040038 UK Strategic thinking in practice (2013S)

Motivation:

Everyone would agree that thinking strategically is important. Everyone knows that it is
essential to lead a business. And economics and game theory have a lot to say about this
subject! This course will be particularly useful to those who consider starting their own
business and take important managerial decisions to optimize their business's performance.
Economics analyzes your future business's place in the world. Who does your business
interact with? How does it interact with these dierent parties? When is it desirable
to cooperate and when does your business need to compete? How can your business
best place itself to prot from these everyday interactions? Game theory, particularly
over the past 40 years, has developed a variety of new tools that can aid managers and
decision-makers in general. It has been used by economists to consider alternative business
strategies, including their strengths and weaknesses, to study the likely outcomes of day-to-
day interactions and to formulate processes to ensure the best possible results. This course
will focus on these recent advances in economic theory and practice. It will provide an
integrated framework to deal with price formation, competition, contracting, ownership
and incentives, -- subjects that cover key economic principles and that are particularly
valuable for business.

Content:

The course will be split into two parts. The rst part is a series of lectures on game-
theoretic foundations of core economic principles and phenomena. It aims at providing an
integrated framework to deal with price formation, competition, contracting, ownership
and incentives. There will be a lot of simple stylized examples and real-world situations,
that we will discuss in the context of each specic topic of the course. The second (shorter)
part is presentations by students of their projects (see more details below).

Course Outline

1. Introduction and overview of the course. Some simple games: competition, coordination, and guessing

2. Decision-making
a) Individual decision-making
b) Cooperative decision-making
c) Strategic decision-making

(Framing decisions, identifying player roles, common decision-making pitfalls; sequential,
simultaneous and repeated games; examples and real-life situations)

3.Negotiations
a) Bilateral negotiations
b) Multilateral negotiations
c) Changing negotiations

(Price formulation in buyer-seller exchange, sharing costs, negotiations with a monopolist,
competition, scarcity and market power, hold-up problems)

4. Pricing
a) Mass market pricing
b) Strategic pricing
c) Informative pricing

(Simple and strategic pricing, strategic investment, tacit collusion, manipulating price sig-
nals)

5. Contracting
a) External contracting
b) Incentive contracting
c) Relational contracting

(Property rights, incomplete contracts, markets for ownerships, screening, incentives for
teams, committing to incentives, continuing the relationship)