Competitive Strategy - Carey Business School



Competitive Strategy2 CreditsBU.912.610.XX[NOTE: Each section must have a separate syllabus.][Day & Time / ex: Monday, 6pm-9pm][Start & End Dates / ex: 3/24/18-5/12/18][Semester / ex: Fall 2017][Location / ex: Washington, DC]Instructor[Full Name]Contact Information[Email Address][Phone Number, (###) ###-#### (Optional)]Office Hours[Please specify the day and time of the 2 hours that will be dedicated to office hours each week. For evening classes, faculty may wish to hold their office hours by phone or email. While faculty are permitted to state “and by appointment,” office hours should not be held exclusively by appointment.]Required Text(s) & Learning MaterialsRequired Textbook:Besanko, D.; Dranove, D.; Shanley, M.; Schaefer, S. Economics of Strategy (7th edition), John Wiley & Sons, Inc., 2017. (EOS)Note: The 5th edition (2009) and 6th edition (2012) are also acceptable. Here are a few potentially useful links for this purpose: ; ; ; ; . Which alternative purchasing option to choose is entirely up to the student; they are all perfectly good for the purposes of this course. Required Case Readings at HBS Publishing:Content for which Carey does not hold the copyright will be provided through Harvard Business Publishing. Each student should purchase the course pack directly from the web-site: : Airborne Express, The U.S. Airline Industry in 1995, Arauco, RyanairRequired Case Readings at Blackboard:(Note: They will be used as case readings for discussion of Enterprise and American Airlines. No HBS cases used for these two cases.)[Enterprise case]O'Reilly, B., The rent-a-car jocks who made Enterprise #1. Fortune, October 28, 1996, Vol. 134, Issue 8, p. 125.Jacobson, G., Enterprise’s unconventional path, New York Times, Section D; Page 1; Column 2; Business/Financial Desk, January 23, 1997.[American Airlines case]McDowell, E., American Air cuts most fares in simplification of rate system, New York Times (Late edition- Final), Section A; Page 1; Column 1; Financial Desk, April 10, 1992.O’Brian, B., AMR's bid for simpler fares takes off, Wall Street Journal (Eastern edition), p. B1, Apr 10, 1992. Salpukas, A., A call for discipline in the airline industry, New York Times (Late edition- Final), Section D; Page 1; Column 4; Financial Desk, April 10, 1992.Recommended Text(s)Non-required Readings (will be available either at Blackboard or Harvard Business Publishing):Borenstein, S., “Rapid Communication and Price Fixing: The Airline Tariff Publishing Company Case," in J. E. Kwoka and L. J. White, eds., The Antitrust Revolution: The Role of Economics, Oxford University Press, 4th Edition, 2004, pp. 233–251.Brandenburger, A., and Nalebuff, B., The right game: Use game theory to shape strategy, Harvard Business Review, 1995, pp. 57–71.Garicano, L., and R. Gertner, The dynamics of price competition, Financial Times, p. 2, October 18, 1999.Gertner, R., and M. Knez, Vertical integration: Make or buy decisions, Financial Times Mastering Strategy Series, 1999.Ghemawat, P., and J. W. Rivkin, Creating competitive advantage, Harvard Business School Publishing, 2006 (HBS 9-798-062).Goolsbee, A., and C. Syverson, How do incumbents respond to the threat of entry? Evidence from the major airlines, Quarterly Journal of Economics, 2008, pp. 1611–1633.Porter, M., Note on the structural analysis of industries, Harvard Business School Publishing, 1983 (HBS 9-376-054).Porter, M., What is strategy, Harvard Business Review, 1996.Prahalad, C. K., and G. Hamel, The core competence of the corporation, Harvard Business Review, 1990.Course DescriptionThis module requires students to assume the role of a general manager. General managers have to cope with tremendous complexity, uncertainty, and inadequate information. An important requirement of a general manager's job is the ability to think in a cross-functional and holistic manner. Creativity and innovation are critical to achieving success, and so is the ability to execute and manage day to day. The concepts and frameworks to be covered in this course include Porter’s 5-forces Analysis, PEST Analysis, SWOT, emergent versus deliberate strategy, McKinsey Matrix, GE Growth/Share Matrix, Resource-Based View of the Firm, Core Competencies and Dynamic Capabilities, Cost Leadership Strategies, Differentiation Strategies, Vertical Integration, Diversification, Life-Cycle Theory, Cost Accounting, Business Process Management, Inventory Management, Newsvendor Problem, Value Chain Analysis, Activity-Based Accounting, and Queueing Theory.Prerequisite(s)None Learning ObjectivesBy the end of this course, students will: Be familiar with concepts in competitive strategy.Be able to assess concepts against the problems to determine their applicability.Understand how to