How to build an industrial organisation course: a complete guide for lecturers

Central question: How should students define the market before they make claims about competition or market power?

Industrial Organisation begins with a disciplined unit of analysis. Students need to know what product and geographic market they are studying, who competes with whom, and why concentration is informative but not conclusive. This foundation prevents later strategy and policy work from treating market shares as a substitute for economic reasoning.

What this concept covers

• Structure-conduct-performance as a historical organising idea and the modern emphasis on incentives and strategic interaction.
• Product and geographic market definition, demand substitution and the logic behind SSNIP-style reasoning.
• Concentration measures including concentration ratios and the Herfindahl-Hirschman Index (HHI).
• The difference between concentration, competitive intensity and market power.
• Why market boundaries can shift with technology, consumer behaviour and geography.

Learning outcomes

By the end of this concept, students should be able to:

• Define a defensible product and geographic market for an IO problem.
• Compute and interpret a simple HHI.
• Distinguish concentration evidence from a conclusion about market power.
• Identify evidence that would widen or narrow a proposed market definition.

Supports the course learning outcomes through observable analysis and judgement.

How to teach it

• Open with two apparently similar products and ask whether they belong in the same market.
• Have students calculate HHI before and after a hypothetical merger.
• Contrast a strategy-team market definition with the stricter evidential needs of competition analysis.
• Use a short memo asking students to state what evidence would falsify their chosen boundary.

Case-style example

Northstar Meal Kits competes with three national subscription rivals. Shares in subscription meal kits are 36%, 27%, 21% and 16%, giving an HHI of 2,602. If supermarket ready-meals are included, Northstar falls below 10%. Task: students compute HHI, propose a market definition, and list three substitution tests. One group can defend a narrow subscription market while another defends a broader convenience-food market. Students discover that the competition conclusion depends on evidence about substitution, not the arithmetic alone.

Where students struggle

Students often treat an industry label as a market definition, or assume a high HHI automatically proves harmful market power. Require them to separate measurement from inference and to specify what consumer or rival behaviour would change the boundary.

Reading and a quick check

Use Cabral, Chapters 1-2, then ask students to write a 120-word market-definition paragraph that includes one counterargument.

Applied teaching activity

Use a short case discussion, calculation, model critique or decision memo so students must turn the concept into a recommendation before moving on.

Where it leads

A defensible market boundary makes the next questions about demand, cost and scale economically meaningful.

Central question: Which demand and cost conditions determine whether a firm can profitably raise price, expand output or deter entry?

Before students analyse strategy, they need a compact economic toolkit. Demand elasticity, marginal cost, fixed cost, average cost and economies of scale explain why the same concentration pattern can produce very different competitive outcomes across industries.

What this concept covers

• Own-price and cross-price elasticity as evidence about substitution and pricing freedom.
• Marginal, average, fixed and sunk costs and their strategic relevance.
• Economies of scale, scope and minimum efficient scale.
• Contribution economics versus economic cost, including opportunity cost where relevant.
• How demand and cost conditions influence entry, pricing and capacity choices.

Learning outcomes

By the end of this concept, students should be able to:

• Interpret elasticity estimates for pricing and market definition.
• Distinguish fixed, sunk, marginal and average cost.
• Explain when economies of scale can create a structural entry barrier.
• Connect unit economics to an IO claim about rivalry or market power.

Supports the course learning outcomes through observable analysis and judgement.

How to teach it

• Use short demand schedules rather than a long calculus derivation for business-school cohorts.
• Give teams the same revenue data but different cost structures and compare their strategic recommendations.
• Ask students to distinguish a cost advantage from a barrier to entry.
• Use a contribution-margin calculation as a bridge into strategic pricing.

Case-style example

ForgeBox produces industrial sensors. At £100 it sells 120,000 units; a test price of £105 reduces annual volume to 108,000. Variable cost is £42 per unit, fixed operating cost £4.8 million and a new entrant would need a £12 million certification plant. Task: students estimate an arc elasticity, calculate contribution, and debate whether scale is a genuine barrier or simply an incumbent advantage. They discover that high fixed cost matters strategically only when demand, scale and sunkness make duplication unattractive.

