Organizations Essay

527 WordsFeb 1, 20143 Pages
The answer to the first question is, no. If a firm creates value it is not always able to capture it. In fact, the key to a firm making profits on an extended period of time involves creating value and capturing it as well. There are quite a few methods that a firm can use to create value. One method stated by (Brickley, Zimmerman and Smith 2009), that a firm can use to create value is by “limiting consumer transaction costs.” (p. 243). Many times a consumer needs to search for the product, learn about the products characteristics and quality, negotiating the terms of a sale and enforcing agreements. In other words, finding a way to make the consumers life easier when buying a firms product can increase value. When Amazon.com sells an item, they typically place a description next to it, explaining what it is. They even have customer reviews and if it’s a book they will let you read the first chapter as a teaser. A company can also learned how to minimize production cost, which can increase profits for the company. For example, if General Mills sells Cinnamon Toast Crunch at 4 dollars a box but it cost 3.50 to make a box then they only make a .50 cent profit on each box of Cinnamon Toast Crunch they sell. However if General Mills finds a way to minimize cost to 2 dollars a box then they can sell the cereal for 4 dollars a box and increase their profit per box to 2 dollars which in turn increases value of the company. One method for capturing value that was mentioned in the text is entry barriers. The more firms that enter a market, the more competition is created. Increased competition can cause existing companies (as well as new entrants) to lower profits. Lowered profits, discourage entrants from testing the market. Another factor that can allow firms to capture value is having a valuable asset. A valuable asset can be a person or a physical property.

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