Good Strategies in Flawed Markets
(2018-2021, Harvard Business School)

This is a second-year elective course I developed and taught at HBS. It is motivated by a fundamental insight in strategy: While social planners prefer perfect markets, firms may benefit greatly from imperfect ones. Market imperfections such as information asymmetries, search and transaction costs, and externalities are factors that prevent a market from being fully competitive and lead to inefficient production or consumption decisions.

Market imperfections are important for a strategist for several reasons. First, they are necessary for value capture. When markets function well, barriers to entry are low and competition is intense. Any excessive returns firms enjoy in the short run will be eventually competed away. Second, while sustaining profits is important, firms must first and foremost create value. To this end, market imperfections provide concrete guidance for identifying value-creation opportunities, since when resources are not allocated efficiently, there are gains to be had if these imperfections can be mitigated. Third, market imperfections can help firms better anticipate and respond to public interventions. Public players such as regulators, courts, journalists, and social groups generally want to preserve competition while protecting consumers, workers, communities, and the environment. As such, if market forces are not sufficient to keep market imperfections low, or if firms exploit market imperfections to mostly capture rather than create value, strategists can infer that public players are likely to intervene.

Recognizing that both private and public actors are interested in market imperfections gives students a holistic view of the principal forces that influence a strategy’s success or failure. The goal of this course is to deepen their knowledge of competitive strategy and to increase their familiarity with non-market strategy.

See the 2021 Syllabus here.

I developed a module note—Market Imperfections and Strategy—for this course. The student version is available here, and the instructor version is here. 

Moreover, in this course and elsewhere, I teach a group of three cases on strategies designed to tackle the challenges of evaluating and selecting early-stage ideas. They are Institutionalized Entrepreneurship: Flagship Pioneering, Market for Judgement: Creative Destruction Lab, and The Black List. To help students understand how these firms’ choices align with their respective environments, I developed a conceptual framework: “Navigating Early-Stage Ideas: An Error Efficiency Frontier Framework,” which is available here.