Syllabus - Competitive Strategy

7/28/2019 Syllabus - Competitive Strategy

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Week 1: Take care of your competitor

Start date: 01 July 2013

Content

In the first week, we analyse competitive situations in the form of games. We start out using two

toothpaste manufacturers. We write down the actions that these two toothpaste manufacturerscan take, in particular 'advertising' or 'not advertising' in a matrix, and we use that matrix toanalyse what might be optimal strategies in this context.

This is going to give us an introduction into two very important concepts of game theory: NashEquilibria and Prisoners Dilemma. We will learn that it is important to anticipate the actions ofthe other player and take them into account for our own decision.

We then go one step further and analyse what is going to happen if we change a game from asimultaneous game (two players make decisions at the same time) to a sequential game (one ofthe players moves first and the second player then follows).

Videos

IntroductionSimultaneous Games I: Game SettingSimultaneous Games II: Eliminating Dominated StrategiesSimultaneous Games III: Nash EquilibriumSimultaneous Games IV: Prisoners DilemmaSequential Games I: Game SettingSequential Games II: Backward InductionSequential Games III: Credible ThreatsWrap Up

End-of-week quiz | Due date: 22 July 2013

Additional readings (not required for completing the course)

Camerer, C. "Redirecting reserach in business policy and stragegy". StrategicManagement Journal 6(1) 1985. pp. 1-15.Dixit, A. and Skeath, S. "Games of strategy". Norton & Company 2004, second edition. PartII.Saloner, G. "Modeling, game theory, and strategic management". Strategic Management

Journal 12(S2) 1991. pp. 119 - 136.

Week 2: Why firms work together


Content

According to economic theory, firms are generally competing against each other in a market. Inreality, however, we see that firms are often fairly friendly to each other and cooperate with eachother one way or another.

In the second week, we try to understand how this can be and why it is a good thing, at least forthe involved firms. We figure out that firms work together if they interact repeatedly in the same


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market, e.g. if they play the same game again and again. We also see that a mechanism calledcommitment can help to achieve cooperation.

In terms of examples, we talk about street lights for the Olympic Games, about the so calledDiamond Cartel, and about the big airframe manufacturers. All of these are examples of potentialcompetitors cooperating somehow.

Videos

IntroductionReasons for CooperationRepeated Games I: Finite RepetitionRepeated Games II: Backward InductionRepeated Games III: Infinite RepetitionRepeated Games IV: Factors Influencing CooperationCommitment I: Aggressive CommitmentCommitment II: Cooperative CommitmentWrap Up



Cabral, L.M.B. "Introduction to industrial organization". MIT Press 2000. Chapter 8Porter, P. "A study of cartel stability: the joint executive committee 1880-1886". Bell Journalof Economics 14(2). pp. 301-314.

Week 3: The power of complements


Content

The third week is all about compliments. We introduce a formal definition of complements anddiscuss what they mean to us economically.

Later on, we have a look at strategies that are particularly interesting in markets withcomplementary products. We analyse why printers are fairly cheap and ink cartridges are quiteexpensive. We discuss why firms like to sell their products in a bundle and we learn how

complementarity creates switching costs.

We learn that coordination among firms is important in the l ight of complementary products.Finally, we look at strategic partnerships as a powerful tool to align companies interests in thisspecific setting.

Videos

IntroductionComplements: Examples and DefinitionsStrategies for Complements I: Generic Strategies

Strategies for Complements II: Positive ExternalitiesComplements and Cooperation I: ExamplesComplements and Cooperation II: Strategic PartnershipsWrap Up


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Porter, M. "Competitive advantage". Free Press 1985. pp. 416-422 / pp. 436-442.Shapiro, C. and Varian, H. "Information rules: a strategic guide to the network economy".Harvard Business School Press. pp. 159-162.Yoffie, C. and Kwak, M. With friends like these: the art of managing complementors.

Harvard Business Review 89(9). pp. 88-98.

Week 4: How to enter a new market


Content

We start the fourth week by focusing on the process of planning entry. We are mainly interested

in how firms should choose the right market to enter. In this context, it is important to assess theattractiveness of a market and to analyse the entry barriers.

