Competitive Strategy

Tobias Kretschmer, Professor of Management

Week 1: Take care of your competitor | Start date: 01.07.2013 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 manufacturers can take, in particular 'advertising' or 'not advertising' in a matrix, and we use that matrix to analyse what might be optimal strategies in this context. This is going to give us an introduction into two very important concepts of game theory: Nash Equilibria and Prisoners Dilemma. We will learn that it is important to anticipate the actions of the other player and take them into account for your own decision. We then go one step further and analyse what is going to happen if we change a game from a simultaneous game (two players make decisions at the same time) to a sequential game (one of the players moves first and the second player then follows). Introduction Simultaneous Games I: Game Setting Simultaneous Games II: Eliminating Dominated Strategies Simultaneous Games III: Nash Equilibrium Simultaneous Games IV: Prisoners Dilemma Sequential Games I: Game Setting Sequential Games II: Backward Induction Sequential Games III: Credible Threats Wrap Up End of week quiz | Due date: 22.07.2013
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Week 2: Why firms work together | Start date: 08.07.2013 According to economic theory, firms are generally competing against each other in a market. In reality, however, we see that firms are often fairly friendly to each other and cooperate with each other 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 for the involved firms. We figure out that firms work together if they interact repeatedly in the same market, e.g. if they play the same game again and again. We also see that a mechanism called commitment can help to achieve cooperation. In terms of examples, we talk about street lights for the Olympic Games, about the so called Diamond Cartel, and about the big airframe manufacturers. All of these are examples of potential competitors cooperating somehow. Introduction Reasons for Cooperation Repeated Games I: Finite Repetition Repeated Games II: Backward Induction Repeated Games III: Infinite Repetition Repeated Games IV: Factors Influencing Cooperation Commitment I: Aggressive Commitment Commitment II: Cooperative Commitment Wrap Up

End of week quiz | Due date: 22.07.2013

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Week 3: The power of complements | Start date: 15.07.2013 The third week is all about compliments. We introduce a formal definition of complements and discuss what they mean to us economically. Later on, we have a look at strategies that are particularly interesting in markets with complementary products. We analyse why printers are fairly cheap and ink cartridges are quite expensive. 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 particularly important in the light of complementary products. Finally, look at strategic partnerships as a powerful to align companies interests in this particular setting. Introduction Complements: Examples and Definitions Strategies for Complements I: Generic Strategies Strategies for Complements II: Positive Externalities Complements and Cooperation I: Examples Complements and Cooperation II: Strategic Partnerships Wrap Up

End of week quiz | Due date: 29.07.2013

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Week 4: How to enter a new market | Start date: 22.07.2013 We start the fourth week with focusing on the process of planning entry. We are particularly interested in how firms should choose the right market to enter. In this context, it is important to assess the attractiveness of a market and to analyse the entry barriers. Subsequently, we discuss strategies firms can implement in order to enter a market entry successfully. We also take a look on the other side, particularly at the firms that are already active in the market. They have a high interest to keep a potential entrant out of the market. Hence, we analyse strategies that they can opt for to deter entry. Introduction Choice of Market I: Market Attractiveness Choice of Market II: Structural Entry Barriers Choice of Market III: Strategic Entry Barriers Entry Strategies I: Commitment / Value Chain Reconfiguration Entry Strategies II: Judo Economics / Niche Market Entry Deterrence I: Structural Entry Barriers / Commitment Entry Deterrence II: Limit Pricing / Predatory Pricing Entry Deterrence III: Pre-Emption Wrap Up

End of week quiz | Due date: 05.08.2013

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Week 5: Why worry about research & development | Start date: 29.07.2013 Research and development (R&D) is often said to be one of the key functions within a firm, even in 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. In particular, how do firms choose the intensity and riskiness of their research activities, and how do R&D activities depend on the nature of the innovation and their position in the technological race towards an innovation. We have a closer look at these aspects throughout the fifth week. Of course, a great many innovations come about through a stroke of luck or serendipity, but it would seem sensible to assume that the majority of innovations come about because their inventors actively strove towards this particular innovation. Introduction Stages of R&D Types of Innovation Incentives for Innovating I: Competitive Market Incentives for Innovating II: Monopolist Incentives for Innovating III: Monopolist with Threat of Entry Innovation under Competition Sleeping Patents Wrap Up End of week quiz | Due date: 12.08.2013

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Week 6: Design your product wisely | Start date: 05.08.2013 In week six, we focus on strategic aspects of product design. We start out with a phenomenon that is commonly known as the Bertrand Paradox. To put it simple, in a theoretical world two firms that sell the same products end up in perfect competition and make zero profits - a horrible scenario for any frim. 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 between vertical and horizontal product differentiation, and see what firms can do about it. Later on, we discuss some generic strategies for product design and pricing, namely cost leadership, differentiation and focus. We figure out the problems related to being stuck in the middle between these different strategies, and we look at ambidexterity. Introduction Bertrand Paradox I: Theoretical Model Bertrand Paradox II: Adjusting Model Assumptions Product Differentiation I: Introduction Product Differentiation II: Horizontal Differentiation Product Differentiation III: Vertical Differentiation Pricing and Product Decisions I: Generic Strategies Pricing and Product Decisions II: Stuck in the Middle Wrap Up

End of week quiz | Due date: 19.08.2013

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Final exam quiz | Due date: 26.08.2013

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