In this part, we’ll explore the messy reality of imperfect competition—whether due to monopoly, oligopoly, or monopolistic competition—in which market power plays a central role. We’ll analyze why businesses value market power, how managers set prices when they have market power, and how it creates a conflict between what’s most profitable for a business, and what’s best for society.
We’ll confront some of the most important decisions you’ll face as a manager. We’ll see how the entry of new rivals can shake up an industry, and highlight the strategies that managers pursue to protect their profitability. We’ll analyze how your product positioning affects the type and extent of competition you face. And we’ll explore how you can protect your bargaining power when negotiating with your suppliers and your customers. All of these ideas are important in creating a successful business strategy. We’ll examine how these ideas come together in the five forces framework, which top executives use to assess their long-run profitability.
We’ll then turn to survey the sophisticated price strategies that businesses use to exploit their market power. Finally, business strategy is like an economic chess match, and so we’ll investigate game theory, so that you have the toolkit you need to zero in on your best choice in any strategic interaction.