Where students struggle

Students frequently call any fixed cost a barrier and confuse average accounting margin with economic profitability. Make them state whether a cost is avoidable, sunk and replicable by an efficient entrant.

Reading and a quick check

Use Cabral on demand and production costs, then give a five-minute elasticity and break-even check.

Where a simulation fits

The Managerial Accounting Simulation can be used as a short applied bridge after this concept. Students compare contribution margin, break-even, CVP, ROI and NPV before making a constrained allocation decision. The IO debrief should focus on what those calculations do and do not reveal about strategic rivalry.

Where it leads

With demand and costs in place, students can analyse monopoly pricing and the economic meaning of market power.

Central question: What does it mean for a firm to have market power, and how can students distinguish it from simply being large or profitable?

Market power is the ability to profitably price above the competitive benchmark, but measuring it is not straightforward. This concept gives students a clear bridge from monopoly theory to practical indicators such as elasticities, markups, margins and evidence about competitive constraints.

What this concept covers

• The monopoly pricing condition and the intuition behind the Lerner index.
• Markups, margins and why accounting profitability is not a direct measure of market power.
• Residual demand and competitive constraints.
• Deadweight loss, consumer surplus and distributional effects.
• Sources of market power including differentiation, exclusivity, regulation, scale and data advantages.

Learning outcomes

By the end of this concept, students should be able to:

• Explain the relationship between elasticity and optimal markup.
• Compute a simple price-cost markup and interpret it cautiously.
• Distinguish market power from firm size, market share and profitability.
• Evaluate the welfare consequences of monopoly pricing.

Supports the course learning outcomes through observable analysis and judgement.

How to teach it

• Use a simple linear demand example and calculate the monopoly output and price.
• Compare two firms with identical market shares but different elasticities.
• Ask students to list non-price competitive constraints.
• Require a short welfare diagram or verbal equivalent depending on cohort level.

Case-style example

AeroLink owns the only direct ferry route between two islands. At £30 it carries 500,000 passenger trips; marginal operating cost is estimated at £12. A new seasonal air shuttle causes ferry demand at £30 to fall by 18%, while the ferry price stays unchanged. Task: students calculate the observed markup and debate whether the air shuttle is a meaningful constraint. One answer emphasises the 60% price-cost margin; another emphasises newly elastic residual demand. Students discover that market power is about constraints on conduct, not margin alone.

Where students struggle

Students may infer market power from a high gross margin even when fixed costs or innovation investment are substantial. Insist on a benchmark, a theory of harm or advantage, and evidence about substitution.

Reading and a quick check

Use Cabral on monopoly and market power; quick check: ask what evidence besides market share would change the conclusion.

Applied teaching activity

Use a short case discussion, calculation, model critique or decision memo so students must turn the concept into a recommendation before moving on.

Where it leads

Once students can diagnose market power, they can study how firms use it through nonlinear prices, versioning and bundling.

Central question: How do firms design prices when customers differ in willingness to pay, usage and substitutability?

Industrial Organisation turns pricing from a single-number problem into a design problem. Students should see how segmentation, screening and bundling can increase profit, expand output or exclude rivals depending on the setting.

What this concept covers

• First-, second- and third-degree price discrimination.
• Two-part tariffs, quantity discounts and versioning.
• Bundling and mixed bundling.
• Arbitrage, customer identification and incentive compatibility.
• Efficiency and distributional consequences of discriminatory pricing.

Learning outcomes

By the end of this concept, students should be able to:

• Classify common pricing practices using IO concepts.
• Calculate revenue under simple uniform and discriminatory prices.
• Explain when price discrimination can increase total output.
• Evaluate strategic and policy concerns created by bundling or loyalty schemes.

Supports the course learning outcomes through observable analysis and judgement.

How to teach it

• Use airline, software and subscription examples but require students to translate them into economic conditions.
• Give a willingness-to-pay matrix and compare separate selling with bundling.
• Ask teams to design a two-part tariff for two customer types.
• Debate whether a personalised price is evidence of exploitation, efficiency or both.

