This paper is not to be removed from the Examination Halls

UNIVERSITY OF LONDON

279 0119 ZB

BSc degrees and Diplomas for Graduates in Economics, Management, Finance and the Social Sciences, the Diplomas in Economics and Social Sciences and Access Route for External Students

Strategy

Tuesday, 24 May 2011 : 2.30pm to 5.30pm

Candidates should answer FIVE of the following NINE questions: FOUR from Section A (15 marks each) and ONE from Section B (40 marks). Candidates are strongly advised to divide their time accordingly. A calculator may be used when answering questions on this paper and it must comply in all respects with the specification given with your Admission Notice. The make and type of machine must be clearly stated on the front cover of the answer book.

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SECTION A Answer FOUR questions from this section (15 marks each).

1.

Why is limit pricing so rarely used to deter entry? McDonalds is the worlds largest fast-food chain. In addition to competing against other global chains like KFC and Burger King, McDonalds competes in the fast-food markets across the world against small local food stalls. How do the distinctive capabilities used to sustain performance differ between McDonalds and a local food stall?

2.

3.

Why was Minnetonka Corporation successful in cornering the market for liquid soap? Which structural and product-specific features made it difficult for Procter & Gamble and Unilever to enter this market?

4.

Consider the following two sources of a sustainable competitive advantage for firms: impediments to imitation and first-mover advantages. Give two examples of each in the manufacturing industry.

5.

Which firms take more risks in R&D competition, the leading or the lagging firms? How does this depend on whether it is a winner-take-all competition (as for a patent which goes to a firm with the highest quality) or one in which firms share overall industry profits proportional to their product quality?

6.

Cartel stability depends on a number of firm and market characteristics. For the following three examples, state if cartel stability increases or decreases and which parameter in a cartel model is affected. (a) (b) A shift in the market shares of two firms from 50/50 to 60/40. A change in the long-term growth prospects of the industry from 3% per annum to 6% per annum. A change in the risk-free interest rate from 3% to 5%.

(c)

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SECTION B Answer ONE question from this section (40 marks). The English language is considered one of the most successful social technologies worldwide. (a) In what way does language as a technlogy have direct network effects? Are there indirect network effects from learning English? Consider a social network technology like Facebook, Twitter or similar. Will increased use of such networks lead to increasing or decreasing dominance of English as a world language? Argue your position. In the diffusion of a new technology, the heterogeneity of potential adopters plays an important role in explaining diffusion patterns. Give three economic sources of heterogeneity that explain the patterns of how English is learned: i. ii. iii. across countries (i.e. which countries adopt first), within countries (i.e. who adopts first in a country), and across professions (i.e. which professions adopt first).

7.

(b)

(c)

8.

The wide-body aircraft industry consisted of three players until some decades ago: Boeing (producing the B747), McDonnell Douglas (with the DC10) and Lockheed (producing the L1011 Tristar). (a) Consider the following graph. Calculate the approximate Herfindahl Index for the years 1968, 1975 and 1980.

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(b)

Although the wide-body aircraft market is highly concentrated, it is still very competitive. Give three specific features of the wide-body aircraft industry that explain this. Why do you think there has been so little entry in the market in recent decades? Name two strategic and two structural barriers to entry and explain them briefly.

(c)

9.

Although there are hundreds of firms offering cloud computing services - web-based applications living in data centres, such as music sites or social networks - Microsoft, Google and Apple play the dominant role in this new market. Each has its own global network of data centres. They intend to offer not just one or two services, but whole suites of services. They are also trying to dominate the periphery, e.g. by developing software for smart-phones or other devices and by making such devices themselves. [] Despite the growing similarities among the three, each is a unique beast, says Michael Cusumano, a professor at Massachusetts Institute of Technology. Google has been a cloud company since its birth in 1998. It is best known for its search service, but now offers other services, too. It has built a global network of three dozen data centres with 2 million servers. Among other things, it offers a suite of web-based applications. Lately it has branched out, releasing Android for phones, and its Chrome web-browser and operating system for PCs. Googles main source of revenue is advertising. Googles reliance on advertising explains its open approach to intellectual property as Android and Chrome OS are given away as open-source software. If Google was born in the sky, Microsoft started on the ground. Office, its bestselling suite of PC programs, is almost as ubiquitous as Windows. It has built a network of data centres. Its Xbox games console has powerful online features. Bing, its new search engine, has gained a shade in market share. Microsofts treatment of intellectual property can be best described as controlled. Apple, too, came from outside the cloud. The company excels at pricey but highly innovative bundles of hardware and software, but the firms interest in the cloud has grown. It is building a $1 billion data centre, possibly the worlds largest, in North Carolina. Still, Apples financial health thus far has depended mainly on selling hardware. Apple is also the odd one out when it comes to openness. The word does not appear in its vocabulary. (Adapted from: Cloud Computing: Clash of the Clouds, The Economist, 15th October 2009) (a) Some industry observers argue that Google is in the best position to win this battle for a dominant position in the cloud computing market. Do you agree? Why or why not? Describe the role of network effects in this battle. While the case study focuses on cloud computing for private consumers, cloud computing also becomes increasingly important for firms. What are the advantages that firms can benefit from if they use cloud computing?

(b) (c)

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