conduct an analysis of a firm’s corporate, business, and functional strategies to arrive at an understanding of its competitive (dis)advantage in the context of its broader economic and social environment.Succinctly and convincingly convey recommendations in the case studies to their peers and the instructor in the class.To view the complete list of Carey Business School’s general learning goals and objectives, visit the Carey website.Attendance Attendance and class participation are part of each student’s course grade. Students are expected to attend all scheduled class sessions. Each class will include opportunities for teams to work together. Failure to attend class will result in an inability to achieve the objectives of the course. When you miss a class session, you are responsible for obtaining class handouts and information given out during your absence. Even if you miss class, you must turn in your assignments on time. Excessive absence will result in loss of points for team participation. Regular attendance and active participation are required for students to successfully complete the course. While in class, students should turn off their cell phones and be sure that all computer use is course-related.Assignments AssignmentLearning ObjectivesWeightClass discussion (5%) and memoranda (10%)1, 415%Homework Problem (5%* 5)1, 2, 325%Case Presentation 1, 2, 3, 425%Final Exam1, 2, 335%Total100%*We reserve the right to add bonus points for individual/group performance at in-class exercises.Class Participation Class participation is essential in order for you to get the maximum benefit from the course. Your grade will be based on attendance and the quality, not quantity, of your contributions to class discussions. MemorandumYou will prepare a 2-page memorandum related to the week’s cases. This memo is an individual submission, except during week 4 (Shrimp game) and the week that your group is presenting (see “exceptions” below). The page limit is for text only—you may attach as many graphs and numerical calculations as you wish. We will not write comments on the memoranda, but will grade them as either “check” or “check-minus.” These written responses will be due at the beginning of class during the week that we are discussing the case. If you do not turn in the response on time, the work will be recorded as a grade of zero. The memo should be typed with 11-point font. Exceptions: You are not required to submit a memo in session 1 (profit calculator) and session 5 (Arauco; we conduct online lecture). If you are presenting a case (either AA in week 6 or Ryanair in week 7), I just need one memo (i.e., one submission) from your group assigned for case presentation. The format is the same.For the Shrimp game, I need just one memo from the group assigned for the shrimp game. The format is the same, but 1 page is fine.Each case listed includes a set of discussion questions about the case. For the discussion questions, see the “Detailed Course Calendar” below. The memo should provide a solid answer to each of the discussion questions. Please try to use the analytical tools introduced in the readings and/or developed in class to address the case questions. Doing so will demonstrate that you understand the material (and prepare you for the exam. Please do not introduce facts from outside of the cases as this will cause confusion in your analyses.Case PresentationAn effective way to accomplish this course's objectives is through a case presentation. Class will be divided into study teams of maximum of 4 students. The instructor will assign students to the teams. The instructor will assign a case (either American Airlines or Ryanair) to the teams. Each team has 20 minutes for presentation including Q&As from the floor. Schedule: For G1, Session 6: Teams A, B, and C. Session 7: Teams D, E, F, and G. For G2, Session 6: Teams A, B, C, and D. Session 7: Teams E, F, and G. The presentation should provide a solid and detailed perspective for each of the discussion questions. The presentation needs to include specific and practical recommended actions. Please do not introduce facts from outside of the cases as this will cause confusion in your analyses. Again, if you are presenting the case for that week, you need to submit the memo just from your group, not from each member. Homework ProblemsThe course will include five sets of homework problems. These problems will help you review the formal models developed in class. The assignments are due at the beginning of Sessions 2, 3, 4, 6, and 7. In-class Final ExamThis course will culminate in an in-class, 3-hour exam. The exam is cumulative; it will cover all topics covered in class in the course. The exam will be multiple-choice questions. The format will be closed-book and closed-note, and