Case-style example

CloudDesk sells two modules. Small firms value Analytics at £80 and Workflow at £20; enterprise buyers value Analytics at £55 and Workflow at £70. There are 1,000 customers of each type and marginal cost is £5 per module. Task: students compare separate pricing with a £100 bundle and calculate revenue and gross contribution. One group can defend bundling as output-expanding; another can flag foreclosure risk if the firm controls a must-have module. Students discover that the same pricing instrument can have efficiency and exclusion effects.

Where students struggle

Students memorise the three degrees of discrimination but struggle to identify the information and no-arbitrage conditions needed for each. Keep asking what the seller must know and what customers can do in response.

Reading and a quick check

Use Cabral on price discrimination and bundling, followed by a small willingness-to-pay calculation.

Applied teaching activity

Use a short case discussion, calculation, model critique or decision memo so students must turn the concept into a recommendation before moving on.

Where it leads

The next step is strategic interaction, where prices and quantities depend on how rivals respond.

Central question: How does a firm choose price or quantity when its best decision depends on what rivals do?

Oligopoly is the analytical centre of many Industrial Organisation courses. The goal is not to turn the class into a game-theory course, but to give students a disciplined way to reason about reaction functions, strategic complements and substitutes, and equilibrium.

What this concept covers

• Cournot quantity competition and best responses.
• Bertrand price competition and the role of differentiation or capacity limits.
• Nash equilibrium as a consistency condition.
• Strategic complements and strategic substitutes.
• How capacity, product differentiation and repeated interaction alter outcomes.

Learning outcomes

By the end of this concept, students should be able to:

• Solve a simple Cournot or Bertrand problem.
• Explain why changing the strategic variable changes predicted rivalry.
• Interpret a Nash equilibrium economically rather than mechanically.
• Use the model to identify which assumptions matter most in a real industry.

Supports the course learning outcomes through observable analysis and judgement.

How to teach it

• Start with a two-firm payoff table, then move to a simple linear-demand Cournot exercise.
• Ask students to predict outcomes before solving the algebra.
• Change one assumption - capacity, differentiation or cost - and compare equilibria.
• Finish with a real industry and ask which model is the least-bad abstraction.

Case-style example

Two regional cement producers face market demand P = 140 - Q, where Q is total tonnes in thousands and each has constant marginal cost of 20. Task: students solve the symmetric Cournot equilibrium, then compare it with the monopoly and competitive benchmarks. A second version caps one producer at 25 thousand tonnes. Students debate whether capacity makes price competition softer or quantity competition more asymmetric. They discover that the model earns its value by making assumptions visible and testable.

Where students struggle

Students can often solve a reaction function without being able to explain what a best response means. Require a one-sentence economic interpretation beside every equilibrium calculation.

Reading and a quick check

Use Cabral on oligopoly; quick check: ask students to name one industry where Bertrand is plausible and one where Cournot is more plausible, with reasons.

Applied teaching activity

Use a short case discussion, calculation, model critique or decision memo so students must turn the concept into a recommendation before moving on.

Where it leads

Oligopoly models become more realistic when products are differentiated and customers face switching or search costs.

Central question: Why can close rivals sustain different prices, and how do differentiation and switching costs reshape competition?

Differentiation is where IO connects naturally to strategy and marketing. Students should be able to distinguish horizontal from vertical differentiation, understand how switching costs soften rivalry, and recognise that differentiation can create value without eliminating competition.

What this concept covers

• Horizontal and vertical product differentiation.
• Hotelling-style location intuition and positioning choices.
• Search costs, switching costs and customer lock-in.
• Quality investment and endogenous differentiation.
• Competitive effects of loyalty, compatibility and interoperability.

Learning outcomes

By the end of this concept, students should be able to:

• Distinguish horizontal and vertical differentiation.
• Explain how switching costs change price competition over time.
• Assess whether differentiation creates value, market power or both.
• Connect positioning decisions to likely rival responses.

Supports the course learning outcomes through observable analysis and judgement.

How to teach it

• Map two products on a one-dimensional attribute line and ask where a new entrant should locate.
• Use a customer-switching-cost example with acquisition and retention pricing.
• Compare differentiation based on genuine quality with artificial incompatibility.
• Have students write a short competitor-response memo.

