Deze samenvatting is gebaseerd op het studiejaar 2013-2014.

Hoofdstuk A: Inleiding

Agent One to whom responsibility has been delegated

Constant returns to scale Indicates that average costs remain unchanged with respect to output

Diseconomies of scale Indicates that average costs increase as ouput increases

Economic profit A concept that represents the difference between the profits earned by investing resources in a particular activity, and the profits that could have been earned by investing the same resources in the most lucrative alternative activity.

Fixed costs Costs that must be expended regardless of total output.

Game theory The branch of economics concerned with the analysis of optimal decision making when all decision makers are presumed to be rational, and each is attempting to anticipate the likely actions and reactions of its competitors.

Nash equilibrium Indicates an outcome of a game where each player is doing the best it can, given the strategies of all of the other players.

Organizational structure Describes how a firm uses a division of labour to organize tasks, specify how its staff perfoms taks, and facilitate internal and external information flows. Structure also defines the nature of agency problems within the firm.

Perfectly contestable market A market in which a monopolist cannot raise price above competitive levels because of concern over possible entry.

Price elasticity of demand The percentage change in quantity demanded brought about by a 1 percent change in price.

Short run The periode of time in which the firm cannot alter key choices of interest (such as price or capacity)

Stakeholders Shareholders, employees, and others with a stake in the firm.

Structure (of a market) The number and characteristics of the firms that compete within a market.

Subgame perfect Nash equilibrium An outcome of a game where each player chooses an optimal action at each stage in the game that it might conceivably reach and believes that all other players will behave in the same way.

Sunk costs Costs that have already been incurred and cannot be recovered.

Throughput The movement of inputs and outputs through a production process.

Total cost function Represents the relationship between total cost and output, assuming that the firm produces in the most efficient manner possible given its current technological capabilities.

Variable costs Costs, such as direct labour and commissions to salespeople, which increase as output increases.

Hoofdstuk B: De Kracht van de Principes

Divison of labor Refers to the specialization of productive activities, such as when a financial analyst specializes in startup biotech companies

Hierarchy of authority An organizational arrangement in which one member of a group specializes in monitoring and coordinating the work of the other members.

Joint venture A particular type of strategic alliance in which two or more firms create, and jointly own a new independent organization.

Matrix organization An organizational form in which employees are subject to two or more sets of managers at once.

Multidivisional structure An organizational form that is comprised of a set of autonomous divisions led by a corporate headquarters office, assisted by a corporate staff that provides information about the internal and external business environment. Rather than organizing by function or by task, a multidivisional structure organizes by product line, related business units, or customer type.

Niche strategy A targeting strategy in which the firm produces a single product for a single market segment.

Organizational structure Describes how a firm uses a division of labour to organize tasks, specify how its staff perfoms taks, and facilitate internal and external information flows. Structure also defines the nature of agency problems within the firm.

Throughput The movement of inputs and outputs through a production process.

Unitary functional structure An organizational form in which there is a single department responsible for each of the basic business functions within the firm. This structure is characterized by a division of labour that allows for specialization of the basic tasks that a business performs. Each department depends on direction from central headquarters and probably could not exist autonomously outside the firm expect as contract vendors to a firm that independently secures the other functions.

Hoofdstuk C: Horizontale Grenzen van een Bedrijf

Asymmetry requirement A requirement for entry barriers to be present. The incumbent must have incurrend sunk costs that the entrant has not

Capabilities Clusters of activities that a firm does especially well in comparison with other firms

Complementarities Synergies among organizational practices, whereby one practice is more effective when others are in place

Cube-square rule As one increases the volume of a vessel (e.g., a tank or a pipe) by a given proportion, the surface area increases by less than this proportion. A source of scale economies

Diseconomies of scale Indicates that average costs increase as ouput increases

Divison of labor Refers to the specialization of productive activities, such as when a financial analyst specializes in startup biotech companies

Economies of scale Indicates that average costs decrease as output increases.

Economies of scope Cost savings that the firm achieves as it increases the variety of activities it performs, such as the variety of goods it produces.

Fixed costs Costs that must be expended regardless of total output.

Internal capital markets Used to describe how firms allocate financial and human resources to internal divisions and departments.

Learning curve An idea that refers to the cost advantages that flow from accumulating experience and know-how.

Marginal cost Refers to the rate of change of total cost with respect to output.

Opportunity cost A concept which states that the economic cost of deploying resources in a particular activity is the value of the best foregone alternative use of those resources.