will be strictly an individual assignment. You will not be able to use your computer, cell phone, or smart phone in the final exam. Calculators will be provided if necessary. A make-up exam will be given only in case of valid and documented excuses. Test scripts must not be removed from the classroom during the test.GradingEffective Fall 2017: The grade of A is reserved for those who demonstrate extraordinarily excellent performance as determined by the instructor. The grade of A- is awarded only for excellent performance. The grades of B+, B, and B- are awarded for good performance. The grades of C+, C, and C- are awarded for adequate but substandard performance.?The grades of D+, D, and D- are not awarded at the graduate level (undergraduate only). The grade of F indicates the student’s failure to satisfactorily complete the course work.Please note that for Core and Foundation courses, a maximum of 25% of students may be awarded an A or A-; the grade point average of the class should not exceed 3.3. For Elective courses, a maximum of 35% of students may be awarded an A or A-; the grade point average of the class should not exceed 3.4. (For classes with 15 students or fewer, the class GPA cap is waived.)Tentative Course CalendarThe instructors reserve the right to alter course content and/or adjust the pace to accommodate class progress. Students are responsible for keeping up with all adjustments to the course calendar.Note: (BB), (EOS), and (HBP) refer to Blackboard, Economics of Strategy textbook, and Harvard Business Publishing, respectively.WeekContentCaseDueNoteStrategyMicroeconomicsHomeworkCase memo1Industry AnalysisBasic ConceptsProfit calculator???2Creating CACompetitors & CompetitionAirborneHW 1Yes (2 pages)?3Sustaining CACompetitors & CompetitionEnterpriseHW 2Yes (2 pages)?4Shrimp GGame TheoryShrimpHW 3Yes (1 page, shrimp group)?5Firm BoundariesContract TheoryArauco??Adobe online class6Dynamic PriceGame TheoryAmerican AirlinesHW 4Yes (2 pages)?7Entry DeterrenceGame TheoryRyanairHW 5Yes (2 pages)?8(final exam)?Note: Regarding memo, 1 submission from the group will suffice for the week you are presenting (either week 6 or 7) & shrimp game (week 4).Detailed Course CalendarThe instructors reserve the right to alter course content and/or adjust the pace to accommodate class progress. Students are responsible for keeping up with all adjustments to the course calendar.Session 1Industry Analysis/Competitors and Competition This session focuses on structural features of an industry as drivers of economic profits. Several important insights about competition can be explained as fundamental principles of microeconomics. It is important to consider specific firms and industry settings. However, it is at least as valuable to appreciate the issues at a more universal level. We first discuss how to identify the competitors and to define the market. We lay out the key economic concept of industry analysis: pricing rivalry. We then introduce the industry analysis to examine what factors create huge variations in firms’ long-run performance across industries. Finally, we introduce the models of monopoly and perfect competition.Readings (* Required)(*) Introduction: Strategy and Economics: (EOS), Economic Costs and Profitability, Demand and Revenues, Perfect Competition: (EOS) (*) Industry Analysis (EOS Ch. 8)Porter, M., Note on the Structural Analysis of Industries (HBP)(*) Competitors and Competition (EOS Ch. 5)Case studyProfit Calculations (no articles to read): In-class exerciseThis is not a case per se, but we will briefly discuss the accounting profits of five small businesses in New York City. All have pretty simple products and very few employees (mostly one). Guess the order of their accounting profits from highest to lowest. Consider what assets those accounting profits are rents on. Session 2Competitors and Competition (cont'd) /Competitive Advantage: Introduction This session continues the discussion of market structure by introducing the models of oligopoly and monopolistic competition. We then develop a conceptual framework to explain why some firms are more successful than others, focusing on one of the most enduring concepts in business strategy: competitive advantage. We introduce analytical tools, such as value creation, cost advantage, benefit advantage, and broad coverage versus focus strategies, and show how to put these concepts into operation when looking at actual firms. Readings (* Required)(*) Competitors and Competition (cont'd), (EOS Ch. 5)(*) Strategic Positioning for Competitive Advantage (EOS Ch. 9)Ghemawat, P., and J. W. Rivkin, Creating Competitive Advantage HBP)Case studyAirborne Express (A) (HBP)The Airborne Express case illustrates how a company can carve out a distinctive and long-viable