Скачать презентацию Managerial Economics Economics of Strategy Game Embedded Strategy Скачать презентацию Managerial Economics Economics of Strategy Game Embedded Strategy

415c18fcb6558e1e68d72346964471d5.ppt

  • Количество слайдов: 50

Managerial Economics: Economics of Strategy Game Embedded Strategy Patrick Mc. Nutt www. patrickmcnutt. com Managerial Economics: Economics of Strategy Game Embedded Strategy Patrick Mc. Nutt www. patrickmcnutt. com Abridged ©

Workshop Lesson plan…. • • Plan is to follow Besanko’s Economics of Strategy 5 Workshop Lesson plan…. • • Plan is to follow Besanko’s Economics of Strategy 5 th Edition Day 1: Introduction and setting the scene using Mc. Nutt’s Game Embedded Strategy Chapters 1 and 2 Day 1 : Revision of Chapters 3 and 5 (Used in Assignment No 1) and Introduce Chapter 2 (Economies of Scale and Scope) Day 1 Workshop Study Groups & Case Analysis Break-out Sessions at 330 -530 pm Day 1 and Day 2 with group Presentation Day 3 at 2 pm start Day 2 & 3: Focus on Chapters 8, 9, 10 and 11 and link into Units 3 and 4 Extra Chapters & Topics at the discretion of Workshop Director

Workshop Focus • Signals, Management type and relevance of TCE. . Unit 1. Besanko Workshop Focus • Signals, Management type and relevance of TCE. . Unit 1. Besanko Ch 3 and 5, Mc. Nutt Ch 1 • Cost leadership and economics of capacity. . commitment Unit 2. Besanko Ch 2 and Mc. Nutt Ch 5 • Market-as-a-game…market structure, oligopoly, and dynamic games of rivalry…Units 3 and 4. Besanko Ch 8, 9, 10 and 11 and Mc. Nutt Ch 6, 7, 8, 9 • Real Time case Analysis…go to Page 45 of colourcoded Storybook

Workshop Case Study • Case assignment and group allocation • Objective is to define Workshop Case Study • Case assignment and group allocation • Objective is to define game dimension, construct a CTL, define near-rival and find NE • Focus on geography and on a product [to include an innovation, technology, service] • Research ‘sum of competitors’ in the market-as-agame • Apply the course materials as discussed in class as ‘filters’ to narrow research.

Strategy architecture: Observe patterns over time period t = NOW time period t+ 1 Strategy architecture: Observe patterns over time period t = NOW time period t+ 1 = WAY FORWARD d. T/dt = -1

Q: Why the game theoretic focus? A: At the frontier of economic analysis…. . Q: Why the game theoretic focus? A: At the frontier of economic analysis…. . • Management observed as ‘they are’ not ‘assumed to be’ • Management can be ranked (by type) and are faced with trade-offs => something must come ‘top of the menu’ • Firms are conduits of information flows (vertical chain) • Supply chain capacity constraints and technology-lag • Reducing price does not necessarily lead to an increase in revenues (elasticity) • Prices are primarily signals (observed behavior) • Companies understand the competitive threat as (recognised) interdependence (zero-sum and entropy)

Focus on signals and type. . Baumol type, Marris type, CL type, Player types Focus on signals and type. . Baumol type, Marris type, CL type, Player types Why? Key to understanding firm behaviour & company strategy as observed in real time

Costs of not being a Player in the market-as-a-game • Agency costs can accrue. Costs of not being a Player in the market-as-a-game • Agency costs can accrue. . across the shareholders (esp institutional). . changing CEOs • Bounded rationality and opportunity costs with trade-offs • Make or Buy dilemma • First Mover Advantage (FMA) v Second Mover Advantage (SMA) • Play to win v Play not to lose! • Follower status ‘behind the curve’ • Technology lag and failure to differentiate ‘fast enough’ to sustain a competitive advantage

The competitive threat! • Traditional Analysis can be biased towards answering this question for The competitive threat! • Traditional Analysis can be biased towards answering this question for Company X: what market are we in and how can we do better? • Economics of strategy (GEMS) asks: what market should we be in?

