Competitive Solutions Mini-Course

Summer 2005

Professor R. Preston McAfee

Text: McAfee, R. Preston, Competitive Solutions: The Strategist's Toolkit, Princeton University Press, 2002. (Note: The text is available in paperback for $25.)

Lecture Overheads (Case overheads available after discussion)

Section I: Cooperation (4 hours)

This portion of the course develops the theory of cooperation and applies it to management strategy. Positioning for cooperation, punishment strategies, bases for cooperation, and leveraging cooperation from one area to another are considered.

Reading: McAfee, Chapter 6
Brandenberger and Nalebuff, "The Right Game: Use Game Theory to Shape Strategy," Harvard Business Review, 7-8/95, 57-71. Case: General Electric vs. Westinghouse in Large Turbine Generators (A), Harvard Business School 9-380-128

Section II: Organization theory and incentives (4 hours)

This portion of the course develops insights in organizational design and incentives, including defragmentation strategy, organizational strategies, the costs and benefits of vertical integration, the provision of incentives, multitasking, and transfer pricing.

Reading: McAfee, Chapter 7, 8
Case: Masco (A), Harvard Business School 9-386-186
Case: Masco (B), Harvard Business School 9-389-187

Section III: Pricing (2 hours)

This section covers pricing strategies, including yield management, value-based pricing, and supporting multiple versions with distinct characteristics, with many examples.

Reading: McAfee, Chapter 11

Thought questions to help prepare for the case discussion.

GE vs. Westinghouse in Large Turbine Generators Is price competition strongly rivalrous? Why or why not?

(It may be important to know that the costs of serving larger customers are less than the costs of serving smaller customers, although by a modest amount. Moreover, the industry has a history of collusion and faces intense scrutiny by government antitrust authorities.)