position in a highly competitive industry. The case provides detailed data on costs, allowing us to compare Airborne's cost structure with Fed Ex’s, and pinpoint the sources of Airborne's cost advantage. Discussion questionsWhat is the five-forces analysis of the express mail industry?Analyze Airborne Express’s cost advantage Activity analysis. For each specific activity, discuss how Airborne Express performs differently/more effectively than its competitors. What is the Airborne’s position regarding its scope of business, such as product focus and customers?Cost analysis. To what extent do these activities allow Airborne Express to produce relatively more value, in terms of either greater benefits to consumers or lower costs?Specifically: How much does it cost FedEx to ship an overnight letter? How much does it cost Airborne? How sustainable is Airborne’s strategy? Can an entrant or incumbent mimic Airborne’s strategy?Recommendation: What could Robert Brazier, Airborne's President and COO, do to strengthen the company’s position?Session 3Competitive Advantage: Sustainability What makes a competitive advantage sustainable, and why? In this session, we develop the resource-based theory to analyze asymmetries in the resources and capabilities of firms as the basis for sustainability. Two major classes of isolating mechanisms are introduced: barriers to imitation and first-mover & late advantages. We discuss some specific factors that reinforce sustainability. Readings (* Required)Porter, Michael, What is Strategy (BB)Prahalad, C.K., and Hamel, G., The Core Competence of the Corporation (BB)(*) Sustaining Competitive Advantage (EOS Ch. 11)Case studyEnterprise Rent-a-Car (Not HBS’s case. Two articles posted in BB's e-reserve: O'Reilly and Jacobson)This case focuses on competitive advantage in a retail market where proliferation of locations becomes crucially important (a la Starbucks). This allows a discussion of first mover advantage. It also provides a different look at customer focus-based strategies similar to the Airborne case. Finally, it provides a first look at some interesting vertical integration issues.Discussion questionsPerform a five-forces analysis of Enterprise’s industryCreating competitive advantageWhat does Enterprise do differently than its rivals?What other markets do we expect to see one company offering gifts to another? Why would Enterprise invest more in computer tracking than Hertz/Avis?How does Enterprise perform compared with its rivals? (in terms of benefits for consumers and costs of operations)Sustaining Competitive AdvantageHow does Enterprise sustain their competitive advantage?Do they have a first-mover advantage?What should Enterprise do next in order to strengthen its position? Session 4Strategic Interaction Among Firms I: Introduction to Game Theory This session introduces tools from game theory that will be applied to business strategy. Firms often make pricing or entry decisions expecting the responses of rivals. Game theory provides a framework for thinking about such strategic behaviors of small number of players and a way to understand phenomena that are harder to capture in classical microeconomics. This session covers Nash Equilibrium, sequential-move games, and simultaneous-move games. Also, we will discuss value of commitment and dynamics of cooperation. Readings (* Required)Description of Shrimp Game (BB)Brandenburger and Nalebuff, The Right Game: Use Game Theory to Shape Strategy, 1995 (BB)(*) Game theory: (EOS pp. 29–33)(*) Strategic Positioning for Competitive Advantage (EOS Ch. 9)Case studyShrimp Game (BB): In-class exerciseThis is not a case per se, but a description of a game that we will play in class. You should analyze the game carefully prior to attending the class: (i) What strategy would you pursue? (ii) What do you think will be the quantities, prices, and profits when three teams each operate as shrimpers in the same market?Session 5Horizontal and Vertical Boundaries of the Firm [Online Lecture via Adobe Connect]What activities should a firm engage in? This session examines several factors that influence a firm’s boundaries and horizontal/vertical integration decisions of a firm. A firm’s horizontal boundaries identify the quantities and variety of products and services that it produces. A firm’s vertical boundaries identify the make-vs-buy decision and a plethora of hybrid strategies that exist along a continuum, which allows the firm to adjust its approach to the setting at hand. Readings (* Required)Gertner, R.; Knez, M., Vertical Integration: Make or Buy Decisions, Financial Times Mastering Strategy Series (BB)(*) Economies of Scale and Scope (EOS Ch. 2)(*) The Vertical Boundaries of the Firm (EOS Ch. 3)(*) Integration and Its Alternatives (EOS Ch. 4) Case