Short run The periode of time in which the firm cannot alter key choices of interest (such as price or capacity)

Umbrella branding The practice of offering a broad product line under a single brand name. A source of scope economies.

Winner’s curse The firm that wins the bidding war for a input may be overly optimistic about its value. Unless it accounts for the possibility of overoptimism, the winning bidder may end up overpaying for the asset.

Hoofdstuk D: Verticale Grenzen van een Bedrijf

Agency costs Costs associated with slack effort by empolyees and the costs of administrative controls designed to deter slack effort

Agency efficiency Agency efficiency refers to the extent to which the exchange of goods and services in the vertical chain has been organized to minimize coordination, agency, and transactions costs

Agency theory A theory that examines the use of financial incentives to motivate workers

Arm’s-length market transaction A market transaction in which autonomous parties exchange goods or services with no formal agreement that the relationship will continue in the future

Assignment problem Assurance that the right people do the right jobs with minimal duplication of effort

Bounded rationality Limits on the capacity of individuals to process information, deal with complexity, and pursue rational aims

Complete contracts Stipulate each party’s responsibilities and rights for each and every contingency that could conceivably arise during the transaction

Coordination The flow of information within an organization to facilitate subunit decisions that are consistent with each other and with organizational objectives

Corporate governance The mechanism through which corporations and their managers are controlled by shareholders

Design attributes Attributes of a production process that need to relate to each other in a precise fashion

Economic profit A concept that represents the difference between the profits earned by investing resources in a particular activity, and the profits that could have been earned by investing the same resources in the most lucrative alternative activity.

Fundamental transformation A situation that occurs after parties invest in relationship-specific assets, when their relationships changes from a ‘large numbers’ to a ‘small numbers’ bargaining situation.

Holdup problem A problem that arises when a party in a contractual relationship exploits the other party’s vulnerability due to relationship-specific assets. For example, a seller might attempt to exploit a buyer who is dependent on this seller by claiming that production costs have risen and demanding that the price be renegotiated upward.

Human capital theory A theory, developed by Gary Becker, which suggests that workers might accept very low wages realy in their careers if they receive on-the-job training that enhances their productivity and job opportunities later on.

Influence costs A concept, developed by Paul Milgrom and John Roberts, that denotes the costs of activities aimed at influencing the distribution of benefits inside an organization.

Internal capital markets Used to describe how firms allocate financial and human resources to internal divisions and departments.

Make-or-buy decision The decision of a firm whether to perform an upstream, downstream, or professional supporting activity itself or to purchase it from an independent firm.

Merchant coordinators Independent firms that specialize in linking suppliers, manufacturers, and retailers.

Patent race A term used to characterize the battle between firms to innovate first.

Pay-for-performance Contract by which the value of the compensation depends on the measured performance of the employee.

Performance measure Piece of information on which an incentive contract (explicit or implicit) can be based.

Performance standard The output that a hard-working agent can be expected to produce.

Predatory act Entry-deterring strategies that work by reducing the profitability of rivals.

Predatory pricing The practice of setting a price with the objective of driving new entrants or existing firms out of business.

Private information A firm’s private information is information that no one else knows. It may pertain to production know-how, product design, or consumer information.

Quasi-rent An amount equal to the difference between (a) the revenue a seller would actually receive if its deal with a buyer were consummated according to the original terms of the implicit or explicit contract, and (b) the revenue the seller must receive to be induced not to exit the relationship after it has made its relationship-specific investments.

Relationship-specific asset An investment made to support a given transaction.

Rent An amount equal to the difference between the revenue a seller receives in a transaction and the minimum amount it must receive to make it worthwile for it to enter into a relationship with the buyer.

Shirking A practice that occurs when managers and workers knowingly do not act in the best interests of their employer.

Strategic alliance An agreement between two or more firms to collaborate on a project or to share information or productive resources.

Transaction costs Denotes the costs to using the market, such as costs of organizing and transaction exchanges, which can be eliminated by using the firm.

Vertical chain The process that begins with the acquisition of raw materials and ends with the distribution and sale of finished goods.

Hoofdstuk E: Integraties

Backward integration An organizational arrangement in which a downstream firm owns the assets of an upstream firm, so that the downstream firm has control over both operating decisions

Delegation Determination of which decisions will be made by individuals higher up in the corporate hierarchy and which will be left to individuals at lower levels

Forward integration An organization arrangement in which an upstream firm owns the assets of a downstream firm, so that the upstream firm has control over both operating decisions.