Case-style example

StreamNote and MemoGrid each serve 50,000 professional users. StreamNote charges £12 per month; MemoGrid charges £10. A user moving platforms loses about £45 of migration time. StreamNote considers raising price to £13.50 while offering a new AI search feature valued by heavy users at £3 per month. Task: students calculate a simple switching threshold and debate whether the price rise reflects value creation or lock-in. Students discover that installed-base economics can make current elasticity depend on past adoption choices.

Where students struggle

Students often label branding as differentiation without identifying the demand mechanism. Ask what customer preference, switching cost or quality attribute actually changes willingness to substitute.

Reading and a quick check

Use Cabral on differentiation and switching costs; quick check: distinguish a differentiation advantage from a structural barrier.

Applied teaching activity

Use a short case discussion, calculation, model critique or decision memo so students must turn the concept into a recommendation before moving on.

Where it leads

Differentiation changes both rivalry and entry incentives, preparing students for a systematic study of barriers and industry structure.

Central question: When is an attractive incumbent position defensible, and what would allow a new rival to enter and erode it?

Entry is the discipline that keeps market-power analysis dynamic. A highly concentrated market may be competitive if entry is timely, likely and sufficient; a fragmented market can still be difficult to enter if access to distribution, data, regulation or scale is constrained. This is the natural point for Porter's Five Forces as an applied synthesis.

What this concept covers

• Sunk cost, scale economies, regulation, access to inputs and distribution as entry conditions.
• Strategic entry deterrence, capacity commitments and limit-pricing intuition.
• Contestability and the difference between potential and actual competition.
• Exit barriers and their effect on rivalry.
• Porter's Five Forces as a structured industry-attractiveness lens, interpreted through IO economics.

Learning outcomes

By the end of this concept, students should be able to:

• Identify and classify credible barriers to entry.
• Evaluate whether entry is timely, likely and sufficient.
• Connect supplier, buyer, substitute and rivalry conditions to economic mechanisms.
• Distinguish an incumbent advantage from a barrier that impedes efficient entrants.

Supports the course learning outcomes through observable analysis and judgement.

How to teach it

• Give students an industry dossier and ask them to rank barriers by durability rather than list them.
• Require each Five Forces score to be backed by evidence and an economic mechanism.
• Run a pre-mortem: what entrant would invalidate the incumbent thesis?
• Compare a strategy recommendation with a competition-policy interpretation of the same fact.

Case-style example

PureCell Batteries earns a 24% EBITDA margin in a market with three incumbents. A new plant costs £180 million, certification takes 30 months, the top two buyers represent 55% of demand, and imported substitutes face an 8% tariff that expires in two years. Task: students score each Five Force, estimate which barrier is durable, and issue Go, Conditional Go or Reject on a £70 million expansion. One team can defend attractive structure now; another can emphasise expiring protection and buyer power. Students discover that industry attractiveness is a forward-looking judgement, not a static score.

Where students struggle

Students often treat the Five Forces as five descriptive boxes. Require causal statements: what changes price, cost, entry probability, bargaining position or expected return?

Reading and a quick check

Use Cabral on entry and strategic commitment. Quick check: ask which alleged barrier would disappear if the entrant had the same efficient technology as incumbents.

Where a simulation fits

This is the main placement for the Porter's Five Forces Simulation. Students score all five forces from 1-10, provide evidence, and then take a Go, Conditional Go or Reject decision in an Investment Committee format. Use it after the economics of entry, rivalry and bargaining power has been taught so the framework becomes a decision tool rather than a checklist.

Where it leads

Once entry conditions are clear, students can study how firms use contracts and ownership across the value chain.

Central question: When should firms buy, make, contract or integrate, and when can vertical control harm competition?

Vertical relationships connect the firm to suppliers, distributors and complementary assets. Students should learn the efficiency logic of coordination and double marginalisation alongside foreclosure, raising-rivals-costs and bargaining concerns.

What this concept covers

• Double marginalisation and vertical externalities.
• Resale price maintenance, exclusive dealing and franchise-style restrictions.
• Vertical integration as a response to coordination, hold-up and transaction costs.
• Input foreclosure, customer foreclosure and raising rivals' costs.
• Bargaining power and outside options across a supply chain.

