Managerial Economics 387
Economics of Strategy
Fall Semester, 2011
The objective of this course is to help students learn how to use economics to achieve superior profit
performance for firms.
This goal is a bit different from what you would expect to find in a traditional
Traditional economics tends to focus on questions of economic welfare and efficiency.
this course, we are instead concerned with understanding how economic forces influence a specific firm’s
performance and discovering how those forces can be harnessed to improve the strategic prospects for the firm.
The goal is to use economic and strategic reasoning to discover how a firm may develop advantageous
positions relative to competitors and others who threaten profitability.
Drawing from industrial organization and micro economics, we address a number of questions regarding the
structure of markets and how managers can strategically maneuver within this structure to improve firm
performance. For example,
how can market power be secured relative to buyers, suppliers, or potential
How should a manager respond to the threat of a new rival entering its market?
How should a firm
price its product, or select production quantities, or choose new markets for entry?
How should a firm make
decisions under dynamic conditions in which rivals repeatedly react to the moves of the firm?
We will learn the
economic tools and analytical techniques that are crucial to addressing these questions. These tools include
analysis of demand and supply, production, elasticity, transaction costs, and game theory, to name a few.
The perspective taken in this course is the perspective of the CEO or general manager who must manage the
many strategic issues facing the enterprise.
Throughout the course, in both cases and class discussion, you will
apply your learning to business situations and place yourself in the decision making role of the CEO or general
manager. Thinking like a general manager is an important skill to develop early in your business education.
Even if your intended career is entirely within a functional discipline (e.g. finance, marketing, etc), your
responsibilities will often require you to provide inputs into the strategic management decisions of the general
The ultimate objective of the course is for you to develop a solid foundation for competent strategic and
economic analysis. Developing good strategy for firms requires an analytical, problem-solving approach. This
course is designed to provide you with numerous economic tools in pursuit of this goal. As you master the
tools of economic analysis and how they apply to strategic problems, you will become skilled at strategic
reasoning and capable of assessing or developing good strategy in any business situation. Following are
specific learning objectives:
Acquire skill in applying the tools of economic analysis to management problems
Develop competent understanding of competitive environments, competitive rivalry, cost, entry, and