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BA 500 STRAT: The Micro-Economics Foundations of Competition and Strategy
MBA
Fall 2014
Professor: Charles W.L.Hill
Cell: 206-819-5480
E-mail:chill@uw.edu
Twitter: @charles_chill
Office Hours: Tuesday and Thursday 1:00pm-3:00pm
Office 538 Paccar Hall
TA: Kira Thorien
kthorien@uw.edu
Cell: 208 371 1001.
Office Hours: Monday 11:30am-1:00pm, Tuesday 3:30pm-5:00pm
Location: Study Room #1 Foster Business Library.
Required Reading Material.
1. C.W.L. Hill, G.R. Jones and M.A.Shilling. Strategic Management Theory, South
Western, Cengage (11th edition), 2015.
2. N. Gregory Mankiw, Principles of Microeconomics, South Western, Cengage (6th
edition), 2012.
3. HBSP course materials at https://cb.hbsp.harvard.edu/cbmp/access/28083784
Course Subject and Objectives
This course is microeconomics based strategy course. The course is concerned with
understanding the nature of the competitive process and the source of firm level
competitive advantage. The focus is upon the economics of market competition, and the
strategies that firms can adopt to gain a competitive advantage. The course explores the
fundamental micro-economic principles of competition and applies these principles to the
study of competitive advantage and strategy. The objectives of the course are as follows:
1. To increase your understanding of the economics of competition.
2. To enhance your ability to analyze competitive dynamics and draw out the
implications for individual firms.
3. To develop an appreciation for the different strategies that can be pursued in different
competitive circumstances in order to gain a competitive advantage.
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Teaching Method
A combination of required readings, lectures, and in-class case analyses are used to attain
these objectives. A list of discussion questions for each case is included in this syllabus.
Please read each case thoroughly prior to class using the discussion questions to guide
your thinking.
Grading
Grades are determined on the basis of four components:
1. Microeconomic homework assignments (20% of total grade). There are five
assignments. You will be grade on one question per assignment, picked at random.
2. An exam that focuses upon your understanding of micro-economic principles and
how they apply to competitive strategy (30% of total grade). This will be given on
Friday December 5th, 2-5pm.
3. A group project that focuses upon the application of micro-economic principles to
analyzing industry structure and competitive strategy (30% of total grade). This will
be due December 4th.
4. Contribution to in-class discussions, particularly of case material (20% of total
grade).
Course Schedule
Session 1, September 30th: Course Overview
Reading:
Hill, Jones & Shilling, Chapter 1
Session 2, October 2nd: Cases Analysis (1) The Evolution of the Small Package
Express Industry. (2) Airborne Express
Come to class prepared to discuss the following:
1. Despite rapid volume growth, the small package express industry was
characterized by low profitability during the 1980s. Why?
2. Why did competitive intensity moderate and prices rise in the industry during
1988-89?
3. What was Airborne Express’ strategy during the 1980s and 1990s? Did this
strategy make sense?
4. What was the company trying to do by expanding its logistics activities from the
mid 1990s onwards?
5. In the 2000s this industry has generally been profitable for the two main
incumbents, FedEx and UPS. Why?
6. Was selling out to DHL the logical thing to do for Airborne?
7. Why did DHL fail to gain share in the U.S. market after the Airborne acquisition?
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Session 3, October 7th: The Micro-Economics of Supply, Demand and Elasticity
Reading:
Mankiw, Chapter 4, 5 and 6.
Session 4, October 8th: The Micro-Economics of Supply, Demand and Elasticity
(continued)
Reading:
Mankiw, Chapter 4, 5 and 6.
Session 5, October 14th: Case -Toyota Corporation
Come to class prepared to discuss the following:
1. Compare and contrast Toyota’s manufacturing system with a conventional mass
production system. What are the advantages of Toyota’s system? What are the
strategic implications?
2. Describe the difference between the way supplier relations have historically been
managed at Toyota and at U.S. auto companies? What are the consequences of
these differences? What are the strategic implications?
3. What drove the evolution of Toyota’s production system?
4. Can Toyota replicate its production system in overseas operations?
5. What is the basis of Toyota’s competitive advantage? Can it be imitated?
Session 6, October 16th: Theory of Production and Costs
Reading:
Mankiw, Chapter 13
Session 7, October 21st: Case - Zoots: The Cleaner Cleaner
Come to class prepared to discuss the following:
1. How would you characterize the economic structure of the dry cleaning industry?
Do you think the average player in this industry earns anything other than
“normal” economic profits?
