Business Economics and Game Theory for Decision Making from Coursera

Good decision making and strategy do not exist in isolation: the success and profitability of a business depend not only on the organization’s own strategic moves but also on those that other firms make, especially competitors. Understanding the strategic linkages among firms can therefore be immensely valuable. Economics and Game theory offer tools that can specifically enhance one's understanding and ability to exploit such strategic linkages. This course will cover one of the most crucial decisions that a firm offering a differentiated product needs to make – how to price its product. In addition, the course will demonstrate some of the consequences of governments and platforms intervening in markets, either because markets may have failed or because the rule-maker may have been persuaded to intervene by key stakeholders. Importantly, the course will layer game-theoretic considerations on top of economic considerations in the marketplace.

By the end of the course, students will be able to:

• Develop an understanding of the economic concept of elasticity and be able to utilize it in making informed decisions on how, if at all, to alter a product’s pricing.

• Identify the implications of market intervention for various stakeholders, including consumers, firms, and government, and incorporate them in analyzing potential policies.

• Identify sources of market power and solve for profit-maximizing prices.

• Classify forms of price discrimination and develop an understanding of why the practice can be beneficial in customer segmentation and price customization.

• Develop an understanding of the dynamics of oligopolistic price and quantity competition.

• Describe introductory concepts in game theory, including simultaneous games, sequential games, and auctions, as well as develop an understanding for how asymmetric information can lead to adverse selection issues.

Required Textbook: None

Software Requirements: None

To succeed in this course, learners should possess a basic foundation in economic markets and microeconomics. If you haven't yet developed these skills, we strongly recommend completing Managerial Economics: Buyer and Seller Behavior beforehand. This prior course will equip you with the necessary foundation to excel in this material.

What's inside

Syllabus

Module 1: Price Elasticity of Demand

Welcome to Business Economics and Game Theory for Decision Making! Module 1 introduces the concept of elasticity, and specifically, price elasticity of demand, which quantifies the intricate relationship between price changes and buyer behavior. Price elasticity of demand measures the responsiveness of consumer demand to fluctuations in product prices. Understanding elasticity is paramount in economics, as it empowers businesses and policymakers to make informed decisions regarding dynamic pricing strategies, revenue optimization, and resource allocation. By calculating and analyzing the elasticity of demand for various products, economists can identify the optimal price points that maximize profitability and market efficiency. This module explores some of the foundations of price elasticity and its applications, to provide the requisite infrastructure for further study in subsequent modules, as we aim to navigate the complex landscape of pricing in today's dynamic markets.

Module 2: Policy; Winners and Losers from Intervention; Influencing Policy

Module 2 delves into the complex relationship among governments, platforms, businesses, and consumers, shedding light on the profound impacts of policy interventions on various stakeholders. In an increasingly interconnected world, government policies and platform regulations wield immense influence over market dynamics. This module explores how these interventions can lead to clear winners and losers among businesses, consumers, and society at large. Moreover, it delves into the strategies and tactics employed by firms to actively influence and shape market policies to their advantage. By examining actual policy scenarios, learners will gain an understanding of the multifaceted interactions within modern markets, the pivotal role played by government and platforms in shaping their outcomes, and the high potential for unintended consequences from market intervention.

Module 3: Pricing with Market Power

Module 3 begins to cover a crucial component of strategy – pricing – by directly solving a profit maximization problem. Market power enables firms to set prices and influence consumer choices to a substantial degree. This module delves into the complexities of optimal pricing in a number of scenarios, providing a foundation for concepts such as price discrimination, monopolistic competition, and strategic pricing. Learners will gain insights into the potential trade-offs between profit maximization and consumer welfare, as well as the economic and ethical implications of firms wielding substantial pricing authority. By examining actual scenarios, this module equips students with the analytical tools and knowledge needed to begin to navigate the challenging terrain of pricing strategies.

Module 4: Competing with Market Power

Module 4 continues the coverage of optimal pricing with market power by providing a second, dynamic and iterative approach that firms employ in determining product pricing – by tying together the concepts of elasticity and profitability. As a result, the module offers profound insights into the dynamic world of pricing strategies. In today's complex and diverse markets, businesses must tailor their approaches to meet the varying needs and preferences of different consumer groups. This module explores the fundamental concept of market segmentation, by which firms identify and categorize distinct customer segments based on factors such as demographics and behaviors as a means of price customization, where pricing strategies are adapted to align with the unique characteristics and willingness-to-pay of each segment. This module equips learners with the knowledge and skills to craft effective pricing strategies that maximize profitability, integrating all of the previously covered concepts in the course into a single, simple rule that is employed by sophisticated firms to price optimally and dynamically: The Optimal Markup Rule.

