Module 4 – Case ECONOMICS OF ORGANIZATION AND STRATEGY

Module 4 concludes BUS530 with an assessment of the new developments in managerial economics:

Asymmetric information refers to market situations in which one party in a transaction has more information than the other party.

· Adverse selection is a situation in which asymmetric information causes higher-risk customers to be more likely to purchase or sellers to be more likely to supply low-quality goods.

· Moral hazard is a situation that occurs when, as a result of having insurance, an individual becomes more likely to engage in risky behavior.

· The lemon problem applies this analytical framework to the market for used cars.

· The principal-agent problem applies the same analytical framework to the relationship between the CEO of a company (the agent) and the stockholders (the principal).  Furthermore, Module 4 introduces the students to three special markets: a) the market for used cars, b) the insurance market, and c) the credit market.

· Finally, Module 4 introduces the students to the use of data and statistical analysis to support managerial decisions.

After reading the required material, you will complete one case assignment, one session long project and participate in the discussion forum.

Module 4 – Case

ECONOMICS OF ORGANIZATION AND STRATEGY

Assignment Overview

Apple and Samsung are often mentioned together, as they are both world leading producers of smartphones.  However, they are much different companies in a variety of ways.  Carefully review the background readings concerning diversification and vertical integration.  Then do some extensive research on Samsung and Apple concerning their diversification and vertical integration strategies.

Case Assignment

When you have finished your research, write a four- to five-page paper answering the following questions. Make sure to cite both the required background readings as well as articles on Samsung and Apple:

1. To what extent does Apple engage in related diversification?  To what extent do they engage in unrelated diversification?

2. To what extent does Samsung engage in related diversification?  To what extent do they engage in unrelated diversification?

3. To what extent does Apple engage in backward (upstream) vertical integration?  To what extent do they engage in forward (downstream) vertical integration?

4. To what extent does Samsung engage in backward (upstream) vertical integration?  To what extent do they engage in forward (downstream) vertical integration?

5. Overall what major differences or similarities do you find between Samsung and Apple’s diversification and vertical integration strategies?

Module 4 – SLP

ECONOMICS OF ORGANIZATION AND STRATEGY

For this final SLP, imagine that your business has become successful and you are now considering expanding the scope of your company.  Carefully review all of the required background materials, and then write a three-page paper answering the following questions.  Make sure to cite at least one of the required readings for each of your answers:

1. If you were to engage in horizontal integration, which of your direct competitors would you decide to acquire?  Overall, do you think horizontal integration is the best long-run plan for your business if it is successful?

2. Do you think your business should vertically integrate over time?  Should you engage in backward vertical integration, forward vertical integration, both, neither?  Explain your reasoning.

3. How about diversification/conglomerate strategy?  Any advantage to diversifying your business?  Discuss unrelated diversification and related diversification and whether or not these strategies might be good for your business.  Explain your reasoning.

SLP Assignment Expectations

· Answer the assignment questions directly.

· Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials.

· Make sure to use reliable and credible sources as your references. Articles published in established newspapers or business journals/magazines are preferred. If you find articles on the Internet, make sure they are from a credible source.

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