Subsequently, we discuss strategies firms can implement in order to enter a market successfully.

We also take a look on the other side, specifically at the firms that are already active in themarket. They have a high interest to keep a potential entrant out of the market. Hence, weanalyse strategies that they can opt to deter entry.

Videos

IntroductionChoice of Market I: Market AttractivenessChoice of Market II: Structural Entry BarriersChoice of Market III: Strategic Entry BarriersEntry Strategies I: Commitment / Value Chain ReconfigurationEntry Strategies II: Judo Economics / Niche MarketEntry Deterrence I: Structural Entry Barriers / CommitmentEntry Deterrence II: Limit Pricing / Predatory PricingEntry Deterrence III: Pre-EmptionWrap Up

End-of-week quiz | Due date: 05 August 2013


Besanko, D. and Dranove, D. and Shanley, M. and Schaefer, S. "Economics of strategy".Wiley 2004, third edition. Chapter 9.Cabral, L.M.B. "Introduction to industrial organization". MIT Press 2000. Chapter 15.Mc Afee, P. and Mialon, H. and Williams, M. "What is a barrier to entry?". AmericanEconomic Review 94(2) 2004. pp.461-465.

Week 5: Why worry about research &development


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Content

Research and development (R&D) is often said to be one of the key functions within a firm, evenin industries which are not traditionally thought of as high-tech industries.

In the context of R&D, a number of important strategic questions come up consistently. Inparticular, how do firms choose the intensity and riskiness of their research activities, and how doR&D activities depend on the nature of the innovation and their position in the technological racetowards an innovation. We have a closer look at these aspects throughout the fifth week.

Of course, many innovations come about through a stroke of luck or serendipity, but it wouldseem sensible to assume that the majority of innovations come about because their inventorsactively strove towards this specific innovation.

Videos

IntroductionStages of R&DTypes of InnovationIncentives for Innovating I: Competitive MarketIncentives for Innovating II: MonopolistIncentives for Innovating III: Monopolist with Threat of EntryInnovation under CompetitionSleeping PatentsWrap Up



Cabral, L.M.B. "Introduction to industrial organization". MIT Press 2000. Chapter 16.Angelmar, R. "Market structure and research intensity in high-technological-oppportunityindustries". Journal of Industrial Economics 34(1) 1985. pp. 69-79.Cabral, L.M.B. "R&D competition when firms choose variance". Journal of Economics andManagement Strategy 12(1) 2003. pp. 139-150.

Week 6: Design your product wisely

Start date: 05 August 2013

Content

In week six, we focus on strategic aspects of product design. We start out with a phenomenonthat is commonly known as the Bertrand Paradox. To put it simple, in a theoretical world two firmsthat sell the same products end up in perfect competition and make zero profits - a horriblescenario for any firm.

In reality, however, we see that there are some product related aspects that lower the competitive

pressure and make it possible for firms to earn a substantial amount of money.

Firms do not have to take these aspects as given but can actively influence them to their favour.One aspect of particular importance is product differentiation. We study the difference betweenvertical and horizontal product differentiation, and see what firms can do about it.


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Later on, we discuss some generic strategies for product design and pricing, namely costleadership, differentiation and focus. We figure out the problems related to being stuck in themiddle between these different strategies, and we look at ambidexterity.

Videos

IntroductionBertrand Paradox I: Theoretical Model

Bertrand Paradox II: Adjusting Model AssumptionsProduct Differentiation I: IntroductionProduct Differentiation II: Horizontal DifferentiationProduct Differentiation III: Vertical DifferentiationPricing and Product Decisions I: Generic StrategiesPricing and Product Decisions II: Stuck in the MiddleWrap Up



Cabral, L.M.B. "Introduction to industrial organization". MIT Press 2000. pp. 212-215.Hotelling, H. "Stability in competition". Economic Journal 39(153) 1929. pp. 41-57.Porter, M. "Competitive strategy". Free Press 1980. pp. 34-44.

Final exam quiz | Due date: 26 August 2013

Documents

Syllabus - Competitive Strategy