2. Describe and evaluate the business model for Zoots. How does Zoots intend to
earn a rate of return that exceeds its cost of capital? What are the strengths of this
business model? What are the weaknesses and flaws in the model?
3. How would you characterize Krasnow’s approach to identifying a business
opportunity? Can you see a drawback with this approach?
4. Rethink the strategy pursued by Zoots. Might the company have done things
differently?
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Session 8, October 23rd: Competition in Competitive Markets
Reading:
Mankiw, Chapter 14.
Session 9, October 28th: Case - Coca-Cola versus Pepsi-Cola
https://cb.hbsp.harvard.edu/cbmp/access/28083784
Come to class prepared to discuss the following:
1. The soft drink industry evolved with a franchised bottler system. For most of the
industry’s history the concentrate producers nurtured and preserved this system,
Why?
2. During the 1980s the both Coke and Pepsi began to acquire bottlers. Why?
3. Why did Coca Cola dominate the soft drink industry by the end of the Second
World War?
4. How was Pepsi able to come back from near bankruptcy and gain share at the
expense of Coke from the 1950s through to 1975?
5. During the 1950s-1970s, being a concentrate producer yielded very high returns.
Why was this the case?
6. How did the 1977 national launch of the Pepsi challenge change the nature of
competition in the industry?
7. During the 1990s Coca Cola was gained market share back from Pepsi, and was
significantly more profitable. Why?
8. What are the threats facing Coke and Pepsi in the 21sr century? How are they
dealing with these?
Session 10, October 30th: Competition with Market Power – Monopoly
Reading:
Mankiw, Chapter 15
Session 11, November 4th: Case – Internet Search and the Growth of Google
Come to class prepared to discuss the following:
1. Why has the pay-per-click search business grown so rapidly?
2. Analyze the competitive structure of the market for search-based advertising.
What are the implications of this structure for the long run profitability of players
in the market?
3. Why was it entrepreneurial startups, as opposed to established enterprises, that
pioneered the paid search market?
4. What explains Google’s success in the paid search marketplace? How sustainable
is its competitive advantage?
5. Does the pay-per-click business model pioneered by GoTo.com and Google
constitute a paradigm shift? How? What are the implications for other
enterprises?
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6. What is Google trying to do strategically? How should competitors like Microsoft
respond?
Session 12, November 6th: Competition with Market Power – Oligopoly
Reading:
Mankiw, Chapter 17.
Session 13, November 13th: Strategic Industry Analysis (I)
Reading:
Hill, Jones & Shilling, Chapter 2
Session 14, November 17th: Case - The Home Video Game Industry
Come to class prepared to discuss the following:
1. Why was Atari so successful? What was the root cause of the Atari-era bust?
2. How did Nintendo successfully recreate the home video game business following
the Atari-era boom and bust?
3. How was Nintendo able to capture value from the home video game business?
4. How was Sega able gain market share from Nintendo?
5. Evaluate the competitive strategy of 3DO? What were the strengths of this
strategy? What were the weaknesses?
6. Why did Microsoft enter this business with Xbox? How successful have they
been?
Session 15, November 20th: Strategic Industry Analysis (II)
Reading:
Hill, Jones & Shilling, Chapter 2
Session 16, November 25th: Case – Wal*Mart Stores
https://cb.hbsp.harvard.edu/cbmp/access/28083784
Come to class prepared to discuss the following:
1. What are the sources of Wal-Mart’s competitive advantage? Pay particular
attention to location, functional and organization factors?
2. What role did Sam Walton play in building Wal-Mart’s competitive advantage?
3. Can Wal-Mart’s competitive advantage be imitated?
4. Can Wal-Mart continue to grow its revenues and profits at historic rates? What
strategies does it after pursue to make this happen?
5. Do you think that Wal-Mart can replicate its domestic success in foreign
countries? What might stand in the way of success overseas?
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Session 17, December 2nd: Business Level Strategy (I)
Reading:
Hill, Jones & Shilling: 3, 4, 5, 6 and 7
Session 18, December 4th:Business Level Strategy (II)
Reading:
Hill & Jones, 3, 4, 5, 6 and 7