Educational Objectives

This course develops a student’s ability to make superior decisions in settings defined by competitive interactions. The course builds a student’s intuitive grasp of competitive interactions and develops a perspective and concrete tools-predominately from game theory-to discipline and extend that intuition. Effective use of game theory in practice is an art. The tools are powerful, even transformational in how one thinks about problems, but harnessing these tools requires much more than technical competence. It involves identifying the strategic essence of the problem and learning how to use the tools to guide, test, and inspire intuition. This course endeavors to teach these aspects of the art.

Course Content and Objectives

This course builds on the ideas developed in the competitive dynamics module of RC Strategy. It takes the perspective that a sustainable strategy must attend to the threat posed by rivals and, therefore, needs to account for strategic interaction.

The course develops the art of using game theory through a series of increasingly complex strategic interactions that are faced at various managerial levels within a firm. The starting point is pricing which is relatively circumscribed by an existing business strategy. A second set of choices involves investments to build resources or assets, for example, capacity or innovation decisions. These decisions can be thought of as choices designed to augment competitive advantage which involve middle-term commitments but are intended to support the existing business strategy. The final set of choices involves the business (or corporate) strategy itself, for example, a decision to change the existing business model of the firm in light of expectations regarding current and future choices of one’s rivals.

After these fundamental topics are developed, the course explores the implications of rival interactions in two settings: a setting characterized by “the fog of war” in which firms may have misperceptions about rival thinking and a setting where the interacting parties are “frenemies” where cooperating parties are also competitors (e.g. in industry group ecosystems).

Course Organization and Grading

Cases are the primary vehicle for learning, but some sessions will involve short cases and computer simulation games which motivate and develop the underlying theory. Grading will be based on class participation and two short group mini-projects.