studyArauco (A): Forward Integration or Horizontal Expansions? (HBP)This case describes the economics behind the vertical integration decision in terms of economies of scale and economies of scope. Arauco is a major Chilean producer of market pulp and wood products. As of early 2004, Arauco is considering increasing its capacity to over 3.0 million tons, which would place its capacity as the world’s largest producer. After the first phase of the project, called Nueva Aldea, Alejandro Pérez, Arauco’s president and CEO, is planning the second phase of the project, which would include the company’s sixth market pulp plant. The case focus on Pérez’s question whether the company and its shareholders would be better served through a forward integration into the paper business instead of pursuing the option to increase the company’s capacity in market pulp.Discussion questionsShould Arauco build the Nueva Aldea project? Is it profitable?What is the competitive advantage for Arauco? Discuss its source(s) and its sustainability.What would be the optimal degree of vertical integration for Arauco? Discuss each business (forests, R&D, sawmills, shipping, etc.) separately.RE: Alto Parana project, what would be the minimum price of wood per ton foresters would accept? What would be the maximum willings to pay for wood per ton for Arauco? Do you think forward integration to paper is a good business plan for Arauco? Why or why not?Session 6Strategic Interactions Among Firms II: Dynamic Pricing Why do we focus on price competition? Is cooperative pricing achievable when firms make pricing decisions non-cooperatively in multiple periods? Understanding the dynamics of price competition and how to shape competition to your advantage is an important part of strategy. We will discuss two types of price competition restraints: (1) Cartel/collusion and (2) Tacit collusion. This session covers industry conditions and practices that sustain and facilitate cooperative pricing. Readings (* Required)(*) Dynamics: Competing Across Time (EOS Ch. 7)Garicano and Gertner, 1999 (BB)Borenstein, 2004 (BB)Case studyAmerican Airlines (Not HBS’s case. Three articles posted in BB's e-reserve: McDowell, O Brian, and Salpukas)Many factors have historically made pricing rivalry intense in the U.S. airline industry. This case provides an opportunity to examine key factors that have led to low profitability in the past. We will focus on the logic of American’s new fare restructuring announced in 1992. The U.S. Airline Industry in 1995 (HBP)Note: We won't discuss this case in detail, but it is very useful as background for the American Airlines pricing articles. Focus especially on the section "Marketing Innovations." Also consider the nature of entry barriers and pricing rivalry in the industry. Discussion questionsPerform a five-forces analysis of the U.S. airline industry after 1979 focusing on entry barriers and pricing rivalry.What do you see as the main pros and cons of hub & spoke system? In what markets do you think hub & spoke has the biggest advantage?Evaluate American’s announcement of a new rate structure:What changes did American make?Which customers benefited most? Were any customers made worse off?Why did each of American’s competitors react to the change the way they did? What were American’s goals in making this move? Is every airline better off with the proposed situation?Can an airline detect deviations and enforce the rule?Session 7Strategic Interaction III: Entry and Entry Deterrence We continue the discussions of strategic interaction in the context of firm entry and exit decisions. Strategic entry deterrence plays a major role in firm strategy in the real world, and we use the game-theoretic framework to answer these following questions: When does it make sense for the incumbent to fight post-entry? How should an entrant predict the profits it is likely to earn? This session covers credible commitments, signaling, and predatory pricing.Readings (* Required)(*) Entry and Exit (EOS Ch. 6)Goolsbee and Syverson, 2008 (BB)Case StudyDogfight over Europe: Ryanair (A) (HBP) This case describes the beginning of the roller coaster ride of Ryanair, an upstart Irish airline. The case asks to assess Ryanair (RA)'s initial launch strategy. This case provides an opportunity to evaluate strategic interactions among players, such as the response of Aer Lingus (AL) and British Airways (BA) to Ryanair's entry.Discussion QuestionsWhat is RA’s key competitive advantage in entering the Dublin–London route? Is it sustainable in the long run? How does the fact that both BA and AL are government carriers help or does not help RA to achieve the intended competitive advantage?Estimate RA’s revenue on the Dublin–London route if RA enters with the proposed I?98 price. For