Franchising A business format franchise agreement allows one firm (referred to as the franchisee) to use the trade name and business plan of another firm (the franchisor) for a specified period of time.

Implicit incentive contract Contract based on information that cannot be observed by courts of arbitrators.

Joint venture A particular type of strategic alliance in which two or more firms create, and jointly own a new independent organization.

Keiretsu Japanese firms doing business through a complex web of institutional linkages.

Market for corporate control An idea, first proposed by Henry Manne, which states that control of corporations is a valuable asset that exists independently of economies of scale and scope. If this is so, then a market for this control exists and operates such that the main purpose of a merger is to replace one management team with another.

Path-dependence A process shows path-dependence of past circumstances could exclude certain actions or outcomes future.

Residual rights of control All rights of control that are not explicitly stipulated in a contract.

Strategic alliance An agreement between two or more firms to collaborate on a project or to share information or productive resources.

Tapered integration A mixture of vertical integration and market exchange in which a manufacturer produces some quantity of an input itself and purchases the remaining portion from independent firms.

Technical efficiency The degree to which a firm produces as much as it can from a given combination of inputs. A broader interpretation is that technical efficiency indicates whether the firm is using the least-cost production process.

Vertically integrated firm  A hierarchial firm that performs many of the steps in the vertical chain itself.

Hoofdstuk F: Concurrenten en Concurrentie

Chaebol South Korean firms doing business through a complex web of institutional linkages, often with family connections

Cross-price elasticity of demand Given two products x and y, the cross-price elasticity of cemand measures the percentage change in demand for good y that results from a 1 percent change in the price of good x

Differentiation advantage One of the major stragegies to achieve competitive advantage. Whe npursuing a differentiation advantage, firms seek to offer a higher perceived benefit while maintaining costs that are comparable to competitors

Direct competitor When firms are direct competitors, the strategic choices of one directly affect the perfomance of the other

Herfindahl index The sum of the squared market shares of all the firms in a market.

Horizontal differentiation Differences between products that increase perceived benefits for some consumers but decrease it for others.

Indirect competitor When firms are indirect competitors, the strategic choices of one also affect the performance of the other, but only through the strategic choices of a third firm.

Market structure The number and size distribution of the firms in a market.

Monopolistic competition A theory of competition for markets in which there are many sellers and each seller is slightly differentiated from the rest.

Monopsonist A firm that faces little or no competition in one of its input markets.

N-firm concentration ratio The combined market share of the N largest firms in a market.

Numbers-equivalent The number of equal-sized firms that can generate a given Herfindahl index in a market. The numbers-equivalent is also equivalent to the reciprocal of the Herfindahl index.

Oligopoly A market in which the actions of individual firms materially affect industry price levels.

Overserve A broad-coverage competitor overserves a customer group when it offers costly product attributes that customers in that group do not especially value.

Own-price elasticity of demand The percentage change in a firm’s sales that results from a 1 percent change in its own price.

Percentage contribution margin The ratio of profit per unit to revenue per unit on additional units sold.

Perfectly contestable market A market in which a monopolist cannot raise price above competitive levels because of concern over possible entry.

Product performance characteristics A product’s performance characteristics describe what it does for consumers. Though highly subjective, listing product performance characteristics often clarifies whether the incumbent is more productive at research.

Regression analysis A statistical technique for estimating how one or more factors affect some variable of interest.

Share strategy Strategy by which a firm exploits its benefit or cost advantage through a higher market share rather than through high price-cost margins.

SIC code Standard Industrial Classification (SIC), as defined by the U.S. Bureau of the Census. SIC codes identify products and services by a seven-digit identifier, with each digit representing a finer degree of classification.

SSNIP criterion According to the DOJ, an analyst has identified all of the competitors of a given firm if a merger among those firms would facilitate a small but significant nontransitory increase in price.

Sustainable competitive advantage A competitive advantage that persists despite efforts by competitors or potential entrants to duplicate or neutralize it.

Vertical differentiation Distinction of a product that makes it better than the products of competitors.