Module 5: Game Theory

Module 5 serves as a capstone in the economics sequence – ending where the sequence began – providing students with a compelling framework for understanding strategic decision-making, including pricing, in a wide range of contexts. Non-cooperative game theory, which analyzes the strategic interactions and choices of economic agents such as individuals and firms within competitive settings, is essential for fostering an understanding of how economic agents make decisions that impact outcomes. This module introduces students to the key concepts and principles of game theory, such as Nash equilibrium, dominant strategies, and information asymmetries, while exploring its applications in economics, business, and policy. Students will develop the analytical skills needed to assess and predict outcomes in simple strategic interactions, connecting together all of the concepts from the economics sequence into a single framework.

Summative Course Assessment

This module contains the summative course assessment that has been designed to evaluate your understanding of the course material and assess your ability to apply the knowledge you have acquired throughout the course.

Good to know

Know what's good

, what to watch for

, and possible dealbreakers

For those with a foundational understanding in economics and microeconomics, this course provides a strong enrichment of these concepts through the lens of game theory

This course is appropriate for learners who are interested in a strong understanding of how firms make decisions, and how economic theory can be applied to those decisions

Students who have an interest in tools that can enhance understanding and exploitation of strategic linkages will benefit from the tools taught in this course

Activities

Be better prepared before your course. Deepen your understanding during and after it. Supplement your coursework and achieve mastery of the topics covered in Business Economics and Game Theory for Decision Making with these activities:

Review elasticity and its applications

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Refreshes elasticity concepts, making your learning during the module more effective.

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Read through your notes or textbooks on elasticity.
Review examples of how elasticity is applied in real-world scenarios.

Practice calculating and interpreting price elasticity

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Provides hands-on practice with elasticity calculations, improving your understanding for module assessments.

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Find online exercises or practice problems on price elasticity.
Calculate and interpret elasticity values for various products or services.
Compare your results with others or with provided solutions.

Analyze government policy examples and their impact on stakeholders

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Sharpens your analytical skills and understanding of the impacts of government intervention.

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Research and identify examples of government policies that have intervened in markets.
Analyze the winners and losers resulting from each policy, considering consumers, firms, and the government.
Discuss the rationale behind the policies and assess their effectiveness in achieving their intended goals.

Five other activities

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Show all eight activities

Explain the concept of price elasticity to a peer

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Strengthens your understanding of elasticity by explaining it to another individual.

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Choose a peer who is also taking the course or who has a basic understanding of economics.
Explain elasticity and its significance in simple and clear terms.
Discuss real-world examples of elasticity, demonstrating your comprehension of the concept.

Develop a pricing strategy for a hypothetical product launch

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Provides a practical application of your understanding of pricing with market power, solidifying your knowledge.

Browse courses on Pricing Strategy

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Define your hypothetical product, target market, and market conditions.
Analyze the market to determine potential sources of market power.
Develop a pricing strategy that leverages your market power while considering elasticity and profitability.
Evaluate the potential impact and effectiveness of your pricing strategy.

Practice applying the Optimal Markup Rule to determine optimal prices

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Provides hands-on experience with the Optimal Markup Rule, enhancing your ability to determine optimal prices.

Browse courses on Pricing Strategy

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Find online exercises or practice problems that involve using the Optimal Markup Rule.
Calculate and analyze optimal prices for various products or services under different market conditions.
Compare your results with others or with provided solutions.

Watch video tutorials on applying game theory to business decision-making

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Provides a visual and interactive way to learn about game theory and its applications in business, complementar to the module content.

Browse courses on Game Theory

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Search for online video tutorials on game theory and business applications.
Choose a reputable source and watch the videos, taking notes.
Review the concepts and applications of game theory in business.

Participate in a peer discussion group to discuss game theory concepts and applications

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Allows you to engage with peers, exchange perspectives, and deepen your understanding of game theory.

Browse courses on Game Theory

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Find a study buddy or join an online discussion forum related to game theory.
Discuss game theory concepts, applying them to real-world scenarios.
Share insights and learn from the perspectives of others.

