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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