Strategy

- August 2022
- Article
Contract Duration and the Costs of Market Transactions

By: Alexander J. MacKay

The optimal duration of a supply contract balances the costs of reselecting a supplier against the costs of being matched to an inefficient supplier when the contract lasts too long. I develop a structural model of contract duration that captures this tradeoff and provide an empirical strategy for quantifying (unobserved) transaction costs. I estimate the model using federal supply contracts for a standardized product, where suppliers are selected by procurement auctions. The estimated transaction costs are substantially greater than consumer switching costs and a significant portion of total buyer costs. Counterfactuals illustrate the importance of accounting for the duration margin.
- August 2022
- Article
Contract Duration and the Costs of Market Transactions

By: Alexander J. MacKay

The optimal duration of a supply contract balances the costs of reselecting a supplier against the costs of being matched to an inefficient supplier when the contract lasts too long. I develop a structural model of contract duration that captures this tradeoff and provide an empirical strategy for quantifying (unobserved) transaction costs. I...
- July 15, 2022
- Article
Does Elon Musk Have a Strategy?

By: Andy Wu and Goran Calic

Does Elon Musk have a strategy? Or is he just out there winging it? Looking at Musk’s many companies, common themes stand out across three areas: what fits into his vision for problems to solve, how he designs an organization as a solution to those problems, and why he can so effectively mobilize resources towards those solutions. Musk seeks problems that require navigating scale and overcoming complexity. Organizationally, he favors vertical integration and closed systems. To finance his projects, he’s able to marshal tremendous resources because he has large personal stakes in his companies and is able to stir public and investor emotions, even if the logic of how a given business will succeed may not be clear.
- July 15, 2022
- Article
Does Elon Musk Have a Strategy?

By: Andy Wu and Goran Calic

Does Elon Musk have a strategy? Or is he just out there winging it? Looking at Musk’s many companies, common themes stand out across three areas: what fits into his vision for problems to solve, how he designs an organization as a solution to those problems, and why he can so effectively mobilize resources towards those solutions. Musk seeks...
- July 2022
- Case
Tata Group in 2021: Pursuing Profits through Purpose

By: Tarun Khanna, Krishna G. Palepu and Vidhya Muthuram

October 8, 2021: Tata Sons won a bid to acquire India’s national carrier Air India, marking the airline's return to its original owners after 68 long years. The winning bid of $2.4 billion gave Tata Sons full ownership of the airline and its coveted network of 6,200 landing and parking slots in Indian airports and 900 slots in overseas hubs. This bid marked the end of a two-decade-long journey for the Indian government that had been trying to sell the troubled airline which, according to recent estimates, was losing nearly $3 million per day. The chairman of Tata Sons, Natarajan Chandrasekaran (Chandra), described the occasion as a “historic moment.” “It will be a rare privilege for our group to own and operate the country’s flag bearer airline. It will be our endeavor to build a world-class airline that makes every Indian proud.” The acquisition of a heavily indebted and loss-making public sector asset raised several questions: Why did Tata Sons acquire Air India? Was it an emotional decision to regain control of an airline they had started? Was this an example of Tata Sons helping India overcome another persistent challenge, a trait well documented throughout its corporate history? Was it a commercially sound decision?
- July 2022
- Case
Tata Group in 2021: Pursuing Profits through Purpose

By: Tarun Khanna, Krishna G. Palepu and Vidhya Muthuram

October 8, 2021: Tata Sons won a bid to acquire India’s national carrier Air India, marking the airline's return to its original owners after 68 long years. The winning bid of $2.4 billion gave Tata Sons full ownership of the airline and its coveted network of 6,200 landing and parking slots in Indian airports and 900 slots in overseas hubs. This...

About the Unit

The Strategy unit studies firms as competitors in an economic landscape. Key issues include: the development and effectiveness of firm strategy at both a business and corporate level; the analysis of the competitive environment; and the sustainability of strategy over time.

Our research, course development, and teaching draws on multiple disciplines, including economics, sociology, and political science, and focuses on both domestic and global competition. The objective of the work is to generate findings and develop concepts that will help managers improve their strategic decisions while advancing the state of knowledge in the academic study of strategy and related disciplines.

Recent Publications

Contract Duration and the Costs of Market Transactions

By: Alexander J. MacKay

August 2022 |
Article |
American Economic Journal: Microeconomics

The optimal duration of a supply contract balances the costs of reselecting a supplier against the costs of being matched to an inefficient supplier when the contract lasts too long. I develop a structural model of contract duration that captures this tradeoff and provide an empirical strategy for quantifying (unobserved) transaction costs. I estimate the model using federal supply contracts for a standardized product, where suppliers are selected by procurement auctions. The estimated transaction costs are substantially greater than consumer switching costs and a significant portion of total buyer costs. Counterfactuals illustrate the importance of accounting for the duration margin.

Keywords: Supply Contracts; Intermediate Goods; Switching Costs; Vertical Relationships; Transaction Costs; Contract Duration; Identification; Supply Chain; Cost; Contracts; Auctions; Mathematical Methods

Citation

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Dynamic Pricing and Demand Volatility: Evidence from Restaurant Food Delivery

By: Alexander J. MacKay, Dennis Svartbäck and Anders G. Ekholm

2022 |
Working Paper |
Faculty Research

Pricing technology that allows firms to rapidly adjust prices has two potential benefits. Prices can respond more rapidly to demand shocks, leading to higher revenues. On the other hand, time-varying prices can be used to smooth out demand across periods, reducing costs in markets with capacity constraints. Using data from the staggered adoption of a pricing algorithm, we measure the impacts of time-varying pricing in the context of restaurant food delivery. On average, the pricing algorithm reduced prices, though it led to substantial variation in prices within and across days. We find that the adoption of time-varying pricing reduced demand volatility, resulting in a relative increase in the share of transactions occurring during low-demand periods. We estimate that the volatility semi-elasticity, which we define to reflect the relationship between time-series variation in quantities and prices, is -1.96. Our results point to the potential efficiency gains of time-varying pricing when firms face capacity constraints.

