Essays on Microeconomic Foundations of Business Strategy

Management and Economics are treated as distinct sciences with mostly different methods of research, yet they have the same goal - efficiency. The former is concerned with the efficient planning, organization, leading, and controlling of an organization. The latter is concerned with efficiency in the production, distribution, and consumption of scarce resources. This duality is most pronounced in the confrontation of business strategy and microeconomics. The counterpart of each strategic decision is a reaction of the market system. Each change in the market system provokes an adaptation of the strategic decisions. This dissertation analyzes three different settings with economic agents in their respective markets. The goal is to foster understanding of the microeconomic interactions in the market as a basis for business strategy development and give hints on the efficiency of market structures and potential business strategies. Chapter 2 is a survey on a series of deep case interviews with car part suppliers and car manufacturers on their strategic supply and purchasing behavior. During the recent 15 years, the Automotive Industry upstream market has undergone significant changes. OEMs have reduced the number of upstream suppliers they are directly dealing with, while their vertical depth of manufacture simultaneously decreased. The survey answers questions concerning the organization of purchasing, the supply strategies, the information about other players in the market, the contractual arrangements, and the competitive situation in this market. Chapter 3 complements chapter 2 with a theoretical model derived from observations of the case study. A procurer faces the main trade-off between reaping benefit of repeated cooperation with an incumbent supplier, and foregoing that benefit by awarding the contract to a possibly more efficient entrant while exercising higher market pressure. The superior procurement behavior per part depends on the ability to realize benefits from cooperation and to extract the proceeds afterwards from the suppliers. This should be reflected in the procurement portfolio of firms. Chapter 4 covers pricing strategies of oligopolistic companies. Conventionally an increase in competition is assumed to decrease prices, increase the number of consumers served, thus increasing consumer surplus, decrease firms? profits, etc. In Contrast, under some tame circumstances, for firms in a horizontally differentiated market it might be the profit maximizing strategy to raise prices as a response to an increase in competition. An empirical examination of the petrol market between gas stations in German cities hints that this relationship holds true