Unit 1 Management Models • Understand Penrose effect and GHM Theory (Besanko pp 158 Unit 1 Management Models • Understand Penrose effect and GHM Theory (Besanko pp 158 -161) and incomplete contracting • Explain the rule MC = MR • Understand Bounded Rationality • Go to Table 1. 2 pp 14 Mc. Nutt Game Embedded Strategy Compare with Next Slide where you add in Williamson/TCE

Behavioural Baumol Marris Williamson Objective Multiple goals TR: Sales Growth: gd Managerial Utility or Behavioural Baumol Marris Williamson Objective Multiple goals TR: Sales Growth: gd Managerial Utility or Value Approach Satisficing – subject to Profit Constraint Maximisation - subject to Security Constraint Maximisation - subject to Profit Constraint Principal Agent Issue Yes Yes Short v Long Term Varies Short and also dynamic Long Short Reaction & Interaction Yes Partial Decision Making Coalitions Yes Management and zero-sum Relevance of shareholders Yes, . . TCE

Baumol strategy or Maximising Market Share: MMS • Recognise zero sum constaint and entropy Baumol strategy or Maximising Market Share: MMS • Recognise zero sum constaint and entropy (redistribution within market shares) • Market Shares (before): 40+30+20+10 • Zero-sum (after): 30+40+20+10 • Entropy (after): 30+35+25+10 • Iff {∆qi/∆Q} > 0 market exhibits nonprice competition: • Check {∆q. NOKIA/∆QSmartphones} < 0

Total Cost £ Total Revenue Min Profit Constraint Output Sales driven beyond the point Total Cost £ Total Revenue Min Profit Constraint Output Sales driven beyond the point of max profit but within the minimum profit constraint Profit/Loss

MMS-strategy • Entropy when the industry elasticity ηp is less than the firm-specific elasticity: MMS-strategy • Entropy when the industry elasticity ηp is less than the firm-specific elasticity: ηp < єp • Player a’s market share equation: MSa = [ηp + σ. MSb]/єp • Market Penetration: єp < σ. MSb and Market poaching σ < 1

Precis on a Marris model… • Mc. Nutt Ch 4: Understand balanced equation gc Precis on a Marris model… • Mc. Nutt Ch 4: Understand balanced equation gc = gd to identify parameters of profitability • Supply of capital: debt v equity • Demand for capital: R&D exp v dividends • Instrumental variables influencing growth – visit Diageo case in Kaelo v 2. 0 • KFIs: profits/output and output/capital • Marris v = Tobin’s q ratio

Marris equations: dividends paradox & operating gearing • Understand the α = operating gearing…. Marris equations: dividends paradox & operating gearing • Understand the α = operating gearing…. . how much extra profit earned from every $1 of extra revenue gd = gc = αp • P = eps/r : Static firm no growth opportunities • P = eps/r + PV(GO): Dynamic firm with growth opportunities (GO)…this is a Marris firm’s focus on gd. • Mc. Nutt p 50: Alternative to Calculating share price by DCF formula : share price pattern embedded in BGP equation as quadratic function of vertex form (h, k), where k is the share price turning point on the BGP and h is proxy for gd.

Marris v and Tobin q • Allow q = v, and if (mean reversion) Marris v and Tobin q • Allow q = v, and if (mean reversion) v < mean v then share prices should increase • Marris v is a long term tool not a short term tool • If v < 1 BUY. . if v > 1 SELL: Common denominator is the plough-back ratio (PBR) = 1 – divs/eps. • But more R&D from G 1 to G 2 can accrue an agency cost as Bayesian shareholders SELL as value falls V 1 to V 2. • More dividends could signal an absence of R&D growth

Focus on the cost technology, vertical chains and cost leadership Why? Need to observe Focus on the cost technology, vertical chains and cost leadership Why? Need to observe the supply chain and a sustainable competitive advantage

Bridge Unit 1 and Unit 2 • • Shareholder as principals expect max value Bridge Unit 1 and Unit 2 • • Shareholder as principals expect max value Management to minimise the agency costs Positive Learning Transfer, PLT Nomenclature on type: Baumol type (signal = price), Marris type (signal = dividends). • Cost leadership type (Mc. Nutt Ch 5, Besanko Ch 2 and link into Besanko Ch 13 on stategic cost advantage)

TCE & Co-ordination • Coase asked in ‘ The Nature of Firms’ in 1937: TCE & Co-ordination • Coase asked in ‘ The Nature of Firms’ in 1937: Why are not all economic transactions coordinated by markets? • • • When transaction costs are too high, exchange to be coordinated by organisations Transaction costs: costs of negotiating, monitoring and enforcing contracts. Behavioural assumptions: bounded rationality & opportunism. The relative cost of organising transaction through different forms of governance determined by: • Extent to which complete contracts are possible. Where contract refers to agreement between two parties which could be explicit or not. • Extent to which there is a threat of opportunism by parties in the transaction. • Degree of asset specificity in the transaction. • Frequency with which the transaction is repeated. Storybook p. 12

Emphasis in Unit 2: Cost leadership as a type (of player) • Profitabiltiy v Emphasis in Unit 2: Cost leadership as a type (of player) • Profitabiltiy v scale and (size and scope) • Production as a Cost-volume constraint • Understanding the economcis of productivity as exemplar for incentives • Normalisation equation • Sources of Cost Efficiency [next slide] • Cost leadership type checklist. . Mc. Nutt p 61

Sources of cost efficiency • Measure of the level of resources needed to create Sources of cost efficiency • Measure of the level of resources needed to create given level of value Capacity utilisation How much to produce given capital size? Other Economies of scale X-inefficiencies, location, timing, external environment, organisation discretionary policies How big should the scale of the operation be? Transaction costs Production-cost relationship Which are the vertical boundaries of the firm? Economies of scope What product varieties to produce? Learning and experience factors How long to produce for?

