Background Note | HBS Case Collection | March 1999 (Revised January 2000)

A Note on Microeconomics for Strategists

by Kenneth S. Corts and Jan W. Rivkin

Abstract

Summarizes the core ideas about the microeconomics of markets that are most relevant to business strategy. Sections I and II develop two basic building blocks of any market, demand and supply. Section II discusses how demand and supply interact to determine the quantity of goods traded in a market and the price paid for those goods, with special attention to the way that external events influence the quantity traded and the price paid. Section IV presents the important benchmark of "perfect competition," in which equally matched firms compete so vigorously and market entry is so easy that no firm earns more than its cost of capital. Section V explores the ways that real markets depart form perfect competition. These departures lie at the heart of long-run profitability.

Keywords: Microeconomics; Cost; Cost of Capital; Market Entry and Exit; Business Strategy; Competition; Corporate Strategy;

Citation:

Corts, Kenneth S., and Jan W. Rivkin. "A Note on Microeconomics for Strategists." Harvard Business School Background Note 799-128, March 1999. (Revised January 2000.)