simplicity, we assume no incumbents react for this question—i.e., BA and AL keep price and service levels constant. Would RA be able to fill out their planes?Estimate RA’s cost per passenger and discuss whether the predicted operating margin for RA is tight. What is the estimated total profit for RA? Again, we assume BA and AL do not react.Taking account these answers and any other relevant factors, how do you expect BA and AL to react?What is your overall assessment of RA’s launch strategy?Carey Business SchoolPolicies and General InformationBlackboard SiteA Blackboard course site is set up for this course. Each student is expected to check the site throughout the semester as Blackboard will be the primary venue for outside classroom communications between the instructors and the students. Students can access the course site at . Support for Blackboard is available at 1-866-669-6138.Course EvaluationAs a research and learning community, the Carey Business School is committed to continuous improvement. The faculty strongly encourages students to provide complete and honest feedback for this course. Please take this activity seriously; we depend on your feedback to help us improve. Information on how to complete the evaluation will be provided toward the end of the course.Disability Support ServicesAll students with disabilities who require accommodations for this course should contact Disability Support Services at their earliest convenience to discuss their specific needs. If you have a documented disability, you must be registered with Disability Support Services (carey.disability@jhu.edu or 410-234-9243) to receive accommodations. For more information, please visit the Disability Support Services webpage.Academic Ethics PolicyCarey expects graduates to be innovative business leaders and exemplary global citizens. The Carey community believes that honesty, integrity, and community responsibility are qualities inherent in an exemplary citizen. The objective of the Academic Ethics Policy (AEP) is to create an environment of trust and respect among all members of the Carey academic community and hold Carey students accountable to the highest standards of academic integrity and excellence.It is the responsibility of every Carey student, faculty member, and staff member to familiarize themselves with the AEP and its procedures. Failure to become acquainted with this information will not excuse any student, faculty, or staff from the responsibility to abide by the AEP. Please contact the Student Services office if you have any questions. For the full policy, please visit the Academic Ethics Policy webpage.Students are not allowed to use any electronic devices during in-class tests. Calculators will be provided if the instructor requires them for test taking. Students must seek permission from the instructor to leave the classroom during an in-class test. Test scripts must not be removed from the classroom during the test.Student Conduct CodeThe fundamental purpose of the Johns Hopkins University’s regulation of student conduct is to promote and to protect the health, safety, welfare, property, and rights of all members of the University community as well as to promote the orderly operation of the University and to safeguard its property and facilities. As members of the University community, students accept certain responsibilities which support the educational mission and create an environment in which all students are afforded the same opportunity to succeed academically. Please contact the Student Services office if you have any questions. For the full policy, please visit the Student Conduct Code webpage.Student Success CenterThe Student Success Center offers free online and in-person one-on-one and group coaching in writing, presenting, and quantitative courses. The center also offers a variety of workshops, exam study sessions, and instructor-led primer seminars to help prepare students for challenging course content, including statistics and accounting. For more information or to book an appointment, please visit the Student Success Center website.Other Important Academic Policies and ServicesStudents are strongly encouraged to consult the Carey Business School’s Student Handbook and Academic Catalog and Student Resources for information regarding the following items:Statement of Diversity and InclusionInclement Weather PolicyCopyright StatementUnless explicitly allowed by the instructor, course materials, class discussions, and examinations are created for and expected to be used by class participants only.?The recording and rebroadcasting of such material, by any means, is forbidden. Violations are subject to sanctions under the Honor Code. ................
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