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1.Course Description

The objective of the course is to apply economic principles for strategic decision making in Business. The course aims at developing competence of participants to understand the conduct of firms under different market structures. The course will make use of game theory to study strategic interaction between firms and also within firms. The practical applications of various models will be discussed through case studies.

Course Content

Structure – Conduct - Performance Pardigm, Characteristics of Different Market Structures, Defining the Market, Meaning and Measurement of Industry Concentration, Measurement of Market Power, Introduction to Game theory, Games in normal and Extensive form, Concept of Nash Equilibrium, Subgame Perfect Nash Equilibrium, Quantity and Pricing decisions under different market Structures, Cournot Competition, Bertrand Competition, Bertrand Paradox, Stackleberg Model, Cournot equilibrium with asymmetric costs, Bertrand Model with Multi characteristic differentiation, Cournot-Bertrand Model, Coase Conjecture, Product Differentiation, Entry Deterrence and accommodation, Strategic Choice of Capacity, Limit Pricing, Predatory Pricing, Strategic Commitment and taxonomy of strategies, Dynamics of Pricing Rivalry-Tit for Tat Pricing and Cooperative Pricing, Strategic Interaction within Firms-Horizontal Integration, Vertical Integration, Advertising, Cartels, Coordination problem in Cartels.

2.Student Learning Outcomes

· Be able to appreciate the use of game theory to study conduct of firms under varying market structures.

· Be able to learn the importance of strategic commitment

· Be able to learn the factors that governs horizontal and vertical integration

· Be able to appreciate strategies firms adopt either to deter or accommodate entry and the forces governing the same.

· Be able to understand the welfare consequences of market power

3.Required Text Book and Reading Material

Economics of Strategy - Besanko, Dranove and Schaeffer -6th Edition

Introduction to Industrial Organisation -Cabral

Managerial Economics and Business Strategy - Baye

Industrial Organisation - A Strategic Approach - Church and Ware

Modern Industrial Organisation- Carlton and Perloff

Industrial Organisation- Competition, Strategy and Policy- Lipczynski, Wilson and Goddard

Industrial Economics- Economic Analysis and Policy -Martin

4.Session Plan

Sessions No	Topics
1	What is strategy Evolution of Schools of thought on Strategy SLEPT-SWOT-Five Force-Blue Ocean- Resource Based View- Emergent View-Sustainable Competitive advantage
2-3	Approaches to study Industrial Organisation- S-C-P Framework, New Empirical Industrial Economics Characteristics of Different Market Structures-Perfect Competition, Monopoly, Monopolistic Competition and Oligoploy Welfare costs associated with Monopoly Cournot Model with Symmetric Costs Comparison of Cournot Symmetric costs with Monopoly and Perfect Competition Industrial organisation
4-8	Game Theoretic Approach to Strategy Game Theory - Introduction Strategies in Practice · Mix your plays · Look before you leap · Failure to Look Ahead · Superiority of Punishment over reward · To Lead or Follow Examples and Stories in Games · GPA Race · Dating Game · Brinkmanship Game · Why Professors are mean · We can’t take the Exam because we had a flat tyre Signalling versus Screening Defining a Game Framework to Define a Game(PAPI Framework) Matrix Representation of Game Types of Games Co-operative versus non-co-operative zero-sum versus non-zero-sum simultaneous or sequential continuous versus discrete pay-offs Prisoners’ Dilemma, and Deadlock games Solution methods of games Minimax Theorem for zero sum games Iterated elimination of Dominated strategies(IESDS verus IEWDS); Nash equilibrium. Mixed Strategy Nash Equilibrium Subgame Perfect Nash Equilibrium
9	Exercises on Game Theory Introduction to Games with Continuous strategies Solution concept to Games with continuous strategies Difference between simultaneous versus sequential games with continuous strategies The pricing problem of Lemonade stands- Second mover Advantage equilibrium
10-12	Bertrand Model Comparison between perfect competition, Monopoly, Cournot and Bertrand Model Cournot Limit Theorem Cournot Model- Asymmetric costs Leader-Follower (Stackleberg) Model First Mover Advantage Comparison of Cournot versus Stackleberg models Cournot-Bertrand Model Durable Goods Monopolist Model
13-14	Product differentiation Market Share Effect versus Strategic Effect Minimal versus Maximal Product Differentiation
15	Cartel Coordination Problem in Cartels Cartel Dilemma Strategies to Protect Cartel Market Division, Most Favoured Customer clause, Meet the Competition Clause
16	Advertisement How important is advertisement for firms Adverting intensity across time and industries Purpose of Advertisement- Shift versus rotation of demand curve Advertising Typology- Informative, Persuasive and Subjective Differentiation Types of Goods - Search, Experience and Credence Fit between types of good and kind of advertising Mass marketing versus niche segment adverting Predatory versus cooperative advertising Dorfman and Steiner condition for optimal advertising for a Monopolist
17	Entry Deterring Strategies Taxonomy (Top dog, Fat Cat, Mad Dog, Puppy Dog etc) Strategic Substitutes versus Strategic compliments Tough versus soft commitments Role of Fixed costs in entry deterrence Optimal capacity for entry deterrence.
18	Strategic Entry Barrier Tit for tat Pricing Cooperative pricing
19	Strategic Interaction within Firms Merger Typology Merger Waves Economies of Scope Horizontal Integration Economies of Scale Economies of Scope Vertical Integration Fallacies for Vertical Integration
20	Summing up

5. Evaluation
Quizzes : 20%
Mid Term : 30%
End Term : 40%
Class participation-10%
6. Academic Integrity
As per Institute’s norms

Created By: Debasis Mohanty on 04/14/2020 at 06:49 PM
Category: BM 19-21 T-IV Doctype: Document