MN3119 Strategy
Notes
Students may bring into the examination hall their own hand held electronic calculator. If calculators are used they must satisfy the requirements listed in Section 4, Assessment for the programme, of the Detailed Regulations.
Prerequisites (applies to degree students only)
EC1002 Introduction to economics and either MT105A Mathematics 1 (half course) or MT1174 Calculus.
Syllabus
Basic game theory: Two-player games. Static and dynamic games and some examples. Equilibrium concepts and solution mechanisms - Nash equilibrium, dominant/dominated strategies, backward induction.
Oligopoly competition: Perfect competition and monopoly. Price competition and the Bertrand paradox. Quantity competition. Reaction functions. Bertrand versus Cournot.
Analysis of market structure: Describing market structure: C4-ratio, Herfindahl index, Lerner index and market power. Market definition - techniques and interpretation.
Collusion: Cartels and antitrust. Cartel stability and the discount factor. Market dynamics and stability of collusion.
Strategic Alliances: Portfolio test. Strategic and business partnerships. Sources of complementarity. Resource accumulation. Absorptive capacity.
Realising intra-firm synergies: Incentive-setting: Free riding versus cooperation. Interfaces: Modularity, task separation and task similarity.
Distinctive capabilities and competitive advantage: Identifying competitive advantage. Sustainability of competitive advantage. Innovation, architecture, strategic assets, reputation. Leveraging distinctive capabilities.
Strategic asymmetries: Economies of Scale, sources and consequences. Scope Economies: Airline Hubs. Learning or experience curve. Firm strategies with EoScale/Scope/Learning. First-mover advantages. Market structure with increasing returns.
Value chain analysis and vertical relations: Double marginalisation and its remedies. Vertical foreclosure. Retailer competition and investment externalities.
Vertical integration and transaction cost: Make or Buy. Contracts. Relation-Specific Assets and Hold-Up. Economic Rents and Quasi-Rents.
Entry and entry deterrence: Structural determinants of entry. Entry barriers and exit barriers. Entry deterrence. Identifying entrants.
Research and Development: Market structure and R&D intensity. R&D rivalry. Monopolists' and entrants' R&D incentives. Risk choice of R&D. Benefits of the patent system. Sleeping patents. Spillovers.
Technology adoption: Preemption games. Option value and future technological generations. Technology diffusion: Heterogeneity, epidemic, and population ecology approaches.
Network Effects: Direct and indirect network effects. Systems goods. Excess inertia. Excess momentum. Firm strategies with network effects. Standards Battles.
All topics are supplemented in the subject guide with specially written case studies.
