20868 - BUSINESS ECONOMICS - MODULE II (ANALYTIC METHODS)

Good knowledge of basic microeconomics and basic game theory as developed in Bachelor courses is a pre-requisite for this course. Yet, because students have different backgrounds and preparation levels, the course aims to be self-contained. The lectures provide additional technical background to successfully attend this course.

This course introduces the fundamental tools of microeconomics for studying strategic interactions and the provision of the incentives at multiple levels of analysis: within firms; between partners in alliances; between firms interacting in the market; and between firms, users, and providers in plat-form-based ecosystems. The course focuses on the development and application of conceptual and formal models rooted in the main theoretical developments in the fields of management, strategy, and organizational economics. Yet the course differs from a typical economics course in several ways. It follows modern strategy frameworks that emphasize the tension between value creation and value capture and exposes students to a range of formal models and concrete problems faced by firms. The course is also largely focused on innovation processes. To innovate, firms must compete but also collaborate with others (engaging in R&D races, forming alliances, embracing an open innovation model, etc.); they can join or create and orchestrate ecosystems; and they must al-so incentivize knowledgeable employees. Students will learn to use analytical frameworks to as-sess innovation-based strategies within and between firms, in both entrepreneurial and established firms.

The course consists of traditional lectures, exercise sessions, in-class experiments, in-class group assignments, and case study discussions, allowing students to understand the managerial implications of the theory and to develop the necessary analytical skills to assess the challenges of organizing internal and external sources of innovation. The topics of the course are divided into five parts.

1) Introduction to game theory: Who does what and when? Who gets what and why?

-Non-cooperative games: Simultaneous, sequential, and repeated games.

-Bargaining theory.

2) Strategic interaction in R&D alliances: How do partners behave? Who should own the innovation?

-Property rights economics;

-The management of innovation;

-Coopetitive tensions in (repeated) alliances.

3) Strategic interaction in the market: Which are the incentives to innovate and cooperate in R&D?

-Innovations and market failures;

-Research efforts and competition.

4) Strategic interaction in two-sided markets: How do platforms work? Who joins a platform and why?

-Direct network effects and critical mass;

-Indirect network effects;

-Platform-based ecosystems.

5) Strategic interaction within the firm: How to manage human capital? How to organize the innovation process?

-Contracting, bargaining, and the provision of incentives;

-Contracting under moral hazard and adverse selection;

-Incentives for innovation and creativity;

-Interacting with AI.

• Assess firms’ incentives to innovate on their own or in cooperation with partners and competitors.
• Explain the functioning of markets with network goods and two-sided markets.
• Identify the main issues related to the management of innovation, and possess frameworks to understand common frictions within firms.

• Analyze the tensions in R&D alliances.
• Explain market-based interactions and market outcomes.
• Apply the appropriate frameworks related to the provision of incentives, the management of innovation, and the management of platform-based ecosystems.

• Face-to-face lectures
• Exercises (exercises, database, software etc.)
• Case studies /Incidents (traditional, online)
• Group assignments
• Interactive class activities on campus/online (role playing, business game, simulation, online forum, instant polls)

The course consists of traditional lectures, exercise sessions, in-class experiments, in-class group assignments, and case study discussions, allowing students to understand the managerial implications of the theory and to develop the necessary analytical skills to assess the challenges of organizing internal and external sources of innovation.

The assessment of learning will be based on two criteria:  

1. Three in itinere group assignments, two on the first and one on the second part of the course. The overall grade achieved in the three assignments is worth 50% of the final grade. 
2. An individual written exam at the end of the course based on content of the first and the second part of the course. The final written exam is worth 50% of the final grade. 

For each group assignment, all students of the team must attend and actively contribute.

The final grade will be entirely based on an individual written exam at the end of the course.

The content of the class lectures and the lecture notes are the only required material for the exam for attending students.

A list of suggested readings is provided in the syllabus. Readings consist of a mixture of book chapters, journal articles, and business cases that are meant to provide a range of perspectives and a flavor of the research in different areas.

In addition to the content of the class lectures and the lecture notes, the non attending students are required to read a list of additional readings that is indicated in the syllabus.