Excellence in
Management
Education

Title
Strategic Competition
Contacts hour per week
2.0
Quarter
Lecturer
Reisinger, Markus
Language
Content
1. Competition with horizontally differentiated products
2. Competition with vertically differentiated products (quality competition)
3. The role of set-up cost (exogenous sunk cost)
4. Switching Costs and Network Effects
5. Advertising and its impact on market structures
6. Vertical Relations
Prerequisites
Microeconomics (BSc), in particular game theory, and Statistics (BSc), in particular basic econometrics
Course description
The course objective is twofold. In the first part of the course, students will learn how to think about strategic competition in situations which are more complex than in the standard models of competition with homogenous good (a la Bertrand, or Cournot). More often than not, in reality firms compete not only in prices, but also by choosing to offer different varieties of a certain product, or by trying to gain a competitive edge by offering a different quality of a product.
Provided with insights from these additional aspects of strategic competition, the second part of the lecture concentrates on explaining market structures. We want to understand what determines the (long term) outcome of competition in a market: How many firms can survive in an industry? Will there be a "shake out"? Is there size for additional entrants in a market? Can we expect a skewed size distribution of firms, or rather expect all firms to be of equal size (i.e. holding similar market shares). Important aspects determining the market structure are set up cost (e.g. for building a plant), advertising cost (to establish a product in a market), and research and development (R&D) intensity of an industry.

Achievement of Learning Goals, Examples:

1. Discipline-specific knowledge and competence - Extent the game theoretic understanding of strategic competition beyond pure price competition
2. Management specific skills - Understanding the difference between exogenous and endogenous sunk cost for market entry and exit decisions
3. Global business environment - The course derives regularities for market structures that are valid for all regional market; evidence is provided from various national and global markets
4. Teamwork and responsible leadership - Problem sets and case studies are solved in groups
5. Critical thinking and problem solving skills - Extension of the game theoretic skills and ability to apply it to different industry examples
6. Managerial and entrepreneurial practice - Students develop the ability to judge what determines the long-term viable number of firms in an industry which is important for entry/exit decisions, and for merger decisions
Teaching methods
Lecture, Case Studies, Problem sets
Theories
Game theory, statistics
Literature
Paul Belleflamme and Martin Peitz, Industrial Organization: Markets and Strategies, Cambridge University Press (2010)
Massimo Motta, Competition Policy: Theory and Practice, Cambridge University Press (2004)
Jean Tirole, Theory of industrial organization, MIT Press (1988)
Further literature
Will be announced during the course
Method of examination
Final Exam