Dr Jorn Rothe NAB5.01

This course is compulsory on the MSc in Management and Strategy. This course is available with permission as an outside option to students on other programmes where regulations permit.

Students must have completed The Analysis of Strategy A (MN415).

In this course we continue, deepen and extend the analysis of strategy. The success of a firm depends on the decisions it makes, and these decisions have to take the behaviour of competitors into account who themselves try to make optimal decisions. Thus the firm faces a problem of strategic interaction, and game theory takes this interaction consistently into account. This course aims at a strategic understanding of these situations and the decisions firms face. We will study general principles of strategic thinking, the application of these principles to specific problems and general conclusions we can draw in these situations. This part of the course focuses on the strategic aspects of competing against other firms within the same industry. We start by analysing market structure and various dimensions of competition - pricing, capacity choices, research and development and advertising. We will then discuss different aspects of strategic commitment and the commitment aspects of pricing, investment and financing decisions. We then focus on the dynamic aspect of pricing rivalry, in particular collusion and price wars. We will analyse the role of incomplete and changing information in decision-making and the evaluation of 'real options'. We will finally discuss the incentives for innovation and market entry and exit decisions. Our approach will be critical throughout, emphasising both the power and the limits of a game-theoretic approach. We will use simple models to clarify the logic of strategic reasoning, and case studies to emphasise the relationship between the analysis of strategy and managerial decision making.

20 hours of lectures and 8 hours of seminars in the LT. 2 hours of seminars in the ST.

Students on this course will have a reading week in Week 6, in line with Departmental policy.

There is no fully adequate textbook for this course.

The most important text is D Besanko, D Dranove & M Shanley and S Schaefer, The Economics of Strategy, John Wiley (6th edition, 2012). Among the other sources are:

L M B Cabral, Introduction to Industrial Organization, MIT Press (2000); P Ghemawat, Games Businesses Play: Cases and Models, MIT Press (1997); D M Kreps, Game Theory and Economic Modelling, Clarendon Press (1990); J Sutton, Technology and Market Structure, MIT Press (1998). A detailed reading list will be provided at the beginning of the course.

Exam (100%, duration: 2 hours) in the main exam period.