Microeconomics, Competition and Strategic Behaviour

Microeconomics is not applied math – frameworks in this book are regularly in use in daily managerial practice and strategic decision-making. Numerous case studies cover price discrimination, economies of scale, digital business models, game theory, dealing with uncertainty, entry barriers or sunk costs – all of which are crucial for understanding market dynamics and competitive behaviour.

Preface 5 Content 9 List of abbreviations 12 List of mathematical and economic variables 13 1 Microeconomics, competition and strategic behaviour 17 1.1 Microeconomics between empirical research, theory and experiments 18 1.2 Markets, demand and supply 25 1.3 Price elasticity and marginal revenues 38 1.4 Summary and key learnings 48 Recommendations for further reading 48 Questions for review 49 Literature 49 2 Customer behaviour, products and network effects 53 2.1 Customer behaviour and decisions on demand 54 2.2 Market delineation and product categories 66 2.3 Network effects and multisided markets 83 2.4 Summary and key learnings 94 Recommendations for further reading 94 Questions for review 95 Literature 95 3 Decisions under risk and behavioural economics 101 3.1 Decisions under risk and uncertainty 102 3.2 Bounded rationality and behavioural economics 116 3.3 Summary and key learnings 131 Recommendations for further reading 131 Questions for review 132 Literature 133 4 Firms, competition and innovation 139 4.1 Firms, objectives and strategies 140 4.2 Competitive advantage, market structure and firm-specific capabilities 151 4.3 Competition and innovation 165 4.4 Summary and key learnings 179 Recommendations for further reading 180 Questions for review 180 Literature 181 5 Firm size, technology and decisions on production 187 5.1 Production function and technology 189 5.2 Short run decisions: diminishing marginal product and productivity 194 5.3 Long run decisions: technical progress and returns to scale 201 5.4 Summary and key learnings 211 Recommendations for further reading 212 Questions for review 212 Literature 213 6 Costs, restructuring and M&A 215 6.1 Cost functions, decisions and competitiveness 216 6.2 Short run decisions: Fixed costs and marginal costs 220 6.3 Long run decisions: adjusting cost structures 225 6.4 Cost-based competitive advantage and M&A 235 6.5 Summary and key learnings 245 Recommendations for further reading 246 Questions for review 246 Literature 247 7 Perfect competition, monopoly and competition policy 249 7.1 Decisions of a firm under perfect competition 250 7.2 Producer and consumer surplus as a measure of economic welfare 258 7.3 Monopoly and dominant firms 263 7.4 Restraints of competition, competition policy and competition authorities 271 7.5 Summary and key learnings 287 Recommendations for further reading 287 Questions for review 288 Literature 288 8 Pricing strategies and price discrimination 293 8.1 Forms and requirements of price discrimination 294 8.2 Direct price discrimination and market segmentation 296 8.3 Indirect price discrimination and two-part tariffs 302 8.4 Bundling 310 8.5 Auctions 316 8.6 Summary and key learnings 321 Recommendations for further reading 322 Questions for review 322 Literature 323 9 Strategic decision-making and game theory 327 9.1 Nash equilibria in simultaneous games 330 9.2 Risk aversion and mixed strategies 342 9.3 Sequential decisions and commitment 348 9.4 Summary and key learnings 354 Recommendations for further reading 355 Questions for review 355 Literature 356 10 Strategic competition in oligopoly 359 10.1 Capacity decisions and strategies in Cournot competition 362 10.2 Sequential decisions and strategies under Stackelberg competition 374 10.3 Pricing decisions and strategies in Bertrand competition 378 10.4 Strategic competition with product differentiation 385 10.5 Relevance for competitive strategies 394 10.6 Summary and key learnings 397 Recommendations for further reading 398 Questions for review 398 Literature 400 Index 403