Minor Game Theory for Managers

Category
Broadening minor
Minor code
MINRSM003
Belongs to study programme

Content

Week 1: Strategies and equilibrium. The concepts of strategy and equilibrium are developed to capture strategic interactions, and are applied to bargaining, strategic delegation, and agenda control.

Week 2: Information structure, i.e. taking turns in the dark. Informational differences between players constrain their choices and may make creating (endogenously) uncertainty attractive.

Week 3: Incomplete information, i.e. I know something you don’t know. People have often some information only known to them, such as their ability, production costs, or market circumstances. Choices may reveal (part of) this information.

Week 4: Contract theory. The developed game theoretic concepts are applied to address incentive and selection issues in and between organizations.

Week 5: Business is war, and business is peace. Repeated games may overcome the two seemingly opposing perspectives of competition and cooperation. These ideas are applied to address reputation, empowerment, cartel stability, and the transaction platform eBay.

Week 6: Beliefs and Perfect Bayesian Equilibrium, i.e. what you do, tells me who you are. When players have private information and move sequentially, then players may learn the hidden information by the choices others make.

Week 7: Cooperative game theory. Cooperative game theory handles situations where the way in which players interact is unstructured. Various applications will be highlighted, such as power, cost allocation, coalitional formation, and matching mechanisms.

Week 8 & 9: Reaction functions and Strategy typology, i.e. structuring the market to your own interest. A strategy typology will be developed to cover strategic aspects of many topics in finance (equity participations, limited liability, deep pocket), marketing (product differentiation, advertising, compatibility, assortment), organization (delegation, royalties/licenses, most-favoured-customer-clauses, contracts), technology (capacity, spillovers, dynamic economies of scale), and industry structure (fragmentation, dual structures, leadership).

Learning objectives

This course will examine the basic ideas of game theory and apply them to all fields in management. Themes and patterns are identified that are common to situations in all fields of management (accounting, finance, marketing, organization, strategy, supply chains, technology), like capacity to think ahead, grasp how others think and behave, commitments, threats and promises, contract design, strategies of signalling, and the emergence of cooperation.

In this course, we aim to achieve therefore three goals:

1 Provide insight in strategic management situations, using a game theoretic perspective;

2 Improve your management thinking by using game theory;

3 Enable you to develop better general management strategies.

Special aspects

 

Concepts are developed incrementally to highlight their logic, while no mathematical skills are required beyond the high school level. There is no prior knowledge required.

  • Students from the entire Erasmus University Rotterdam, and elsewhere, are welcome.
  • Contact hours: 6 per week
  • Self study hours: 34 per week
  • All RSM minors have mandatory attendance.

Overview content per week

Week 1: Strategies and equilibrium. The concepts of strategy and equilibrium are developed to capture strategic interactions, and are applied to bargaining, strategic delegation, and agenda control.

Week 2: Information structure, i.e. taking turns in the dark. Informational differences between players constrain their choices and may make creating (endogenously) uncertainty attractive.

Week 3: Incomplete information, i.e. I know something you don’t know. People have often some information only known to them, such as their ability, production costs, or market circumstances. Choices may reveal (part of) this information.

Week 4: Contract theory. The developed game theoretic concepts are applied to address incentive and selection issues in and between organizations.

Week 5: Business is war, and business is peace. Repeated games may overcome the two seemingly opposing perspectives of competition and cooperation. These ideas are applied to address reputation, empowerment, cartel stability, and the transaction platform eBay.

Week 6: Beliefs and Perfect Bayesian Equilibrium, i.e. what you do, tells me who you are. When players have private information and move sequentially, then players may learn the hidden information by the choices others make.

Week 7: Cooperative game theory. Cooperative game theory handles situations where the way in which players interact is unstructured. Various applications will be highlighted, such as power, cost allocation, coalitional formation, and matching mechanisms.

Week 8 & 9: Reaction functions and Strategy typology, i.e. structuring the market to your own interest. A strategy typology will be developed to cover strategic aspects of many topics in finance (equity participations, limited liability, deep pocket), marketing (product differentiation, advertising, compatibility, assortment), organization (delegation, royalties/licenses, most-favoured-customer-clauses, contracts), technology (capacity, spillovers, dynamic economies of scale), and industry structure (fragmentation, dual structures, leadership).

Teaching methods

Lectures, presentation, assignments, paper.

Teaching materials

Watson, J., Strategy, an Introduction to Game Theory, Norton, 2013.

(There are many additional game theory textbooks which may be consulted by students. A game theory textbook in Dutch is G.W.J., Speltheorie en Ondernemingsgedrag, Lemma, 1998. Available from lecturer/author, Euro 30.)

Sheets will be made available on Canvas.

Supporting material (to be announced).

Examination

Method of examination

1 Team assignments (8) and presentation (1)

2 Written test (individual)

3 Paper (individual)

4 Participation (individual)

Composition final grade

1 Assignments (8) and presentation (1) (9x4=36 points)

2 Written test (34 points)

3 Paper (30 points, consisting of 10% draft of Intro and Literature review, 90% final version)

4 Participation (18 (classes) x 2 = 36 points)

Final grade: (# points – 36)/10.

For example, if you earn 75 units on each assignment and the presentation, 80 units on the test, 80 units on the test, and 100 units on participation, then your grade is 7,8 because (9x3+27,2+24+36-36)/10=78,2/10.

Only the written test and the paper have a resit possibility. A resit of the paper will only be granted when the paper has a failing grade. The resit of the paper entails choosing a new topic for your paper and will result in a grade not exceeding 6.

To be eligible to obtain a final grade, your written test grade needs to be at least 4.5

Feedback
Oral and written feedback.

Contact information

Prof. dr. George Hendrikse
ghendrikse@rsm.nl
(010) 4088660
room: T10-56

Category
Broadening minor
Minor code
MINRSM003
Belongs to study programme
Organisation
Rotterdam School of Management, Erasmus University
Study points (ECTS)
15
Instruction language
English
Location
Campus Woudestein, Rotterdam

Registration

Please read the application procedure for more information.