Learning outcomes

By the end of this concept, students should be able to:

• Explain double marginalisation and how vertical coordination can reduce it.
• Evaluate an exclusive contract using efficiency and foreclosure theories.
• Identify the role of outside options in supplier and buyer bargaining power.
• Assess when vertical integration is more attractive than contracting.

Supports the course learning outcomes through observable analysis and judgement.

How to teach it

• Use a simple upstream-downstream markup calculation.
• Split the class into supplier, manufacturer, retailer and regulator roles.
• Give two explanations for the same exclusive contract: investment protection and foreclosure.
• Ask students to specify what evidence would distinguish them.

Case-style example

NovaFiber supplies a patented coating to three sportswear brands at £18 per unit with marginal cost £6. The largest brand offers a five-year exclusive contract covering 70% of NovaFiber capacity in return for a £25 million co-investment in a new line. Task: students calculate the supplier contribution under exclusivity, map rival brands' outside options, and debate efficiency versus foreclosure. Students discover that vertical restraints cannot be assessed from form alone - capacity, investment incentives and alternatives matter.

Where students struggle

Students either assume vertical integration is always efficient or always anticompetitive. Keep both hypotheses alive until evidence about incentives and foreclosure is analysed.

Reading and a quick check

Pair Cabral on vertical relations with Shapiro (2021) later in the reading list. Quick check: ask for one efficiency and one harm theory for an exclusivity clause.

Applied teaching activity

Use a short case discussion, calculation, model critique or decision memo so students must turn the concept into a recommendation before moving on.

Where it leads

Vertical constraints also matter in commercial entry decisions, where firms choose segments, channels, positioning and price.

Central question: How should a firm choose where and how to enter when segment economics and competitor response differ across markets?

This concept converts IO analysis into a firm-level market-entry decision. The purpose is not to turn the course into marketing strategy, but to show how demand heterogeneity, entry costs, channel structure and positioning alter the profitability of entry.

What this concept covers

• Segment attractiveness, willingness to pay and demand heterogeneity.
• Geographic entry and fixed versus variable launch costs.
• Channel choice, distribution access and retailer or platform bargaining power.
• Positioning, price and expected competitor response.
• Entry sequencing and the value of learning.

Learning outcomes

By the end of this concept, students should be able to:

• Compare entry opportunities using demand, cost and strategic-response evidence.
• Explain how channel structure changes entry economics.
• Design a positioning choice that is consistent with segment demand and rivalry.
• Defend an entry recommendation under uncertainty.

Supports the course learning outcomes through observable analysis and judgement.

How to teach it

• Give students two segments with different willingness to pay and acquisition cost.
• Ask them to predict competitor response before choosing price.
• Use a short launch budget and require trade-offs across geography and channel.
• Debrief the gap between attractive demand and profitable entry.

Case-style example

PulseFuel plans to enter the UK protein-snack market with £2.4 million. Segment A has 1.2 million gym users willing to pay £2.80, while Segment B has 3.5 million convenience buyers willing to pay £2.10. Retail distribution takes a 32% margin; direct-to-consumer acquisition costs £18 per customer. Task: students choose one segment, two launch regions, channel and price, then state the likely incumbent response. Students discover that the largest segment is not necessarily the highest-value entry point once channel power and acquisition economics are included.

Where students struggle

Students may choose segments based on size alone and ignore route-to-market bargaining, acquisition cost and retaliation. Require a simple contribution logic and an explicit rival-response assumption.

Reading and a quick check

Use Cabral on entry and differentiation, then ask students for a one-page entry memo with a rejected alternative.

Where a simulation fits

The Go To Market Simulation fits here as a secondary application. Each student acts as a founder entering the US protein-bar market, selecting a segment, target, two launch regions, channel and positioning variables. Use the debrief to connect STP choices to IO concepts such as demand heterogeneity, distribution power, entry cost and competitive response.

Where it leads

The same entry logic becomes more complex in platforms, where adoption on one side changes value on another.

Central question: How does competition change when value depends on users on multiple sides, data, defaults and algorithmic decision-making?