Career center

Learners who complete Business Economics and Game Theory for Decision Making will develop knowledge and skills that may be useful to these careers:

Market Research Analyst

Market research analysts use data to understand consumer behavior and preferences. This course can provide a strong foundation in the principles of economics and game theory, which can be useful for market research analysts who want to specialize in areas such as pricing research, competitive analysis, or consumer segmentation.

See salaries and explore the career path for Market Research Analyst

Economist

Economists use economics principles to answer questions about the economy, such as how to allocate resources efficiently or how to promote economic growth. This course can provide a strong foundation in economic principles, which can be useful for economists who want to specialize in areas such as pricing, market analysis, or policy analysis.

See salaries and explore the career path for Economist

Financial Analyst

Financial analysts use financial data to make recommendations about investments. This course can provide a strong foundation in the principles of economics and game theory, which can be useful for financial analysts who want to specialize in areas such as portfolio management, investment analysis, or risk assessment.

See salaries and explore the career path for Financial Analyst

Consultant

Consultants use their expertise to help businesses solve problems. This course can provide a strong foundation in the principles of economics and game theory, which can be useful for consultants who want to specialize in areas such as business strategy, operations management, or financial planning.

See salaries and explore the career path for Consultant

Operations Research Analyst

Operations research analysts use mathematical and statistical models to solve problems in the business world. This course can provide a strong foundation in the principles of economics and game theory, which can be useful for operations research analysts who want to specialize in areas such as supply chain management, logistics, or scheduling.

See salaries and explore the career path for Operations Research Analyst

Quantitative Analyst

Quantitative analysts use mathematical and statistical models to solve problems in the financial industry. This course can provide a strong foundation in the principles of economics and game theory, which can be useful for quantitative analysts who want to specialize in areas such as risk management, trading strategies, or portfolio optimization.

See salaries and explore the career path for Quantitative Analyst

Product Manager

Product managers are responsible for the development and marketing of products. This course can provide a strong foundation in the principles of economics and game theory, which can be useful for product managers who want to specialize in areas such as product pricing, market analysis, or competitive analysis.

See salaries and explore the career path for Product Manager

Actuary

Actuaries use mathematical and statistical models to assess risk. This course can provide a strong foundation in the principles of economics and game theory, which can be useful for actuaries who want to specialize in areas such as insurance pricing, risk management, or pension planning.

See salaries and explore the career path for Actuary

Data Scientist

Data scientists use data to solve problems and make predictions. This course can provide a strong foundation in the principles of economics and game theory, which can be useful for data scientists who want to specialize in areas such as pricing analytics, demand forecasting, or customer segmentation.

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Business Analyst

Business analysts use data to help businesses make better decisions. This course can provide a strong foundation in the principles of economics and game theory, which can be useful for business analysts who want to specialize in areas such as financial analysis, operations analysis, or market research.

See salaries and explore the career path for Business Analyst

Pricing Manager

Pricing managers set the prices for products and services. This course can provide a strong foundation in the principles of economics and game theory, which can be useful for pricing managers who want to specialize in areas such as pricing analysis, competitive analysis, or demand forecasting.

See salaries and explore the career path for Pricing Manager

Sales Manager

Sales managers lead and motivate sales teams. This course can provide a strong foundation in the principles of economics and game theory, which can be useful for sales managers who want to specialize in areas such as sales strategy, negotiation, or customer relationship management.

See salaries and explore the career path for Sales Manager

Marketing Manager

Marketing managers develop and execute marketing campaigns. This course can provide a strong foundation in the principles of economics and game theory, which can be useful for marketing managers who want to specialize in areas such as market research, advertising, or public relations.

See salaries and explore the career path for Marketing Manager

Supply Chain Manager

Supply chain managers oversee the flow of goods and services from suppliers to customers. This course can provide a strong foundation in the principles of economics and game theory, which can be useful for supply chain managers who want to specialize in areas such as inventory management, logistics, or transportation.

See salaries and explore the career path for Supply Chain Manager

Policy Analyst

Policy analysts develop and evaluate public policies. This course can provide a strong foundation in the principles of economics and game theory, which can be useful for policy analysts who want to specialize in areas such as healthcare, education, or environmental policy.

See salaries and explore the career path for Policy Analyst