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Winter 2017

Economics of Strategy

MWF 12:20-1:15 Early-Fielding 109

Text: Ogle, M. (2007). Ambitious brew: the story of American beer. Orlando: Harcourt. 978-0-15-603359-6. Order yourself, lots of cheap used copies out there so not worth asking the bookstore to get it. (Amazon link also available for Kindle for $8.99). The bookstore will get in 5 copies. I will add 1-2 more industry-specific books, one is forthcoming end-December, will add if publisher meets their schedule.

For Winter the Economics of Strategy will include an extended case study of beer, drawing upon the above book by Margaret Ogle. We will use a second, forthcoming book on the auto industry but the ebook order link isn’t functioning. We will not use the Martin “Industrial Organization” text.

This course requires only Micro Principles (Econ 101) and is aimed at anyone interested in issues of business strategy and the organization of industries; it is potentially open to freshmen, but if demand is constrained, priority will be given to sophomores and above. In most recent iterations only about half of the members of the course are economics majors. Our focus is on the producer side; sometimes what is good for firms is also good for consumers, but except in passing we ignore that larger set of questions. Similarly, most books assume a 2-semester sequence and so cover antitrust and regulation at considerable length. We note the theoretical issues, but avoid the nitty-gritty of competition policy, antitrust laws and the like.

We will explore a couple simple models of entry to give a flavor of the subject matter, beginning with the launch of Lite beer. We can then ask a different sort of entry question, on whether a car company (pick your favorite) should enter the “New Mobility” market. We will return perhaps 2x every 3 weeks to these sorts of real world examples. These problems will also allow us to introduce two “tools” – models in which consumers differ, models in which firms interact in strategy – that are not part of the repertoire you would have from Principles or from Micro Theory.

After the introduction, though, we need to build a set of tools to guide our thinking. First we will review the model of firms in perfect competition, and then the model of a pure monopolist. Those are clear extremes, and straightforward. We will spend most of our time on the messier world of oligopoly – or rather, for the sake of simplicity, duopoly. This segment concludes with a cautionary analysis of mergers and predation, and an analysis of the logic of franchising.

We then return to advertising, product differentiation, price differentiation and bundling, choices on how to place products. The concluding 3-4 weeks of the term will pick up questions of technology and intellectual property rights.

You will be asked to do a series of short papers on case study material, and a midterm and a final on the theory component of the course.