Digital markets force students to extend one-sided IO intuition. Platforms can subsidise one side, charge another, benefit from network effects and use defaults or ranking systems that shape competition without a simple posted price.

What this concept covers

• Direct and indirect network effects.
• Two-sided pricing and cross-group externalities.
• Multi-homing, single-homing and platform envelopment.
• Data, defaults, search ranking and attention as competitive variables.
• Algorithmic pricing, automated learning and collusion concerns.

Learning outcomes

By the end of this concept, students should be able to:

• Identify the relevant platform sides and cross-side effects.
• Explain why a zero price can coexist with market power.
• Assess how multi-homing and interoperability affect entry barriers.
• Evaluate a default, ranking or algorithmic-pricing practice using IO logic.

Supports the course learning outcomes through observable analysis and judgement.

How to teach it

• Map platform sides, money flows and value flows on one page.
• Ask whether the market should be analysed as one service or several linked services.
• Compare competition with easy multi-homing against single-homing.
• Use a current platform case but keep the economic mechanism separate from the legal outcome.

Case-style example

HireLoop connects employers and job seekers. Employers pay £9,000 per year; job seekers pay zero. The platform has 62% of large-employer listings, and 78% of job seekers use at least two sites. A default integration with a major HR-software vendor could add 15 percentage points to employer coverage. Task: students map cross-side effects, debate market definition, and assess whether multi-homing offsets the default advantage. Students discover that a zero consumer price does not remove competitive concerns and that network effects depend on actual switching and multi-homing behaviour.

Where students struggle

Students may equate network effects with inevitable monopoly. Ask whether effects are local or global, whether users multi-home, and whether interoperability or differentiation weakens tipping.

Reading and a quick check

Assign Calvano et al. (2020) or the recent online-search reading, then ask students to identify the mechanism, evidence and policy question separately.

Applied teaching activity

Use a short case discussion, calculation, model critique or decision memo so students must turn the concept into a recommendation before moving on.

Where it leads

Platforms provide a natural bridge into collusion, mergers and competition-policy tools.

Central question: When does strategic conduct reduce competition enough to justify intervention, and what evidence should carry the decision?

A lecturer-facing IO course should connect models to the institutional decisions that use them. Students need to distinguish unilateral from coordinated effects, horizontal from vertical merger theories, and economic evidence from legal conclusions.

What this concept covers

• Repeated interaction, detection, punishment and factors that sustain collusion.
• Horizontal merger effects, concentration changes and closeness of competition.
• Vertical merger efficiencies and foreclosure.
• Entry, buyer power and efficiencies as countervailing considerations.
• Remedies, uncertainty and the limits of structural screens.

Learning outcomes

By the end of this concept, students should be able to:

• Explain the economic conditions that can sustain coordination.
• Analyse a merger using unilateral, coordinated and vertical theories where relevant.
• Distinguish an HHI screen from a complete competitive-effects analysis.
• Recommend a competition-policy decision and state key uncertainties.

Supports the course learning outcomes through observable analysis and judgement.

How to teach it

• Run a repeated pricing game before introducing collusion theory.
• Give students a merger fact pattern and require both a harm theory and a defence.
• Use agency decisions to compare predicted mechanisms with evidence.
• Mark the quality of counterfactual reasoning, not whether students match the regulator.

Case-style example

MetroCab and RideWave are the two largest app-based taxi platforms in a city, with ride shares of 42% and 31%; three smaller rivals hold 27% combined. The parties claim a merger will cut duplicate driver incentives by £18 million and improve matching, while internal documents call RideWave the closest pricing constraint. Task: students compute the HHI change, formulate a unilateral-effects theory, test claimed efficiencies, and recommend clear, remedy or block. Students discover that concentration is a screening fact, while the decision turns on the counterfactual and evidence.

Where students struggle

Students can become legalistic or over-rely on thresholds. Keep the analysis economic: what changes incentives, output, quality, innovation or entry relative to the counterfactual?

Reading and a quick check

Use Starc and Wollmann (2025), Shapiro (2021) or Cunningham, Ederer and Ma (2021), depending on the session emphasis.