Hoofdstuk G: Toetreding en Uittreding

Accommodated entry Entry is accommodated if structural entry barriers are low, and either entry-deterring strategies will be ineffective, or the cost to the incumbent of trying to deter entry exceeds the benefits it could gain from keeping the entrant out

Barriers to entry Factors that allow incumbent firms to earn positive economic profits by making it unprofitable for newcomers to enter the industry

Blockaded entry A condition where the incumbent need not undertake any entry-deterring strategies to deter entry

Bundling A situation that occurs when a combination of goods or services is sold for less than what it would cost to buy the same items separately

Chaebol South Korean firms doing business through a complex web of institutional linkages, often with family connections

Contestable market A situation in which the threat of entry limits a monopolist’s ability to raise prices

Deterred entry Occurs when an incumbent can keep an entrant out by employing an entry-deterring strategy

Game theory The branch of economics concerned with the analysis of optimal decision making when all decision makers are presumed to be rational, and each is attempting to anticipate the likely actions and reactions of its competitors.

Limit pricing The practice whereby an incumbent firm can discourage entry by charging a low price before entry occurs.

Manufacturing overhead All the costs associated with manufacturing other than direct labor and indirect materials.

Minimum efficient scale The smallest level of output at which economies of scale are exhausted.

Nash equilibrium Indicates an outcome of a game where each player is doing the best it can, given the strategies of all of the other players.

Rent-seeking behaviour Costly activities intened to increase the chances of landing available profits.

Switching costs Refers to costs uncurred by buyers when they switch to a different supplier.

Umbrella branding The practice of offering a broad product line under a single brand name. A source of scope economies.

Hoofdstuk H: Strategische Toewijding

Cooperative pricing Refers to situations in which firms are able to sustain prices in excess of those that would arise in a noncooperative single-shot price or quantity-setting game

Disruptive technologies Class of technologies that has higher B-C than their predecessors, but does so primarily thourgh a combination of lower B and much lower C

Endogenous sunk costs Sunk investments by incumbents that create barriers to entry.

Focal point A strategy so compelling that it would be natural for a firm to expect all others to adopt it.

Folk theorem An idea that concerns the possibilities for achieving an equilibrium result in repeated play of games, such as the prisoner’s dilemma. Its general result is that many Nash equilibria are possible in infinitely repeated games.

Grim trigger strategy A strategy that relies on the threat of an infinite price war to keep firms from undercutting their competitor’s prices.

Hedonic pricing Uses data about actual customer purchases to determine the value of particular product attributes.

Innovator’s dilemma A problem that arises when innovative investments by incumbents cannibalize their succesful business model while failure to innovate may invite entry.

Microdynamics Unfolding of competition, over time, among a small number of firms.

Most favored customer clause A provision in a sales contract that promises a buyer that it will pay the lowest price the seller charges.

Real option A real option exists when a decision maker has the opportunity to tailor a decision to information that will be received in the future.

Soft commitment A commitment made by a firm such that, no matter what its competitors do, the firm will behave less aggressively than if it had not made the commitment. Thus, in a Cournot game a soft commitment will cause the firm to produce relatively less output, while in a Bertrand game a soft commitment will induce the firm to charge a higher price than if it had not made the commitment.

Strategic commitments Decisions that have long-term impacts and that are difficult to reverse.

Strategic complements Two or more products whose reaction functions are upward sloping with respect to the actions taken by another.

Strategic intent An idea, developed by Gary Hamel and C.K. Prahalad, describing fundamental focus of a firm’s strategy that commits it well beyond its current resource profile.

Strategic substitutes Two or more products whose reaction functions are downward sloping with respect to the actions taken by another.

Switching costs Refers to costs uncurred by buyers when they switch to a different supplier.

Tactical decisions Decisions that are easily reversed and where impact persists only in the short run.

Tit-for-that strategy A policy in which a firm is prepared to match whatever change in strategy a competitor makes.

Tough commitment A commitment made by a firm such that, no matter what its competitors do, the firm will behave more aggressively than if it had not made the commitment. Thus, in a Cournot game a tough commitment will cause the firm to produce relatively more output, while in a Bertrand game a tough commitment will induce the firm to charge a lower price than if it had not made the commitment.

Uniform delivery pricing A single delivered price that a seller quotes for all buyers and in which the sellers absorbs any freight charges itself.

Uniform FOB pricing A price that a seller quotes for pickup at the seller’s loading dock, and the buyer absorbs the freight charges for shipping from the seller’s plant to the buyer’s plant.

Hoofdstuk I: Bedrijfstakanalyse

Buyer power The ability of individual customers to negotiate purchase prices that extract profits from sellers

Five-forces analysis A method, developed by Michael Porter, which systematically and comprehensively applies economic tools to analyze an industry in depth. The five forces are internal rivalry, entry, substitute and complement products, supplier power, and buyer power.

