STRATEGIC MANAGEMENT MODULE I. COMPETITIVE STRATEGY

STRATEGIC MANAGEMENT

MODULE I. COMPETITIVE STRATEGY

TOPIC 1. INTRODUCTION TO STRATEGIC MANAGEMENT

2Topic Readings

1. Introduction to Strategic

Management

• READING PACKAGE, Chapters 1 and 2.• M. E. Porter (1996)

• Zott & Amit (2010)

Definitions and basic concepts

Strategy and business models

Business model design: an

activity based perspective

Competitive strategies

Strategic interaction

How to anticipate competitors’

behavior

• Ghemawat (2010), Chapter 4

Optional additional readingsJ. Tirole, Industrial Organization, 1989, chapter 11.R. Gibbons, A Primer in Game Theory, 1992

Strategic behavior and

competitor profiling

Cases

T-Mobile • e-Learning-UnimibGap • READING PACKAGE, CAP. 23

OutlineFirms need analytical tools to elaborate effective strategies

Two analytical tools for crafting and executing strategy: game theory

competitor profiling

Both tools account for strategic interaction

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Two approches to strategic interactionGame theory:

a theory of human behaviour in strategic settings

firms as rational agents that maximize their objectivefunction in interdependence conditions

Competitor profiling:

Observation of competitors’ actual behavior – what are their objectives, beliefs and organizational practices?

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Anticipate and preempt competition

‘when you know yourself but do not know your enemy, you have equal possibilities to win or to loose ’

Sun Tsu, The Art of War

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Game theory: basic notions

A strategic game is the context where interaction among agents takes place

A strategic game draws on a set of rules which participants are assumed to comply with.

In a strategic game the utility or payoff of each participant depends on its action and the action of other participants

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Core notions: rationality Each player evaluates all possible consequences of her own actions

Assigns a consistent set of preferences over the consequences of actions

And chooses the actions which maximize her objective function

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Representation of strategic games set of strategic choices

outcomes (payoffs)

information set:

Representation of strategic games

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Static and dynamic gamesStatic games: one period

Dynamic games: sequential games and repeated games

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Static games One period

Participants make their choices simultaneously (strategicinteraction once for all)

No player can observe and react to the actual choices made by other players before making her own move

Players’ payoffs depend exclusively on the combination of strategies chosen in the same period.

Static games of complete information: each player’s payoff function is common knowledge

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Static games: normal or reduced form

player 2

L2 R2

player 1 L1 4,4 4,4

R1 0,1 6,3

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Dynamic gamesRepeated games

A constituent one-shot game (e.g., the previous game) Repeated All participants know the outcome of previous repetitions

before starting a new round of the game.

Sequential games, sequential choices. One-shot games: e.g., a chess game, a football match …Multiperiod games: e.g., Formula 1 Championship or the

UEFA Champions League

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Dynamic games: extended form(with perfect information)

1

L1 R1

2

L2 R2 L'2 R'2

(0,1) (2,-1) (-2,-1) (1,0)

Information set: the information each player has on her position in the game Player

Player

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Dynamic games: reduced form

player 2

L2 L2 L2R2 R2L2 R2R2

Player1 L1 0,1 0,1 2,-1 2,-1

R1 -2,-1 1,0 -2,-1 1,0

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Dynamic games with imperfect information

1

L1 C1 R1

2

L2 R2 L2 R2 L2 R2

(0,1) (2,-1) (-3,-2) (0,-3) (-2,-1) (1,0)