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Book chapter
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Reference no. MHE0159BC
Authors: Sean Rickard
Chapter from: "The Economics of Organizations and Strategy"
Published by: McGraw Hill Education
Published in: 2006

Abstract

Chapter 12. Most economic textbooks, even when titled business or management economies, are not sufficiently focused on the realities of business life to catch the imagination of students planning a career in business. The traditional approach is to slavishly set out highly theoretical models, which assume away many of the problems and issues that those working in business encounter in practice. Change is gathering pace and within business schools economics is increasingly being taught from the perspective of business needs. There are now a few textbooks that explicitly place the teaching of strategy and organizational efficiency within the framework of industrial economics. But, they primarily focus on either strategy or organizational efficiency: bringing the two pillars of competitive advantage together within an industrial economics framework is rare. In the view of this author, it is not sensible to separate an examination of strategic behaviour from an examination of the way firms develop and utilize their resources. In addition to explicitly combining the study of strategy and organizational efficiency within an industrial economics framework, there is also a need to present the learning in ways that are accessible. For students lacking a degree in economics, this requires an emphasis on narrative and diagrams to augment a modest resort to formulae. This book is differentiated by its range and treatment of topics. Its value to business students is that, within its covers a very wide range of key business topics of direct relevance to organizational efficiency and strategy are explained and demonstrated. Each chapter includes a summary of key learning points, student exercises and references. In this chapter, we extend our analysis of the relationship between price and sales to include imperfect information, and in so doing, we move further away from the neo-classical paradigm whereby it is assumed that firms within an industry sell at a uniform price - sellers treating all customers on an equal basis. After reading this chapter, you will: (1) understand how imperfect and asymmetric information impact on the prices charged by firms with or without variations in the quality on offer; (2) be aware of the many types of vertical restraint and their positive role in a world characterized by imperfect information and bounded rationality; (3) appreciate why the European Commission now essentially takes a rule of reason approach to vertical restraints.

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Abstract

Chapter 12. Most economic textbooks, even when titled business or management economies, are not sufficiently focused on the realities of business life to catch the imagination of students planning a career in business. The traditional approach is to slavishly set out highly theoretical models, which assume away many of the problems and issues that those working in business encounter in practice. Change is gathering pace and within business schools economics is increasingly being taught from the perspective of business needs. There are now a few textbooks that explicitly place the teaching of strategy and organizational efficiency within the framework of industrial economics. But, they primarily focus on either strategy or organizational efficiency: bringing the two pillars of competitive advantage together within an industrial economics framework is rare. In the view of this author, it is not sensible to separate an examination of strategic behaviour from an examination of the way firms develop and utilize their resources. In addition to explicitly combining the study of strategy and organizational efficiency within an industrial economics framework, there is also a need to present the learning in ways that are accessible. For students lacking a degree in economics, this requires an emphasis on narrative and diagrams to augment a modest resort to formulae. This book is differentiated by its range and treatment of topics. Its value to business students is that, within its covers a very wide range of key business topics of direct relevance to organizational efficiency and strategy are explained and demonstrated. Each chapter includes a summary of key learning points, student exercises and references. In this chapter, we extend our analysis of the relationship between price and sales to include imperfect information, and in so doing, we move further away from the neo-classical paradigm whereby it is assumed that firms within an industry sell at a uniform price - sellers treating all customers on an equal basis. After reading this chapter, you will: (1) understand how imperfect and asymmetric information impact on the prices charged by firms with or without variations in the quality on offer; (2) be aware of the many types of vertical restraint and their positive role in a world characterized by imperfect information and bounded rationality; (3) appreciate why the European Commission now essentially takes a rule of reason approach to vertical restraints.

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