Notes 547
- The World Commission on Environment,
1987. Retrieved from the Web February 6,
2007. http://www.wsu.edu:8080/~sus-
dev/WCED87.html.
- Comments by Frank Popoff, CEO and chair-
man of Dow Chemical Company, at the
Graduate Business Conference, Indiana
University, Bloomington, Indiana, April 3,
1992,
- “General Electric and Dow Jones Announce
Winner of Economics: The Environmental
Business Plan Challenge Award: Recipient
Received $50,000 for Innovative
Environmentally Friendly Plan,” 2006.
Retrieved from the Web May 10, 2006.
http://online.wsj.com/.
- The story is an old one and often makes the
rounds in graduate economics classes.
However, I was reminded of it by reading S.
Oster, Modern Competitive Analysis (New
York: Oxford University Press, 1990).
- A frequently heard question when one is
challenging a new venture opportunity is: If
this is such a good idea, why has not some-
one already done it? As we can see, this is
actually an economic question in sheep’s
clothing. The correct answer to this line of
questioning is: Because no one else has been
smart enough, until now.
- C. Montgomery and B. Wernerfelt, “What Is
an Attractive Industry?” Management Science
32, 1986: 1223–1230.
- These three strategies are known as generic
strategies because other strategies derive from
them. Porter originally argued that a firm
must choose to pursue one of the three strate-
gies because it could not adhere to more than
one strategy within a single market. He called
this being “stuck in the middle.” Empirical
research has demonstrated that sometimes
firms can achieve differentiation and the low-
cost position simultaneously. C. Hill,
“Differentiation Versus Low Cost or Differ-
entiation and Low Cost: A Contingency
Framework,” Academy of Management Review
13, 1988: 401–412; A. Murray,, “A Con-
tingency View of Porter’s Generic
Strategies,” Academy of Management Review
13, 1988: 390–400; P. Wright, “A Re-
finement of Porter’s Strategies,” Strategic
Management Journal 9, 1980: 93–101.
- This is the model developed and popularized
by Michael Porter in his two books,
Competitive Strategy (New York: Free Press,
1980), and Competitive Advantage (New
York: Free Press, 1985). Although this chap-
ter borrows heavily from these two books
and uses the Porter analysis to examine the
problems of new venture creation, there is
really no substitute for reading the originals.
- We often hear the argument that quality
improvements pay for themselves, either by
increasing customer loyalty or increasing the
customer base. This argument may be true if
the increased loyalty leads to more price elas-
ticity of demand, and if the cost increases can
be passed on to the new customers.
- There are some interesting counterexamples,
however. When competition heats up in the
automobile industry, factory rebates (price
concessions from manufacturers), plus the
normal bargaining process within the dealer-
ships, can produce final sales prices lower
than the average variable cost for the combi-
nation of manufacturer and dealer. In an
overheated housing market, buyers often bid
up the price of the house against each other
instead of bargaining for lower prices. Such
bargaining may occur even if the supply of
houses is greater than the demand. It is the
inflationary expectations that drive this
process. People feel that the prices will be
even higher if they do not buy quickly. Of
course, this is a self-fulfilling prophesy for the
group of buyers, even if it benefits a particu-
lar buyer.
- This is especially true when a third party is
paying for the airline ticket (for example, an
employer), but the flyer receives private cred-
it for the miles.
- See Porter, 1980.
- The presence of entry barriers is prima facie
evidence that perfect competition does not
exist. But does actual entry have to occur to
keep incumbents from earning above-normal
returns? It can be argued that the threat of
entry is itself sufficient, as long as that entry
is relatively costless and irreversible. This the-
ory, the contestability theory, makes a distinc-
tion between competitive markets, where
actual entry enforces price discipline, and
contestable markets, where the threat of entry
enforces discipline even though the industry
looks like an oligopoly. See W. Baumol, J.
Panzer, and R. Willig, Contestable Markets
and the Theory of Industry Structure (New
York: Harcourt, Brace, Jovanovich, 1982).
- The general model to determine if entry will
