Competitive Solutions

Competitive Solutions : The Strategist's Toolkit

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Competitive Solutions is an entertaining and wideranging introduction to successful business methods applied to a variety of real-world situations. Rejecting the one-size-fits-all premise that underlies so many guides to business strategy, Preston McAfee develops the intellectual tools and insights needed to confront many marketplace problems. Drawing on his broad experience as a consultant for major U.S. companies, as well as extensive research, McAfee emphasizes cooperation, pricing, litigation, and antitrust as vital to a firm's competitive posture--and focuses more attention on these elements than do most business strategy accounts. McAfee begins by considering strategy as successfully applied by America OnLine, an example that introduces many of the tools discussed in greater depth throughout the book. From here he moves to industry analysis: By examining the context for developing a strategy, he points out uses of positioning and differentiation that enable a firm to weaken price competition and deter rivals from stealing customers.
McAfee's exploration of a product's life cycle proves an invaluable guide to positioning new technology in order to maximize the potential for future customers. In the centerpiece of the book, McAfee lays out a how-to manual for cooperation, providing tactics crucial for setting standards, lobbying the government, and fostering industry growth. Writing in a conversational manner, McAfee also addresses such deep topics as organizational design and employee compensation and incentives. More detailed discussions examine antitrust enforcement, which is an increasingly important constraint on strategy, as well as strategies for pricing, bidding, signaling, and bargaining. This book is a fascinating examination of modern business strategy and its application in many different settings. Students of business and economics--as well as executives and managers--will recognize Competitive Solutions as an indispensable resource as well as a definitive vision of the strategic firm: one in which each element of company strategy reinforces the other elements.
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Product details

  • Paperback | 424 pages
  • 146 x 229 x 25.15mm | 539g
  • New Jersey, United States
  • English
  • Revised ed.
  • 50 line illus.
  • 0691124035
  • 9780691124032
  • 453,000

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"Preston McAfee has produced a superb, remarkably comprehensive book on competitive strategy. It is accessible, accurate, and entertaining! Students will stay awake reading it. At its core are numerous examples from actual business settings that are clearly relevant to today's strategist."--Peter Cramton, University of Maryland

"This is a very good book that goes a long way toward filling the need for a work on the economics of competition. It has the potential to substantially improve courses in competitive strategy. The coverage is wonderful, the examples are interesting, the informal arguments are excellent, and the style is engaging."--Mark Satterthwaite, Kellogg School of Management, Northwestern University

"The very readable style, accessibility, and richness and recentness of examples differentiate this book from some of its competitors in a way that should make it popular with students. McAfee clearly knows his subject well, understands the connections between the theoretical and empirical scholarship in the economics of strategy and the practical challenges faced by strategists, and draws on the latest academic literature and a variety of relevant examples in making his points."--Eric Zitzewitz, Stanford Business School
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Back cover copy

"A fascinating read-combining economics and strategy. Just what we need at Samsung."--John Shin, Senior Consultant in Strategy and Leadership, Samsung Electronics, Ltd.

"Preston McAfee has produced a superb, remarkably comprehensive book on competitive strategy. It is accessible, accurate, and entertaining! Students will stay awake reading it. At its core are numerous examples from actual business settings that are clearly relevant to today's strategist."--Peter Cramton, University of Maryland

"This is a very good book that goes a long way toward filling the need for a work on the economics of competition. It has the potential to substantially improve courses in competitive strategy. The coverage is wonderful, the examples are interesting, the informal arguments are excellent, and the style is engaging."--Mark Satterthwaite, Kellogg School of Management, Northwestern University

"The very readable style, accessibility, and richness and recentness of examples differentiate this book from some of its competitors in a way that should make it popular with students. McAfee clearly knows his subject well, understands the connections between the theoretical and empirical scholarship in the economics of strategy and the practical challenges faced by strategists, and draws on the latest academic literature and a variety of relevant examples in making his points."--Eric Zitzewitz, Stanford Business School
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Table of contents