MES Point: Production - demand - production to attain cost leadership £ SAC 1 MES Point: Production - demand - production to attain cost leadership £ SAC 1 SAC 2 Lower per unit cost for more units sold SAC 3 LAC Av. Cost = marginal cost 0, 0 q 1 qt Current plan of plant closures to lower cost base not completed q 2 Q

Capacity Constraints: Why ? Sustainable competitive advantage • Case A: Unexhausted economies of scale Capacity Constraints: Why ? Sustainable competitive advantage • Case A: Unexhausted economies of scale due to lag in product differentiation. . excess capacity? • Case B: Firm-as-a-player cannot produce sufficient output to reach MES. . zero-sum? • Case C: Firm-as-a-player restraints production (deliberate intent). . Mc. Nutt’s dilemma as production drives demand…(Veblen monopoly type) • Speed of technology increases the firm-specific risk of Case A. . CLASS QUESTION: adopt Case C to solve A?

Focus on player strategy set in a game dimension So: dark strategy S 1: Focus on player strategy set in a game dimension So: dark strategy S 1: limit pricing strategy S 2: credible threat strategy

Oligopoly and Game Theory T 3 + GEMS • • Study of strategic interactions: Oligopoly and Game Theory T 3 + GEMS • • Study of strategic interactions: how firms adopt alternative strategies by taking into account rival behaviour Structured and logical method of considering strategic situations. It makes possible breaking down a competitive situation into its key elements and analysing the dynamics between the players. • Key elements: • Players. (Management). • Strategies. • Payoffs • Equilibrium. Every player plays her best strategy given the strategies of the other players. Objective. To explore oligopolistic industries from a game embedded strategy (GEMS) perspective. The use of T 3 framework, which considers 3 key dimensions (Type, Technology & Time), will allow oligopolists to better predict the likely strategic response of competitors when analysing competition from game embedded strategy perspective. • •

Unit 3: Game type and signalling • Decisions are interpreted as signals • Observed Unit 3: Game type and signalling • Decisions are interpreted as signals • Observed patterns and Critical Time Line. Nissan CTL pp 20 or Apple CTL p 94 in Mc. Nutt • Recognition of market interdependence (zerosum) • Price as a signal v Baumol model of TR max • Scale, size and capacity: cost leadership signals • Dividends as signals in Marris model

Bridging Unit 1 and Unit 3: Game analysis • Binary reaction; Will Player B Bridging Unit 1 and Unit 3: Game analysis • Binary reaction; Will Player B react? Yes or No? • If YES, decision may be parked • If NO, decision proceeds on error • Surprise • Non-binary reaction: Player B will react. Probability = x% • Decision taking on conjecture of likely reaction • No Surprise

What determines the intensity of rival competition? • Price Bertrand games [strategic complements + What determines the intensity of rival competition? • Price Bertrand games [strategic complements + elasticity] and non-price Cournot games [strategic substitutes + zero sum]. • Reaction, signalling and ‘best you can do, given reaction of competitor’ • Moonshots, noise and cheap talk in a signalling game (on rival costs, rival capacity) • Patterns of observed behaviour & likely reaction • Leader-follower as ‘knowledge’ and trust • Accommodation v entry deterrence • ’

Link Units 3 and 4: Game Dimension • • • What is a game Link Units 3 and 4: Game Dimension • • • What is a game – loss of independence? Nash premise: Action, Reaction and Reply Non-cooperative sequential (dynamic) games Introduce oligopoly and players (companies) n < 5 TR Test and Elasticity Mc. Nutt pp 36 Single shot price reduction: (i) fail TR test and revenues fall; (ii) near rival misreads the price as a signal

Type of Players • Incumbent type v entrant type • Dominant type v monopoly Type of Players • Incumbent type v entrant type • Dominant type v monopoly incumbent • De novo entrant type and geography of the market • Potential entrant type and the threat of entry • Newborn players and extant (incumbent) type

Limit Pricing Model in Besanko pp 310 -318 and Mc. Nutt pp 71 -76 Limit Pricing Model in Besanko pp 310 -318 and Mc. Nutt pp 71 -76 • Outline the game dimension: dominant incumbents v camuflaged entrant type • Define strategy set for incumbents • Allow entry and define the equilbrium • Preference - entry deterrent strategy v accomodation [next slide]

