June 8th 2017, 14:00-16:00, D33. Remember to register in time.
- INL1 – Group assignment period 3 (A-F)
- INL2 – Group assignment period 4 (A-F)
- SEM1 – Active participation period 3 (P/F)
- SEM2 – Active participation period 4 (P/F)
- TEN1 – Written exam, textbook and additional readings (A-F)
Examples of exams
Note these exams may not be based on same additional reading material.
Instructions: This is a closed-book and individual exam. You may use a dictionary and calculator. There are eight questions. Short, concise answers are recommended for all questions. Please write your name on the each sheet of paper.
- How do the following events affect internal rivalry, as defined in the five-forces framework in an industry?a) Industry demands stagnatesb) New entry occurs in a downstream sectorc) MES decreases. All existing firms operate above MES already before the changesd) A close substitute to the product sold in the industry is invented and launched on the market at a competitive price
- Firm A has a monopoly on a local market. Firm B considers entering, expecting to be slightly more effective (cost-wise) in terms of production cost than firm A is. How is firm B’s decision about entry affected (ceteris paribus) by its estimate of to what extent firm A in a post-entry competitive situation will have sunk costs, caused e.g. by obligations that they must meet whether or not they cease operations?
- Provide an example of what constitutes a sunk cost for a consulting firm.
- The disruptive innovation theory of Christensen and Raynor (2003) suggests that industry leading incumbents are typically badly positioned to address the emergence of “disruptive” innovations, introduced as low-cost alternatives to the incumbent’s product, as they appear. Present an argument for why incumbents, when eventually trying to respond to what has become an evident threat to their business, may find that they are “too late”. Refer to at least one of the following concepts: the learning curve; customers’ switching costs
- Comment on the feasibility of the following business ideas (strictly) from the perspective of 1) the size of the hold-up problem and 2) the prediction about the efficiency of “buying” rather than “making” from your customer’s point of view made by property rights theory.a) You learn that a leading developer of statistics software, which is owned by a multinational education company, plans to launch on-line statistics education based on their software. You offer to create a series of teaching modules and sell those to the software developer.b) You develop and sell a technology solution which allows in-store digital advertising to retailers.
- The Nash-equilibrium of the simultaneous move game associated with the pay-off matrix below is [passive; aggressive]. How much can Firm 1 improve its outcome by committing to a strategy thus transforming the simultaneous move game to a sequential move game?
|Firm 1||Aggressive||30,10||70, 15|
|Passive||40, 35||50, 30|
- “Limit pricing” refers to the idea that an incumbent may charge a low price to deter entry. Under what conditions may that strategy work?
- According to the paper Ideas for rent: an overview of markets for technology by Arora and Gambardella, how is the existence of a market for technology related to the level of competition in the industry/industries for which this technology is a relevant input to production?
Instructions: This is a closed-book and individual exam. You may use a dictionary and calculator. There are six questions. Note that some (sub-) questions may contain two questions. Please write your name on each sheet of paper.
- Cost-oriented analysis
Through the introduction of ICT technology, a great many industries have undergone “digital transformation”. Some of the impact of new technology can be analysed from the perspective of firm costs. For example, transaction costs decrease as information processing becomes simpler/cheaper. Furthermore, the marginal costs of production typically decrease.
a) Define transaction costs and agency costs, respectively.
b) State one important strategic consequence for the firm of decreased transaction costs.
c) Sutton’s theory of endogenous sunk costs prescribes that consumer goods markets often (tend towards a structure with a few large firms and many small firms. This pattern is explained by the importance of advertising and marketing in consumer goods industries. Elaborate on Sutton’s argument.
- Industry analysis
You are considering entering an existing market for engineering consultancy services (competing with e.g. Sweco, ÅF, WSP, etc). Below, four pieces of new (fictional) information about this market are listed. For each piece,
– provide a concise definition of each concept and/or provide a brief example of what that might mean in the context of the engineering consultancy industry and
– motivate how the attractiveness of entry would be affected by each piece of information. a) Changes in production technology (which here will need to be thought of in very general terms) is expected to increase MES
b) Learning curve effects for low levels of accumulated production (i.e. accumulated sales) are stronger than previously estimated
c) The competition is holding excess capacity
d) Demand for consultancy services is expected to grow quicker than previously estimated
In creating new business, you are dealing with uncertainty of various kinds. Let us assume that you are considering a business opportunity created through the expected rise of demand from a growing middle class population in east Africa. This business requires making local investments. However, there is generic uncertainty about how the level of demand will develop.
a) Describe the potential strategic value of making local investments in east Africa today using the logic of a tough commitment. Assume that the decision variable is a strategic substitute.
b) Describe the strategic value of postponing this investment decision using real option logic.
- Make-or-buy decisions
You are rolling out a multinational business. The business model requires locally available support services to be available on all markets where you want to be active. To enter the Stockholm market, for example, you need to either set up a Stockholm office or to find a local partner among existing firms. To serve your customers, this partner would need to invest in training specific to your business. We can think of your problem here as a kind of “make-or-buy” decision, with the limitation that the option to do business entirely over the market is not entirely realistic.
a) Besanko et al discuss a number of factors on which make-or-buy decisions will turn. Which of these factors do you think will be most relevant for the multinational’s decision?
b) Mention one possible advantage of a “tapered integration” strategy (i.e. the multinational decides to both set up a Stockholm office and to work with partner firms).
c) Explain the holdup problem that affects this “make-or-partner” decision.
- Economic reasoning
Continuing the example from the previous question, let us assume that you have decided to set up a subsidiary office in Stockholm. Your can do so either through an acquisition or by setting up a new (“greenfield”) subsidiary, and in order to examine which option is most attractive you enter negotiations with an existing firm. Which of the following factors would affect the value of acquiring the existing firm, as compared to the greenfield alternative? Motivate your answer clearly.
a) The sunk costs undertaken (by present owners) to establish the existing Stockholm firm
b) Expectations on the future level of profit (margins) achievable in the Stockholm firm
c) Opportunities for post-acquisition umbrella branding (drawing on your brand)
d) The strength of scale economies in the relevant service sector
- The Economics of Entrepreneurship
In the paper “An Innovation Policy Framework – Bridging the Gap between Industrial Dynamics and Growth” by P. Braunerhjelm and M. Henrekson, the authors list six factors which they claim must be included in “a coherent innovation policy framework”. Define one of these six factors and provide a brief overview of how it affects entrepreneurship.
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