Preface xiii Preamble xiii Contents xvi What Is Strategy? xviii Acknowledgments xix Chapter 1. Introduction 1 Executive Summary--Introduction 7 Chapter 2. Industry Analysis 9 The Five Six Forces 9 Entry 11 Buyer Bargaining Power 16 Supplier Bargaining Power 18 Substitute Products 18 Rivalry 19 Complements-The Sixth Force 23 Strategies for Complements 26 Industry Structures 27 Fragmented Industry 28 Dominant Firm 30 Tight Oligopoly 33 Loose Oligopoly 34 Executive Summary -Industry Analysis 34 Chapter 3. Firm Strategies 36 Value/Cost Strategies 36 Quality Choice without Competition 37 Games and Best Responses 38 The Effects of Competition on Quality Choice 42 Accommodation and Dissuasion 44 Low-Cost Strategy 45 Cream-Skimming 47 Coherent Strategies 48 The Three-Layer Model 50 Stuck in the Middle 56 Dealing with Competitors 57 Executive Summary--Firm Strategies 58 Chapter 4. Differentiation 61 Competition in Differentiated Products 63 Creating Synergies 70 Quality Complementarities 74 Networks 75 Technological Races 78 Patent Strategy 80 Hedonic Prices 85 Executive Summary--Differentiation 89 Chapter 5. Product Life Cycle 91 Introduction 95 Growth 97 Maturity 98 Decline and Replacement 101 Summary of the Product Life Cycle 105 The Life Cycle for Durable Goods 108 Executive Summary--Product Life Cycle 112 Chapter 6. Cooperation 113 Cooperation on a Variety of Issues 113 Tacit Collusion 116 Shared Interest 116 Punishment 119 Recovery 124 Problems of Tacit Cooperation in Price 127 Confessions 128 Many Producers 129 Differentiated Products 129 Reaction Time 130 Environmental Randomness 132 Motivating Managers 132 Efficient Allocation within a Cartel 133 Unenforceable Contracts 135 Risky Communication 135 Small or Failing Firms 135 Entry and Substitutes 136 Competition in Other Dimensions 137 Solutions to Tacit Cooperation Problems 138 Industry Association 138 Published Price Lists 139 Exclusive Territories 139 Preannouncing Future Price Increases 140 The Capture Theory 140 Incrementalism 141 Multimarket Contact 142 Multilevel Contact 144 Unused Capacity 144 Grow or Crush Small or Bankrupt Firms 145 Executive Summary--Cooperation 146 Chapter 7. Organizational Scope 148 Make or Buy Decisions 151 Tapered Integration 158 The Multidivisional Firm 160 Transaction Costs 163 Prices or Quantities 170 Net Present Value 172 Project Selection and Risk Assessment 179 Executive Summary--Organizational Scope 184 Chapter 8. Incentives 187 Agency 188 Efficiency Wages 191 Making Firms More Aggressive 192 Agent Selection 193 Managing Creative Talent 194 Multitasking 195 Common Agency 199 Tournaments and Yardstick Competition 201 Ratchet Effect 202 Executive Summary--Incentives 203 Chapter 9. Antitrust 204 Major Laws 204 Sherman Act (1890) 205 Clayton Act (1914) 206 FTC Act (1914) 209 Exemptions and Special Treatment 210 Predation, Foreclosure, and Tying 211 Mergers 214 DOJ Guidelines for Horizontal Mergers 216 Vertical Mergers and Antitrust Enforcement 221 Executive Summary--Antitrust 224 Chapter 10. Elementary Statistics 225 Opinion Polls 226 The Precision of Statistics 234 The Normal Distribution or Bell Curve 236 Conditional Probabilities and Correlation 239 The Predator Theory of Tornadoes 244 Sample Selection Bias 246 The Hot Hand 247 Option Values 251 Scenario Analysis 255 Executive Summary--Elementary Statistics 258 Chapter 11. Pricing 260 Illustrative Examples 262 International Pricing by the Pharmaceutical Companies 262 Methyl Methacrylate 262 Hand-Me-Down by Armani 264 IBM LaserPrinter E 264 Sony MiniDisc 265 An Electric Utility's Individualized Pricing 265 IBM's Punchcard Metering 266 Buying Paint from an Airline 266 Direct Price Discrimination 268 Indirect Price Discrimination 273 Coupons 273 Quantity Discounts 274 Product Branding 276 Product Bundling 277 Peak-Load Pricing 278 Yield Management 281 Theatrical Yield Management 284 Robert Crandall on Airline Pricing 285 Competition and Price Discrimination 288 How to Soften Price Competition 289 Opportunism and Exclusive Dealing 289 Create Competition by Licensing 292 Vertically Integrate with the Buyers 292 Long-Term Contracts 292 Exclusive Contracts 293 Most-Favored-Customer Clauses 293 Uniform, Simple Contracts 294 Pricing of Complements 295 Price Dispersion and the Theory of Sales 297 Executive Summary--Pricing 300 Chapter 12. Auctions 303 Bidding 303 The English Auction 304 The Sealed-Bid Auction 305 The Winner's Curve 307 Updating 311 Selling Strategy and Auction Design 312 When to Auction? 320 Executive Summary--Auctions 322 Chapter 13. Signaling 324 Signaling in Action 324 Law Firms' Marbled Buildings 324 Service Plans and Warranties 325 The $25,000 Rolex Watch 327 Body Language 327 Education 328 Full Product Line 331 Appearing Informed in an Auction 333 Tylenol Recall 333 Lemons 337 Introductory Offers and Advertising 340 Entry Deterrence 342 Leadership 344 Acting Tough 345 Vaporware 348 Product Failures 349 Signaling Psychosis 350 Executive Summary--Signaling 351 Chapter 14. Bargaining 353 Basic Theory 353 Delay 356 The War of Attrition 357 Lawsuits 360 Drug Wars 361 BSB versus Sky TV 364 Holdup 364 Contract Design and Verification 366 Verification and Observability 367 Renegotiation Proofness 369 Breach Penalties 370 Strategic Ambiguity 372 Delegation 373 Exploding Offers 373 Multilateral Bargaining 374 Cheap Talk 376 Executive Summary--Bargaining 378 Chapter 15. Last Words 379 Sustaining Competitive Advantages 379 Endnotes: Sources and Caveats 381 Index 393
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Review quote

