Economic Analysis & Policy Group

EAP Faculty Projects

Competitive Strategy Game

The Competitive Strategy Game, created by Severin Borenstein, is a simulated market environment in which up to eight teams each compete in any of four markets, choosing which market(s) to enter, how much production capacity to build, what prices to charge, and how much output to produce. The game is useful for teaching basic economic concepts such as sunk, fixed, and marginal costs, the opportunity cost of investment, firm- and market-elasticities of demand, and product differentiation. It also is immediately applicable to discussions of entry deterrence, first-mover advantages, preemption, competitive advantage, predation, oligopoly coordination, multimarket contact, signalling, information asymmetries, and end game issues in finitely repeated games.

Using the tools of game theory, econometrics, and information economics together with one of the largest datasets ever assembled on pricing by firms selling products over the Internet, John Morgan and his colleagues, Michael Baye and Patrick Scholten (Indiana University) have studied issues ranging from the impact of fee structures at price comparison sites on the competitiveness of E-markets to the incentives of firms to price discriminate among online and off-line customers.