Keywords: Pricing Algorithms; Dynamic Pricing; Demand Volatility; Delivery Services

Citation

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Does Elon Musk Have a Strategy?

By: Andy Wu and Goran Calic

July 15, 2022 |
Article |
Harvard Business Review Digital Articles

Does Elon Musk have a strategy? Or is he just out there winging it? Looking at Musk’s many companies, common themes stand out across three areas: what fits into his vision for problems to solve, how he designs an organization as a solution to those problems, and why he can so effectively mobilize resources towards those solutions. Musk seeks problems that require navigating scale and overcoming complexity. Organizationally, he favors vertical integration and closed systems. To finance his projects, he’s able to marshal tremendous resources because he has large personal stakes in his companies and is able to stir public and investor emotions, even if the logic of how a given business will succeed may not be clear.

Keywords: Technology; Strategy; Vision; Resources; Organization; Platform; Auto Industry; Aerospace Industry; Media and Broadcasting Industry; Energy Industry

Citation

Read Now

Tata Group in 2021: Pursuing Profits through Purpose

By: Tarun Khanna, Krishna G. Palepu and Vidhya Muthuram

July 2022 |
Case |
Faculty Research

October 8, 2021: Tata Sons won a bid to acquire India’s national carrier Air India, marking the airline's return to its original owners after 68 long years. The winning bid of $2.4 billion gave Tata Sons full ownership of the airline and its coveted network of 6,200 landing and parking slots in Indian airports and 900 slots in overseas hubs. This bid marked the end of a two-decade-long journey for the Indian government that had been trying to sell the troubled airline which, according to recent estimates, was losing nearly $3 million per day. The chairman of Tata Sons, Natarajan Chandrasekaran (Chandra), described the occasion as a “historic moment.” “It will be a rare privilege for our group to own and operate the country’s flag bearer airline. It will be our endeavor to build a world-class airline that makes every Indian proud.” The acquisition of a heavily indebted and loss-making public sector asset raised several questions: Why did Tata Sons acquire Air India? Was it an emotional decision to regain control of an airline they had started? Was this an example of Tata Sons helping India overcome another persistent challenge, a trait well documented throughout its corporate history? Was it a commercially sound decision?

Keywords: Corporate Strategy; Mission and Purpose; Corporate Social Responsibility and Impact; Emerging Markets; Mergers and Acquisitions; Ownership; Air Transportation Industry; India

Citation

Educators

Purchase

Are Online Prices Higher Because of Pricing Algorithms?

By: Zach Y. Brown and Alexander J. MacKay

July 7, 2022 |
Other Article |
Brookings Series: The Economics and Regulation of Artificial Intelligence and Emerging Technologies

This article reviews recent work examining pricing strategies of major online retailers and the potential effects of pricing algorithms. We describe how pricing algorithms can lead to higher prices in a number of ways, even if some characteristics of these algorithms may appear, at first glance, to increase competition. A key feature of many pricing algorithms is that they automatically react to rivals’ prices. Some have argued that this could facilitate collusion. However, this feature can also soften price competition when rivals do not collude. Even very simple pricing algorithms can raise prices. Finally, we discuss potential policy responses to encourage competition in online retail and other markets with pricing algorithms.

Keywords: Pricing Algorithms; Online Marketplace; Digital Strategy; Internet and the Web; Retail Industry

Citation

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The C-Suite Skills That Matter Most

By: Raffaella Sadun, Joseph B. Fuller, Stephen Hansen and PJ Neal

Article |
Harvard Business Review

Landing a job as a CEO today is no longer all about industry expertise and financial savvy. What companies are really seeking are leaders with strong social skills. That’s what the authors discovered after analyzing nearly 7,000 job descriptions for C-suite roles. Their explanation for this trend? Business operations are becoming more complex and tech-centered; workforce diversity is growing; and firms face greater public scrutiny than ever before. Those conditions call for leaders who are adept communicators, relationship builders, and people-oriented problem solvers. To succeed in the future, the authors argue, companies will need to focus on those skills when they evaluate CEO candidates and develop in-house talent.

Keywords: C-Suite; Skills; Skills Development; Social Skills; Management Skills; Interpersonal Communication; Talent and Talent Management

Citation

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The SAH Group: The Time is Right

By: Juan Alcacer and Alpana Thapar

June 2022 |
Case |
Faculty Research

In January 2021, Jalila Mezni, cofounder and CEO of the SAH Group, was preparing to present the company’s future growth plans to its board of directors. The Tunisian company was a leading producer and distributor of personal care and packaged hygiene products. In 2019, it expanded further by entering the detergents market. By 2020, the company employed over 4,500 people and had a presence in 20 African countries. The Lilas brand had become a household name in Tunisia, outperforming brands owned by global players like Procter and Gamble. In detergents, SAH was steadily gaining ground over multinational consumer goods companies like Unilever, Reckitt Benckiser, and Henkel. As Mezni looked ahead, she had to carefully evaluate three growth opportunities: introducing a range of kitchen cleaners, vertically integrating operations in the detergents business, and opening a subsidiary in Kenya. Which of these, if any, would be the right way forward for the SAH Group at this juncture?

Keywords: Growth Management; Expansion; Business Divisions; Product Positioning; Brands and Branding; Competition; Consumer Products Industry; Tunisia; Kenya

Citation

Educators