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Tag Archives: 10. Strategy-the quest to slow profit erosion

Gig Workers of the World Unite!

Door Dash drivers are trying to beat the algorithm. When a specific meal needs to be delivered, Door Dash's algorithm will post the gig to available drivers with payment information. If no one accepts, the algorithm raises the compensation level. This is how markets are supposed to clear. What if drivers organize to withhold their services until the rate rises enough? In labor markets, this is the main goal of employee unionization. In business markets, we call it collusion. (It is an open...

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Trying to do Good does not turn out Well

At the beginning of the pandemic, the demand for N95 masks outstripped the available supply. Prices doubled overnight to near $7 per mask (and availability was exasperated by price-gouging concerns, see Dying from Protection from Gouging). Two guys from Fort Worth, Texas wanted to save lives. They understood that the solution would require an increase in supply, so they started United States Mask to fill the gap. However, as the Dallas Morning News reported, they may not have appreciated the...

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What is the best warfighting strategy?

It is interesting to compare the allied strategy in Libya:But the first shots fired didn’t appear to produce an immediate collapse in the rule of Qadhafi, who has surprised his enemies with his resilience. Qadhafi’s tenacity, both in his present circumstance and as evidenced over decades of survival in a very tough neighborhood, begs the question of what happens if this self-consciously limited allied response does not succeed in chasing him from power.Allied leaders so far haven’t provided...

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Marriott’s changed strategy when it realized it was competing on the wrong dimension

New paper identifies a strategy mistake by Marriott: Early in the 1980s, Marriott operated a chain of large, higher-end full-service hotels that typically had 300-500 rooms. While attractive to higher-income tourists, these hotels were not attractive to business travelers who wanted lower-prices and larger rooms.  Marriott surveyed its business customers and learned exactly what these customers valued, and what they didn't: ...many business travelers did not value out-of-room amenities such...

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What is the best way to increase demand for your service?

Get the government to make it illegal not to buy!  MarginalRevolution.com has a nice post about the "Optometry Racket:" In every other country in which I’ve lived, ...you can simply walk into an optician’s store and ask an employee to give you an eye test, likely free of charge. If you already know your strength, you can just tell them what you want..—no doctor’s prescription necessary. ...  The excuse for the law is that eye exams can discover other problems. ... [But] the requirement to...

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What is the cost of marriage?

To an economist, the cost of an activity is what you give up to pursue it.In the year following a divorce, women's living standards fall by 27 percent while men's living standards rise by 10 percent.Steven Landsburg's classic column on Why Men Pay To Stay Married argues that the difference is a compensating differential, the "price" that men pay to women to compensate them for the relatively unpleasant job of marriage.If men stay in marriages that cost them a lot of money, that just proves...

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Is Verizon’s strategy better than AT&T’s?

One of its large shareholders thinks so (article): Elliott Management Corp.’s detailed criticism Monday of decisions made by AT&T’s leaders effectively praises rival Verizon Communications Inc. ’s focus on upgrading its wireless network over becoming a media giant. Verizon's strategy is cutting costs with a big voluntary severance program, and improving and finding new uses for its 5G network.  So far it looks to be better than AT&T's, vertically integrating into content: “While...

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REPOST: The force that Porter forgot

Preston McAfee was the first to realize that Michael Porter's famous industry analysis leaves out one crucial force: cooperation from complements. A new article, How Companies Become Platform Leaders, offers a framework for thinking about strategy in industries like telecommunications where success requires creating an "ecosystem" of complementary products. A company must first decide whether to pursue a "product" or a "platform" strategy: Put simply, a product is largely proprietary...

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Why is Warren Buffet finally investing in airlines?

For years, the airline industry was Michael Porter's classic example of a zero-out-of-five star industry (it had none of Porter's five forces going for it).  But now, it is earning profit (see graph below), and Warren Buffet is investing in it.  What has changed?The WSJ suggests that the increase in industry profitability is driven by an increase in concentration: But this increase in concentration occurs at the industry, not the market level (see my earlier post on this mistaken...

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