Entry Deterrent Strategy • • Reputation of the incumbents Entry function of the entrant Entry Deterrent Strategy • • Reputation of the incumbents Entry function of the entrant De novo and entry at time period t Potential entrant - forces reaction at time period t from incumbent • Coogans bluff strategy (classic poker strategy)

Describe (prices as signals) game dimension • Focus on the Sony v Microsoft game Describe (prices as signals) game dimension • Focus on the Sony v Microsoft game in Mc. Nutt Fig 9. 3 and Fig 9. 4 pp 115 • Players and type of players • Speed and frequency of reaction in the CTL • Observe the pattern of observed behaviour • Identify a Nash equilibrium…sequence of price reactions towards NE…. sequence of non-price signals on output towards NE. • Identify intersection of reaction functions

Continuing with Unit 4: Define a price war • Determine the Bertrand reaction function Continuing with Unit 4: Define a price war • Determine the Bertrand reaction function • Compute a Critical Time Line (CTL)from observed signals. . Examples of CTL in Mc. Nutt pp 20 Figure 2. 1 and pp 94 Fig 7. 4 • Find a price point of intersection • Case Analysis of Sony v Microsoft at Mc. Nutt pp 114 -116 and also in Kaelo v 2. 0

Visit Kaelo v 2. 0 and Games/Signalling • Example: Critical Time Line in Sony Visit Kaelo v 2. 0 and Games/Signalling • Example: Critical Time Line in Sony v Microsoft in Kaelo v 2. 0, Apple v Nokia game dimension Mc. Nutt pp 92 • Play a PD game and investment game in Kaelo v 2. 0 • Altruism, fairness, selfish gene, dominant strategy, minimax • Understand NE: if neither player would gain by unilaterally changing strategy

Nash Equilibria • Define the Nash equilibria [next slide] • Analyse the Payoff matrix Nash Equilibria • Define the Nash equilibria [next slide] • Analyse the Payoff matrix (B, Y) > (A, X) • Commitment and chat • Punishment strategy • Strategic Tool. Box in terms of credible mechanisms

Prisoners’ Dilemma Player 2 Strategy A Player 1 Strategy B Strategy A 2 2 Prisoners’ Dilemma Player 2 Strategy A Player 1 Strategy B Strategy A 2 2 0 3 Strategy B 3 0 1 1 • Would outcome change if the game is repeated? The Folk Theorem • Apply Prisoners’ Dilemma to Pricing Policy: Elasticity and Threat of Entry Firm 2 profit payoffs High Price $6 Firm 1 payoffs Low Price $4 High Price $6 10 x 13 Low Price $4 13 2 2 10 y

Games as Strategy: Strategic Tool. Box • Segmentation strategy to obtain FMA • Relevance Games as Strategy: Strategic Tool. Box • Segmentation strategy to obtain FMA • Relevance of chain-store paradox • Dark Strategy and 3 Mistakes in Mc. Nutt pp 95 -97 • Second Mover Advantage, SMA: Play not to lose v play to win (FMA) • Strategic Tool. Box in terms of identifying the competitive threat v cartel coordination on (High). . Cheating

Class Exercise: Find Nash Equilibrium? • Two players must simultaneously decide which strategy to Class Exercise: Find Nash Equilibrium? • Two players must simultaneously decide which strategy to adopt. Strategy A Strategy B Strategy A 3, 3 2, 4 Strategy B 4, 2 1, 1 • Does this example illustrate the concept of first mover advantage v second mover advantage • Should the players chat to avoid (1, 1)? .

Absence of price wars? Link into the HBR articles • Hypothesis: Price Wars occur Absence of price wars? Link into the HBR articles • Hypothesis: Price Wars occur due to a mis-match in price signals. • Mismatch can occur (i) declining volumes ∆qi/∆Q < 0; (ii) uncompetitive cost structure (productivity); (iii) technology & time; (iv) management type.

GEMS and Strategic Analysis • Knowledge of the identity of near rival: Actionyou -> GEMS and Strategic Analysis • Knowledge of the identity of near rival: Actionyou -> Reactionrival -> Nash. Replyyou Fig 9. 4 p 115 Mc. Nutt & Fig 8. 3 p 231 Besanko

Game Embedded Strategy: GEMS: Complete the Diagram What Market should Your Company be in? Game Embedded Strategy: GEMS: Complete the Diagram What Market should Your Company be in? Games & Feedback

Final Scenarios for YOUR Company…… • The Rationale • The Strategy Markets evolve Non-binary Final Scenarios for YOUR Company…… • The Rationale • The Strategy Markets evolve Non-binary • The Rationale • The Strategy Type, Technology and Game metrics and Time analytics • The Rationale • The Strategy Know your market GEMS

Thank you for participating……… Sapere aude ‘That which one can know, one should dare Thank you for participating……… Sapere aude ‘That which one can know, one should dare to know’