earlier entrants
String brand loyalty
First-movers can build up unassailable brands and benefit from
network effects (Kleenex)
o Network Effects
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