Internal rivalry Competition for share by firms within a market.

Macrodynamics The evolution of overall market structure.

Market definition The process of identifying the market or markets in which a firm competes.

Network externality Refers to a situation where, when additional consumers join a ‘network’ of users, they create a positive external benefit for consumers who are already part of the network.

Option value The expected net present value that arises when a firm leaves itself with options that arises when a firm leaves itself with options that allow it to better tailor its decision making to the underlying circumstances it faces.

Supplier power The ability of input suppliers to negotiate prices that extract profits from their customers.

Value-added analysis The process of using market prices of finished and semifinished goods to estimate the incremental value-added by distinctive parts of the value chain.

Value chain A concept, developed by Michael Porter, which describes the activities within firms and across firms that add value along the way to the ultimate transacted good or service.

Value-created The difference between the value that resides in a finished good and the value that is sacrificed to produce the finished good.

Value net The firm’s ‘value net’ which includes suppliers, distributors, and competitors whose interactions can enhance total industry profits, and the profits of each member of the net.

Hoofdstuk J: Strategische Positioneren voor Concurrentievoordeel

Activity-cost analysis A method of assigning costs that views the firm as a set of value-creating activities and then assigns costs accordingly. Templates such as Porter’s value chain or the McKinsey Business System Framework can be used to identify the relevant activities for this analysis

Attribute-rating method Technique for estimating benefit drivers directly from survey responses and then calculating overall beneftis on the basis of attribute scores

Benefit advantage One of the major strategies to achieve a competitive advantage. When pursuing a benefit advantage, firms seek to attain a higher perceived benefit while maintaining a cost that is comparable to competitors

Benefit drivers Attributes of a product that form the basis on which a firm can differentiate itself, including: the pysical characteristics of the product the quality and characteristics of the services or complementary goods the firm or its dealers offer for sale; characteristics associated with the sale or delivery of the good; characteristics that shape consumers’ perceptions or expectations of the product’s performance or iets cost in use; and the subjective image of the product

Broad coverage strategy A targeting strategy that is aimed at serving all segments in the market by offering afull line of related products

Competitive advantage The ability of a firm to outperform its industry, that is, to earn a higher rate of profit than the industry norm

Conjoint analyses A set of statistical tools used by market researchers to estimate the relative benefits of different product attributes

Consumer surplus The perceived benefit of a product per unit consumed minus the product’s monetary price

Cost advantage One of the major strategies to achieve a competitive advantage. When pursuing a cost advantage, firms seek to attain lower costs while maintaining a perceived benefit that is comparable to competitors

Cost drivers The basic economic forces that cause costs to vary across different organizations

Customer specialization A targeting strategy in which the firm offers a variety of related products to a particular class of consumers

Experience good A product whose quality can be assessed only after the consumer has used it for a while.

Focus strategy A targetting strategy that concentrates either on offering a single product or serving a single market segment or both.

Geographic specialization A targeting strategy in which the firm iffers a variety of related products within a narrowly defined geographic market.

Indifference curve The set of price-quality combinations that yield the same consumer surplus to an individual.

Margin strategy Strategy by which a firm maintains price parity with its competitors and profits from its benefit or cost advantage primarily through high price-cost margins, rather than through a higher market share.

Perceived benefit The perceived gross beefit of a product minus the user cost of the product, purchasing costs, and transaction costs.

Product specialization A targeting strategy in which the firm concentrates on producing a single type of product for a variety of market segments.

Reservation price The maximum monetary price the consumer is willing to pay for a unit of a product or service.

Search goods Goods whose quality is relatively easy to evaluate before purchase.

Selection In the context of report cards, a process whereby sellers may practice selection by choosing not to sell to certain customers in order to boost their report card score.

Stuck in the middle The idea – argued by Michael Porter – that firms which attempt to pursue both a cost and differentation advantage simultaneously will be ineffective, providing both a lower perceived benefit to customers than those firms that pursued a differentiation advantage and incurring higher costs than those that pursued a cost advantage.

Targeting Refers to the selection of segments that the firm will serve and the development of a product line strategy in light of those segments.

