7. Strategic Substitutes and Complements
This session has been considered the most difficult material in the
course by students in past years.
Assigned Reading
- Packet: Besanko, David, David Dranove and Mark Shanley,
``Strategic Commitment and Competition,'' pp. 319-348 of The
Economics of Strategy, New York: John Wiley and Sons, 1996.
Central Idea:
Some strategies reinforce each other; other strategies hamper each
other.
Antithesis:
If one person escalates, the other must follow his example.
Topics That Might be Discussed in Class
- Soft vs. Tough strategies
- Strategic Substitutes and Complements
- The Fudenberg-Tirole typology of strategies
Important Terms
Strategic Substitutes and Complements, Direct Effect and Strategic
Effect,
Irreversibility,
Tough vs. Soft Firms,
Puppy-Dog Strategy,
Fat-Cat Effect,
Top-Dog Strategy,
Lean-and-Hungry Look.
Additional Material
For Next Time: Signalling
- Packet: McMillan, John, ``Information and Bargaining
Breakdown,'' pp. 65-75 of Games, Strategies, and
Managers, Oxford: Oxford University Press, 1992.
- "The 2001 Sveriges Riksbank (Bank of Sweden) Prize in Economic
Sciences in
Honor of Alfred Nobel," (Akerlof, Spence, Stiglitz), Nobel Foundation
press
release, October 10, 2001, http:
//www.nobel.se/economics/laureates/2001/press.html.
- "Stanford Business School's Spence Wins Nobel Prize in Economics,
"
Stanford Business School press release, October 9, 2001, http:
//www.gsb.stanford.edu/news/spence_2001nobel.html.
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Rasmusen. Last updated: March 27, 2002.