One of Strategy & Business's Best Business Books for 2003 "Competitive Solutions: The Strategist's Toolkit belongs on every strategist's bookshelf. McAfee is an economist with a gift for selecting and communicating the best new thinking by economists about business, translating from often abstruse mathematics to clear English and understandable examples. McAfee explains economists' latest thinking about pricing, auctions, signaling, and incentives--key decisions that have make-or-break potential for a company."--Strategy & Business "[T]his book does an excellent job of translating the insights of modern IO into language that business students can readily grasp... I am confident that this is a book that will be received by good students and will serve well as the main text in any strategy course that approaches the topic."--Benjamin E. Hermalin, Journal of Economic Literature
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About R. Preston McAfee

R. Preston McAfee is J. Stanley Johnson Professor of Business, Economics, and Management at the California Institute of Technology. One of North America's leading experts in industrial organization, he is the author of dozens of papers on antitrust, pricing, auctions, and business strategy and coeditor of the "American Economic Review". McAfee codesigned the Federal Communication Commission's PCS auctions, which raised $20 billion, and served as an expert for the Federal Trade Commission on a variety of matters, including the Exxon-Mobil and BP-Arco mergers.
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Rating details

16 ratings
4.06 out of 5 stars
5 44% (7)
4 25% (4)
3 25% (4)
2 6% (1)
1 0% (0)
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