New to this Edition

There have been many updates and improvements to the text in the 4th edition, including:

New chapter on advanced topics in business strategy that covers topics such as limit pricing, predatory pricing, raising rivals’ costs, vertical foreclosure, establishing first- and second-mover advantages, network effects, penetration pricing, and more.
One hundred percent new end-of chapter problems that are grouped so that instructors can easily assign stressing fundamentals, applications, or both.
20 percent brand-new headlines, with the rest fully updated.
Nine full-length cases that focus on issues ranging from demand elasticities and pricing strategies to mergers and acquisitions.
Inside Business applications are fully updated, with some new material included as well.

Changes by Chapter

Chapter 1 now includes a section that explains how to determine the present value of indefinitely lived assets. It also includes a discussion of how the value of a firm changes on the ex-dividend date. Where appropriate, data and examples from the real world have been updated.

Chapter 2 offers improved coverage of consumer surplus and simultaneous shifts in demand and supply. The chapter contains a new Inside Business application, as well as updated demonstration problems.

Chapter 3 contains a number of minor changes to improve pedagogy. For instance, natural logarithms are now denoted in ln rather than log to more closely match the convention of popular spreadsheet programs. A new Inside Business application summarizes several recent studies indicating that the demands for many essential pharmaceutical products are not perfectly inelastic.

Chapters 4-6 offer several new Inside Business applications, as well as updated headlines and examples. Chapter 4 includes a boxed example that documents that 10-30 percent of a typical in-kind gift is “lost” because it doesn’t match the preferences of the recipient. Likewise, Chapter 5 includes a boxed example that is based on a recent paper by Ed Lazear in the American Economic Review documenting the importance and prevalence of “pay for performance” contracts.

Chapter 7 has thoroughly updated industry data to provide current information on concentration ratios, Herfindahl indices, advertising levels, firm profits, R&D expenditures, and trends in mergers and acquisitions. The opening headline and several Inside Business applications have been updated, and the discussion of mergers has been changed to include the Exxon-Mobil and Time Warner – AOL mergers.

Chapter 8 opens with a new headline that uses recent marketing strategy at McDonalds to motivate product differentiation and sustainable advantage. Several new Inside Business applications that focus on topics such as the competition in the computer industry and trademarks, copyrights, and patents are included.

Chapters 9-11 include a number of updated examples, Inside Business applications, and headlines that better illustrate concepts ranging from Nash equilibrium to cross subsidies.

Chapter 12 has data updates that bolster the extensive revision to this material that occurred in the 3rd edition.

Chapter 13 is new to this edition. Titled Advanced Topics in Business Strategy, it extends the basic oligopoly and game theoretic tools introduced in Chapters 9-10 and shows how managers can sometimes lessen competition by limit pricing, predatory pricing, raising rival costs, or using price discrimination as strategic tools. It also shows how managers can change the strategic environment by creating first- or second-mover advantages, or by using penetration pricing to overcome network effects. The Inside Business applications in this chapter are among the most lively in the book, covering topics such as business strategy at Microsoft, why being first isn’t necessarily an advantage, and Yahoo!’s attempt to use penetration pricing to capture a share of eBay’s online auction business.

Chapter 14, titled A Manager’s Guide to Government in the Marketplace, was Chapter 13 in previous editions of the book. It opens with a new headline and data has been updated where appropriate.

2002 McGraw-Hill Higher Education
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