Hoofdstuk K: Duurzaam Concurrentievoordeel

Causal ambiguity A term coined by richard Rumelt to refer to situations in which the causes of a firm’s ability to create more value than its competitors are obscure and only imperfectly understood

Certification bias Any of a number of factors that may cause certifiers to issue biased quality ratings

Certifiers Individuals or firms that certify the quality of produts and services

Composite scores Aggregation of several individual scores into a single score. Composite scores often represent weighted averages of individual components

Cospecialized assets Assets that are more valuable when used together than when separated

Creative destruction When quiet periods in markets are punctuated by fundamental ‘shocks’ of ‘discontinuities’ that destroy old sources of advantage and replace them with new ones

Credence goods Goods whose quality is difficult to ascertain even after purchase and use

Disclosure The process of revealing information about product quality

Disruptive technologies Class of technologies that has higher B-C than their predecessors, but does so primarily thourgh a combination of lower B and much lower C

Dynamic capabilities Ability of a firm to maintain and adapt the capabilities that are the basis of its competitive advantage

Dynamic efficiency The achievement of long-term growth and technological improvement

Early-mover advantages Once a firm acquires a competitive advantage, the early-mover advantage increases the economic power of that advantage over time. Sources of early-mover advantages include: the learning curve, brand name reputation, buyer uncertainty about product quality, and consumer switching costs.

Efficiency effect Refers to the fact that the benefit to a firm from being a monopolist as compared with being one of two competitors in a duopoly is greater than the benefits to a firm from being a duopolist as compared with not being in de industry at all.

Experience good A product whose quality can be assessed only after the consumer has used it for a while.

Isolating mechanisms A term coined by Richard Rumelt that refers to economic forces that limit the extent to which a competitive advantage can be duplicated or neutralized through the resource-creation activities of other firms.

Multitask principle Principle stating that when allocating effort among a variety of tasks, employees will tend to exert more effort toward those tasks that are rewarded.

Network externality Refers to a situation where, when additional consumers join a ‘network’ of users, they create a positive external benefit for consumers who are already part of the network.

Perfectly contestable market A market in which a monopolist cannot raise price above competitive levels because of concern over possible entry.

Quality report card A grade or list of grades used to compare quality to evaluate quality.

Regression to the mean A process shows regression to the mean if its shocks are not persistent over time.

Replacement effect A phenomenon whereby, depsite equal innovative capabilities, an entrant is willing to spend more to develop an innovation. The reasoning behind this phenomenon is that through innovation the entrant can potentially replace the monopolist in the industry; however, the monopolist can only ‘replace’ itself.

Resource-based theory of the firm A framework used in strategy based on resource heterogeneity. It posits that for a competitive advantage to be sustainable, it must be underpinned by resource capabilities that are scarce and imperfectly mobile, wich means that well-functioning markets for the resources and capabilities do not or cannot exist.

Resources Firm-specific assets such as patents and trademarks, brand-name reputation, installed base, and organizational structure. Resources can directly affect the ability of a firm to create more value than other firms, and can also indirectly impact value-creation because they serve as the basis of the firm’s capabilities.

Risk adjustment The process of adjusting report card scores to account for differences across sellers in the products or services sols. Risk adjustment is often used in hospital and physician report cards.

Search goods Goods whose quality is relatively easy to evaluate before purchase.

Sequential search A search that occurs when consumers learn about the attributes of products one at a time. Consumers usually incurr an additional cost with each additional search.

Shopping problem The problem faced by consumers attempting to determine the quality of a good or service.

Signal A message that conveys information about vertical positioning.

Simultaneous search A search that occurs when consumers simultaneously learn about the attributes of several products.

Static efficiency The optimal allocation of society’s recources at a given point in time.

Sunk cost effect A phenomenon whereby a profit-maximizing firm sticks with its current technology or product concept even though the profit-maximizing decision for a firm starting from scratch would be to choose a different technology or product concept.

Switching costs Refers to costs uncurred by buyers when they switch to a different supplier.

Targeting Refers to the selection of segments that the firm will serve and the development of a product line strategy in light of those segments.

Teaching to the test Effort to improve the measured aspects of performance, possibly at the expense of unmeasured aspects.

Total quality management A management philosophy which teaches that firms can lower their costs and maintain or increase quality by improving the efficiency of their production processes

Unraveling A market process in which high-quality sellers discloses their quality, followed by medium-quality sellers, and so forth, until all sellers have disclosed.

Warranty A promise to reimburse the consumer if a product fails.

Winner’s curse The firm that wins the bidding war for a input may be overly optimistic about its value. Unless it accounts for the possibility of overoptimism, the winning bidder may end up overpaying for the asset.