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					                                   ECONOMICS 3SG
                         The Economic History of Entrepreneurship

Spring 2011          The Entrepreneur and Rockefeller I (Ecentr02)   Rogers

 I.    Porter Taxonomy or Model

       A.        Particular Models - Porter’s Model

       B.        Elements of the taxonomy of the Firm

            1.     Power of the Customers
            2.     Internal Configuration of the Firm
            3.     Competitors
            4.     Threat of new Entrants
            5.     Substitutes
            6.     Suppliers
            7.     Government


                               Threat of new Entrants




                                          Competitors




  Power                                                              Power
                                        Internal
                                        Configuration
  of                                    of the Firm                  of

  Suppliers                                                          Customers


                                          Competitors




                                  Threat of
                                  Substitutes



                                            1
    II.   Model of the Firm

          A.        The Model of Firm

               1.    demand curve       - Firm Demand Function

                     qij = Dij (Pij, Tastes, U, Y, PS1, PS2, Structure)

               2.    Long Run Average Cost Function

                     LRAC = LRTC/Q= LRAC(Q, PI, U, Tech, Property Rights (PR))

               3.    Put the two together

                      = TR – TC       – Firm Demand Model and Cost Function

                      = P* Dij(Pij,…)- Q*LRAC(Q, ….)

    P                                       P




                                                                  LRAC2
                             LRAC
                         D                                         D2
                                                            D1
                                   q                                q




                                                2
B.        The Model of Firm and Porter

     1.     Porter

             a.   Power     of the Customers

             b.   Substitutes

             c.   Competitors

                  (1)     Threat of new Entrants

             d.   Internal Configuration of the Firm

             e.   Suppliers

             f.   Government

     2.     Firm Model and Porter

                  qij = Dij (Pij, Tastes, U, Y, PS1, PS2, Structure)
                  LRAC = LRTC/Q= LRAC(Q, PI, U, Tech, Property Rights (PR))

             a.   Customers - qij = Dij (Pij, Tastes, U, Y,… - the
                  variables coming from customers

             b.   Substitutes – PS2

             c.   Competitors PS1, and Structure all the things they can
                  do –

                  (1)     Present competitors

                  (2)     Threat of new Entrants

             d.   Internal Configuration of the Firm – Cost curve

                  (1)     Dij ( …U, ….       Structure)

                  (2)      LRAC(. . . ., Tech, .. )

             e.   Suppliers

                  (1)     LRAC = LRAC(Q, PI,. . . .)

                  (2)     New sources

                  (3)     Transportation




                                         3
     f.   Government    - All these things can affect the
          government

          (1)   qij = Dij (Pij, Tastes, U, Y, PS1, PS2, Structure)

          (2)   LRAC =LRAC(Q, PI, U, Tech, Property Rights (PR))

3.   Firm Model, Porter, and Entrepreneurs

     a.   Entrepreneurs – One who leads to a major change

          (1)   Often the owner – Ford

          (2)   Sometimes – Manager – Sloan and Watson, jr.

     b.   Model of the Firm

          qij = Dij (Pij, Tastes, U, Y, PS1, PS2, Structure)
          LRAC = LRTC/Q= LRAC(Q, PI, U, Tech, Property Rights (PR))

     c.   Customers - qij = Dij (Pij, Tastes, U, Y,…)

          (1)   Sloan – car niches

          (2)   Watson – Finding new customers for computers-
                business

          (3)   Jobs – Finding new customers for computers-
                consumers

     d.   Substitutes – PS2

          (1)   IBM in the 1970s - PS2 minicomputers Digital

          (2)   IBM and in the 1980s - PS2 microcomputers

     e.   Competitors PS1, and Structure all the things they can
          do –

          (1)   Ford and GM - Present competitors

          (2)   Threat of new Entrants – Rockefeller – new source
                of crude – new entrants

     f.   Internal Configuration of the Firm – Cost curve

          (1)   Sloan

          (2)    Ford - failure




                              4
                    g.   Suppliers

                         (1)   Bethlehem and inputs

                         (2)    Rockefeller – transportation

                    h.   Government     - All these things can affect the
                         government

                         (1)   qij = Dij (Pij, Tastes, U, Y, PS1, PS2, Structure)

                         (2)   LRAC =LRAC(Q, PI, U, Tech, Property Rights (PR))

III.   Rockefeller Porter Taxonomy and the Model

       A.        Elements of the taxonomy of the Firm

            1.     Power of the Customers
            2.     Internal Configuration of the Firm
            3.     Competitors
            4.     Threat of new Entrants
            5.     Substitutes
            6.     Suppliers
            7.     Government

       B.        Rockefeller – four major things

            1.     Suppliers – controls transportation

                    a.   Pricing among railroads

                    b.   Gives him a chance to set up his organization

                    c.   Crude Oil

                         (1)   Pennsylvania stayed away

                         (2)   Later – integrates backward

                               (a)    Lima

                               (b)    Frash and sulfur

            2.     Internal Configuration of the Firm

                    a.   Set up coordination of product flow

                    b.   Set up complicated organization




                                             5
     3.     Government – reaction from

             a.   Reaction to transportation machinations

                  (1)    Fears from mainly suppliers

                  (2)    Mainly state laws

                  (3)    Eventually antitrust case

             b.   Incorporation laws

     4.     Customers and suppliers - Marketing and inputs –
            Distribution of product over space – Standard Oil
            wagons – red cans - Shell

C.        Standard Oil – Customers and Demand

     1.     Oil uses in Rockefellers time

             a.   Lubrication – small

             b.   Medicine – Vaseline – other things

             c.   Fuel

                  (1)    Heating comes later

                  (2)    Propulsion –

                         (a)   ships

                         (b)   Trains – steam with oil

                         (c)   Autos – gasoline - later

             d.   Lighting

     2.     Lighting

             a.   Substitutes

                  (1)    Candles

                  (2)    Other lamp fuels

                         (a)   Coal oil

                         (b)   Whale oil – loss of whales that started
                               kerosene


                                   6
                   b.    Gas – in cities piped into homes

                         (1)   At first coal gas

                         (2)   In 1900s, natural gas might have beaten
                               electricity

                         (3)   Welsbach mantle for gas – better than Edison
                               lamps

                   c.    Electricity

                         (1)   Edison

                         (2)   1912 – Tungsten – number of improvements

                         (3)   Beat – Welsbach mantle

                   d.    But it is the 1920s before most home get
                         electricity

                   e.    1900s – switch – ships more than cars

           3.     Summary

                   a.    kerosene – major sales

                   b.    Market – geography

                         (1)   USA

                         (2)   Europe

                         (3)   World

IV.   Rockefeller Porter Taxonomy and the Model

      A.        Power   of the Customers    - Done

      B.        Substitutes    - Done

      C.        Suppliers – key – transportation

      D.        Government

      E.        Internal Configuration of the Firm

      F.        Competitors




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posted:9/22/2011
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