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Econ 517: Competitive Strategy
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Econ 517: Competitive Strategy



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  • 1. Econ 517: Competitive Strategy Spring 2008 Syllabus Department of Economics Business School HKUST Xinyu Hua Time and Venue: Time: 2:00 – 5:30pm, Mondays, Feb 11 – Apr 7 Venue: 4219 Instructor: Xinyu Hua ( xyhua@ust.hk ; 2358-7609; Room 2334) Email is always a great way to reach me. Office Hours: By appointment Course Web Site: http://lmes2.ust.hk Course Description and Objectives Warren Buffet once said: “When an industry with a reputation for difficult economics meets a manager with a reputation for excellence, it is usually the industry that keeps its reputation intact.” Many managers fail to appreciate the numerous ways in which competition can destroy profitability. The course presents tools, concepts, and perspectives for performing market and competitive analysis, understanding competitive industries, analyzing strategic decisions, and evaluating a firm's competitive strategy. The course is organized as follows: 1
  • 2. Brief Course Outline The table below gives an approximate outline of the course. More details are provided at the end of this document. Topic Required reading and preparation before class Week 1: Introduction. Notes on Industry and Firm Analysis Tools Industry and Firm Analysis (RBV) Review of Competitive Analysis Week 2: Industry and Firm Analysis (Application) Case: Matching Dell Tools Competitive Analysis (Application) Case: The U.K. Credit Card Industry Week 3 Strategic Commitment Case: Nopane Advertising Strategy Week 4 Discrimination and Competitive Strategy Case: The US Ready-to-eat Breakfast Cereal Industry Week 5 Quality, Reputation and Competitive Strategy Case: Blockbuster Week 6 Timing, Globalization and Competitive Strategy Case: Philips CD Introduction Case: P&G Japan: SK-II Globalization (To be confirmed later) Week 7 Innovation and Competitive Strategy Case: Innovation in the Pharmaceutical Industry Week 8 Exam Remark: Economics of Strategy include two parts: competitive strategy, and organization and strategy. Econ 518, Organization and Strategy, includes the following topics: • Principle-Agent • Incentive Pay • Organization Structure and Delegation • Conflict and Cooperation Among Divisions • Human Capital, Internal Labor Market and Internal Capital Market • Scope of Firm, Horizontal Mergers and Diversification • Vertical Relationships Such as Hold-up, Contracts, Vertical Integration Study Groups and Case Study Method Students will be divided into study groups. Each group should comprise of no fewer than three but no more than six students. Self-organization of groups is encouraged. Please send group membership to me. The groups are responsible for working on the cases and the group assignment. The approach toward teaching and learning economics of strategy is primarily inductive. That is, you will learn the concepts and principles outlined above largely through examples – this is the essence of the case study method. The goal is to carefully study specific business situations and decisions with the goal of extracting broader principles about business strategy, which will then be available to you in a wide variety of managerial contexts. 2
  • 3. About 50% of course time will be spent on case discussions, with the remainder made up of 6-7 lectures that lay out the key class concepts and models. For each course topic there are a set of required readings, listed on the Course Outline below. Good cases are necessarily complex and ambiguous. In preparing for case discussions, you may find sorting through this complexity and ambiguity to be frustrating. The problems presented in the case discussion may not have one correct answer. However, there will generally be a set of insights and solutions which are better than others. And it is in working through the messy details to find these insights and solutions – both in your own preparation and in class discussion – that the concepts and principles introduced in the readings and lectures will come alive and be enriched for you. For a case discussion to be a valuable learning experience, it is essential that you come prepared to discuss the cases and readings assigned for that class. Finally, I ask that you deal with the cases as you find them; do not seek outside or post-case data on the firm or industry. What Materials Will We Use? Readings: The key materials are the lecture notes, cases, and additional readings. Due to copyright, only hard copies of the notes and cases will be distributed. You should not distribute these materials outside our class for any education or business purpose. The textbook for reference is The Economics of Strategy, 3rd Edition, by David Besanko, David Dranove, Mark Shanley, and Scott Schaefer (listed as BDSS on the course outline below). Course Website/Additional Materials: Background notes, homework assignments, additional handouts, and announcements will be posted in the course website under “ECON 612C: Competitive Strategy.” You are responsible for checking this site and downloading these materials, as some of them will not be handed out in class. In addition, feel free to use the discussion board to communicate with me and other students. You are encouraged to post your questions in the discussion board so that other students can provide or share their insights. I will also post announcements or clarification on issues that come up. How Will You Be Graded? 1. Final Exam (55%): The final will be an in-class exam in the last class meeting (Apr 7). It will be a combination of a few mini-case questions and quantitative questions related to the concepts and topics in our course. It is possible that there will be questions about the cases we discussed in class. 2. One Group Assignment (25%): The group assignment is due on March 17. The homework questions will be available on the course website. 3