Applied teaching activity

Use a short case discussion, calculation, model critique or decision memo so students must turn the concept into a recommendation before moving on.

Where it leads

The closing concept asks whether intervention and strategy look different when competition is driven by innovation over time.

Central question: How should students evaluate competition when current prices are less important than future innovation, investment and market creation?

Static price-output models remain essential, but many IO questions are dynamic. Innovation can create temporary market power, destroy incumbents, generate path dependence or be weakened by acquisition and exclusion. The final concept asks students to integrate welfare, strategy and uncertainty over time.

What this concept covers

• Innovation incentives under competition and market power.
• Creative destruction, dynamic entry and contest for the market.
• Patents, standards and appropriability.
• Killer-acquisition concerns and innovation competition.
• Regulation, interoperability and trade-offs between current and future welfare.

Learning outcomes

By the end of this concept, students should be able to:

• Compare static and dynamic competition arguments.
• Evaluate how appropriability affects innovation incentives.
• Assess an acquisition or regulation using an innovation counterfactual.
• Defend a policy or strategy recommendation while making uncertainty explicit.

Supports the course learning outcomes through observable analysis and judgement.

How to teach it

• Use a timeline rather than a static diagram to map current and future competitive constraints.
• Ask groups to argue both the innovation-efficiency and innovation-harm sides of a proposed acquisition.
• Require one leading indicator that would reveal whether the chosen policy is working.
• Close with a capstone memo that integrates market definition, conduct, entry and welfare.

Case-style example

NeuroScan, a diagnostics incumbent, offers £240 million for SeedSight, a start-up with no revenue but a prototype that could reduce scan interpretation time by 40%. NeuroScan spends £65 million annually on R&D; SeedSight has £18 million cash and needs another £30 million to reach clinical trials. Task: students construct two innovation counterfactuals - acquisition accelerates commercialisation, or removes a future rival - and recommend approve, remedy or challenge. Students discover that dynamic IO decisions often depend on probabilities and missing evidence rather than a single observable price effect.

Where students struggle

Students may use “innovation” as a trump card for either side. Require an explicit mechanism, counterfactual, probability and observable prediction.

Reading and a quick check

Assign Cunningham, Ederer and Ma (2021), then ask students what evidence would distinguish efficient technology transfer from removal of a future competitor.

Applied teaching activity

Use a short case discussion, calculation, model critique or decision memo so students must turn the concept into a recommendation before moving on.

Where it leads

This closes the course by integrating firm strategy, market structure, evidence and welfare into one defensible judgement.

10-week course structure

A 10-session version should compress adjacent concepts rather than delete entry, platforms or policy. Keep the logic from economic foundations to strategic interaction and then to applied market decisions.

14-week course structure

A 14-session version creates room to separate Cournot and Bertrand, give the Five Forces application its own debrief, and extend merger and innovation analysis. Use the extra time for deeper evidence and defence rather than more disconnected theory.

The Porter's Five Forces Simulation places students inside a role-based industry-attractiveness decision. Growth and Risk teams analyse the same Five Forces evidence, score each force from 1-10, explain their reasoning and bring the analysis into an Investment Committee that must choose Go, Conditional Go or Reject. For Industrial Organisation, the value is not the framework name. It is the requirement to connect rivalry, substitutes, entry, buyer power and supplier power to an explicit decision and defend the evidence behind the score.

Why it fits here

By Session 7, students can explain why a force matters in terms of elasticity, entry cost, capacity, bargaining outside options or expected rival response. That lets the simulation move beyond descriptive strategy language and into Industrial Organisation reasoning.

What students do

• Analyse all five forces against a common market briefing and supporting evidence.
• Assign 1-10 scores to rivalry, threat of entry, substitutes, buyer power and supplier power, with written reasoning.
• Compare Growth and Risk perspectives rather than assuming one industry score is objectively correct.
• Bring the evidence to an Investment Committee and choose Go, Conditional Go or Reject.
• Reflect on which force mattered most, what evidence was weak and what would change the recommendation.

Recommended course placement

• At the end of Session 7 after entry and barrier-to-entry teaching.
• Inside a two-session block if you want a longer evidence review and committee hearing.
• Before an industry-attractiveness memo so students can convert the decision into assessable reasoning.

