|Students will apply tools from microeconomics to business strategy, with special emphasis on the sources of industry and firm profitability. The course is designed for students who are very comfortable with economic analysis at the level of 33001, and the lectures, assignments, and exams will draw heavily on rigorous formal models. We will explore the application of the theory to real-world problems (pricing, positioning, entry, regulation, etc.) through case analysis, readings, and in-class discussion.|
|Textbook: Cabral, Luís (2000). Introduction to Industrial Organization, MIT Press. (Required)
Other: Articles and cases, distributed via the Chalk site and a Course Pack.
|Based on class participation, a midterm, and a final. Cannot be taken pass/fail. No auditors.|
Description and/or course criteria last updated: 07/2012
|Sample Exam Questions/Problem Sets:|
|In his “Note on the Structural Analysis of Industries,” Michael Porter defines switching costs as “one-time costs of switching brands, or switching from one competitor’s product to another.” Porter argues that low switching costs intensify pricing rivalry within an industry.
a. What is Porter’s reasoning? That is, why, all else equal, would higher switching costs lead to lower pricing rivalry and hence higher prices in an industry?
b. Recently, some Booth faculty published an article arguing that, in many industries, higher switching costs intensify pricing rivalry and reduce prices. Without looking at their article, can you guess why this might be the case? That is, why, all else equal, would higher switching costs lead to greater pricing rivalry and hence lower prices in an industry?|
|Course Conditions and Course Related Items:|