  • 4. 3. Class Participation (20%): Attendance, preparation, and participation in class discussions are essential in this class, as in any class based on the case method. Obviously, you can not participate if you are not present, so absences without legitimate excuses will lead to a reduced participation grade. Learning opportunities are maximized when all students are actively engaged in class discussion. Active engagement means that you’re are listening carefully to the comments of other students and seeking opportunities to make comments that move the class discussion forward. Class participation will be evaluated primarily on (1) the effort and incentives to prepare and to participate in class discussion, and (2) the evaluation of content based on the following: • Relevance: Are your comments related to the case and to the comments of others? • Advancement: Does your comment move the class discussion forward? • Fact-Based: Have you used specific data from the case, from readings, or from personal experience to support the assertions that you are making? • Logical: Is your reasoning logical? Do you use economic concepts correctly? HKUST Academic Integrity and Honor Code The HKUST Academic Integrity and Honor Code apply to this course. The complete text of the Academic Integrity and Honor Code is available on the websites: http://www.ust.hk/vpaao/integrity http://www.ust.hk/vpaao/conduct/good_learning_experience.pps Please become familiar with the Academic Honor Code and make sure you abide by it. There shall be zero tolerance for any violations of this code, and disciplinary actions will be taken against violators. Attendance You are expected to attend each class and participate in discussion. Please notify the instructor ahead of time if you will be unable to attend any particular class. Classroom Etiquette For general guidelines about proper classroom behavior, please consult: http://www.ust.hk/vpaao/conduct/good_learning_experience.pps Students are expected to arrive for class on time so that the instructor may start and end the class according to schedule. Students should demonstrate respect for the instructor and fellow students during the class period. You are welcome to bring your laptop to class in order to take notes or perform calculations on your own computer. However, you may not engage in distracting behavior such as using your laptop to surf the Web, to check e-mail, or to do instant-messaging. 4
  • 5. Detailed Course Outline This detailed course structure is designed to help you organize what you learn into a coherent framework for evaluating competitive strategy. However, it is important to recognize upfront that this class can not be as perfectly organized as the outline suggests. This is not accounting or statistics which begin with core, universally accepted principles, and then build to harder problems and applications. Instead, strategy is complicated throughout, and we may adjust the detailed topics or learn new tools throughout the course to answer new questions that arise. Optional Review Readings: • “Economics Review for Strategy”, on the course site for Econ 517 • BDSS, Primer, pp. 9-28 • BDSS, Chapter 6, pp. 207-218 Week 1: Industry and Firm Analysis 1. Introduction 2. Industry and Firm Analysis (The Resource Based View of the Firm) Discussion: Industry Analysis for E-commerce Reading: Notes on Industry and Firm Analysis Optional Reading: Chapter 6 (pp. 199-207), Chapter 10, Chapter 11 (pp. 355-402) and Chapter 12 (pp. 424-438) D. Collis and C. Montgomery, “Competing on Resources,” HBR, Jul/Aug 1995 3. Competitive Analysis (Review of Game Theory) Week 2: Industry, Firm, and Competitive Analysis (Cont’d) 1. Industry and Firm Analysis (Cont’d) Case: Matching Dell (HBS) 2. Competitive Analysis (Cont’d) Case: The U.K. Credit Card Industry (HBS) 5
  • 6. Week 3: Strategic Commitment 1. Strategic Commitment: Direct Effects and Strategic Effects Case: Nopane Advertising Strategy (HBS) Reading: BDSS, Chapter 7 (pp. 232-250) and Chapter 6 (pp. 218-228) Tools: Spreadsheets for Solving Oligopoly Price or Quantity Competition Week 4: Strategic Commitment (Cont’d) and Discrimination 1. Strategic Commitment and Preemption Case: The Read-to-eat Breakfast Cereal Industry in 1994 (HBS) 2. Price Discrimination and Competition Reading: “P&G Ad Chief Plots Demise of the Coupon,” Wall Street Journal, April 17, 1996. Week 5: Quality, Reputation and Competition 1. Quality and Competition 2. Asymmetric Information, Signaling and Herding Case: Blockbuster Inc. (Kellogg) Optional Reading: McAfee, R. 2001. “Signaling,” in Competitive Solutions: The Strategist’s Toolkit, Chapter 11. Week 6: Timing, Globalization and Competition 1. Strategic Timing; Globalization Case: Philips’ CD Introduction (HBS) Case: P&G Japan: SK-II Globalization (HBS) (To be confirmed later) Reading: BDSS, Chapter 12 (pp. 438-445) 6
  • 7. Week 7: Innovation and Competition 1. Innovation Investments, Licensing, Acquisition and Patents Case: Innovation in the Pharmaceutical Industry (Kellogg) Reading: BDSS, Chapter 9 and Chapter 13 Intellectual Property and Strategy (HBS) Week 8: Exam 7