Knowledge students should have before the simulation

• Market definition and concentration.
• Demand substitution and elasticity.
• Entry barriers, sunk cost and economies of scale.
• Buyer and supplier bargaining power and outside options.
• Difference between industry attractiveness and social welfare.

Delivery format

Suggested debrief questions

• Which score had the strongest evidence and which relied most on assumption?
• Did Growth and Risk teams disagree because they weighted facts differently or because they used different economic mechanisms?
• Which barrier is durable and which is temporary?
• How would the competition-policy interpretation differ from the investor interpretation?
• What new evidence would switch the committee decision?

The Go To Market Simulation is a 1.5-2 hour single-player launch exercise in which each student acts as a founder entering the US protein-bar market. Students select a segment, target one segment, choose two launch regions and a channel, then build the positioning through theme, frame, point of difference, value proposition, price, pack and promotion choices. In Industrial Organisation, use it to examine how demand heterogeneity, route-to-market structure, fixed launch choices and anticipated rivalry shape entry profitability.

Why it fits here

Session 9 is where the course shifts from “is entry possible?” to “where and how should we enter?”. The simulation forces students to combine segment demand with channel access, geographic commitment, positioning and price, then explain why a plausible alternative was rejected.

What students do

• Choose a customer segment and commit to a target rather than spreading the launch across all demand.
• Select two launch regions and a route to market, exposing geographic and channel trade-offs.
• Choose positioning theme, frame, point of difference and value proposition.
• Set price, pack and promotion choices in the context of the competitive launch.
• Compare individual outcomes and explain which entry assumptions created or destroyed value.

Recommended course placement

• During or immediately after Session 9.
• After differentiation, entry and vertical/channel power have already been taught.
• Before a short market-entry memo or oral defence that asks students to reinterpret their launch using IO concepts.

Knowledge students should have before the simulation

• Demand heterogeneity and willingness to pay.
• Differentiation and positioning.
• Entry costs and geographic commitment.
• Channel bargaining and route-to-market constraints.
• Expected competitor response.

Delivery format

Suggested debrief questions

• Why was your chosen segment more attractive than the largest segment?
• What part of your route-to-market choice changed expected margin or bargaining power?
• Which competitor response did you assume, and was it credible?
• Did your price reflect willingness to pay, positioning or channel economics?
• What one extra data point would most improve the entry decision?

Grading with the Porter's Five Forces Simulation

The simulation produces team force scores, written reasoning and an Investment Committee decision. Treat those records as evidence around a later academic task, not as an automatic grade.

• Quality and consistency of evidence used for each force.
• Ability to connect a force score to an IO mechanism such as entry cost, substitutability or bargaining outside options.
• Recognition of uncertainty and conditions that would switch the recommendation.
• Quality of the team decision memo or individual oral defence after the simulation.

Grading with the Go To Market Simulation

The activity records individual launch choices across segment, target, region, channel and positioning. Use the outcome to ask whether the student can explain entry economics and anticipated competitor response, not whether the numerical game result was high.

• Consistency between segment demand, channel choice, price and positioning.
• Quality of the rejected alternative and competitor-response assumption.
• Use of demand heterogeneity, differentiation and entry-cost concepts.
• Individual post-simulation memo or short defence of the decision.

Grading with the Managerial Accounting Simulation

The simulation provides individual evidence from product analysis and the $100m allocation exercise. In this course it should remain a secondary application, with marks focused on how cost and return calculations inform a strategic claim.

• Accuracy and interpretation of contribution margin, break-even, CVP, ROI or NPV where used.
• Ability to explain why a financially attractive option may still face market-structure or rivalry constraints.
• Quality of the allocation rationale across competing opportunities.
• Individual reflection on what the accounting evidence cannot establish about market power or competitive advantage.

The platform records decisions, terms or comparative outcomes depending on the activity. That evidence supports your academic judgement; it does not replace it, and it does not establish which individual student made which argument. Use an individual defence, assumptions note or reflection where attribution matters. Moderate group marks using your normal institutional rules and design explicitly against free-riding.