Economic strategic thinking, 7.5 ECTS

The aim of this course is to provide an understanding of economic aspects of strategic decisions within companies and organizations. The approach of this course is to illustrate key issues through microeconomic reasoning and simple applications of non-cooperative game theory. The main emphasis throughout is on illustrating the central economic principles of each respective application. The course structure parallels the set text in dealing with four areas of strategic decisions. The first area concerns the company’s horizontal and vertical borders, i.e. the scale of the company’s activity and how much of the processing chain that ought to be included in the company. Discussion topics include economies of scale, transaction costs, incomplete contracts, relationship-specific investments and so-called hold-up problems. The second area concerns imperfect competition with reference to such issues as monopoly, monopolistic competition, oligopoly theory, cartels, new establishment and secession. Discussion topics include credible threats, repeated games and obstacles to entry. The third area concerns the company’s competitive advantages and whether these can be sustained in the long-term. This part of the course relates earlier topics to such areas as research and development and product differentiation. The latter part of the course focuses on a company’s internal organization and the incentives within a company. Discussion topics include principal-agent theory, performance-based compensation and the weighing of incentives against risk, incentives in so-called tournaments and incentives in groups.