BUS651 Strategic Decision Analysis Application Portfolio
Eric Schmidt
December 11, 2009
EvMBA 2010


INTRODUCTION

Welcome to Eric Schmidt’s Strategic Decision Analysis Application Portfolio. I will follow a general format where I provide my commentary just below the title line of each blog entry and include referenced content below a line separator. The content is there as a convenience to the reader and links to the source should follow each section.

Blog Topics & Titles:
Models of Competition & Cooperation - Pepsi Bottler Merger
§ Fairness & Division - Eminent Domain – Kelo vs New London
§ Simultaneous Games with mixed strategies - Patriots go for it on fourt
§ Fairness & Division - Ranking the Rich
§ Auctions & Bidding - Airline seat auction
§ Models of Competition & Cooperation - Symbiotic Relationships in Nature
§ Models of Competition & Cooperation - Airbus vs Boeing
§ Strategic Moves - Preemptive strikes - Israel vs Iran
§ Voting & Coalition Building - Electing the Pope

Pepsi Bottler Merger

Text:
The two main beverage manufacturers in the US, Coca-Cola and Pepsi, have operated by distributing product through bottler partners. This arrangement means that the manufacturer and bottler partners must decide how to divide the pie in the channel. Ultimately, this is a competitive game, or a prisoner’s dilemma, resulting in a smaller combined pie since each entity is acting in its own interest. Recently, Pepsi decide to change the game with its bottlers by acquiring the two largest bottlers in their system. The company claims this move will provide them greater control, speed to market, and efficiency. By changing the game with their bottler from a competitive game to a cooperative game, analysts estimate Pepsi could save $150 MM per year in operating costs. The positive outlook on the decision is also reflected in the stock price.

References:
“PepsiCo Nabs Bottlers After Months at Table” - Aug 5, 2009 <>

“PepsiCo Offers $6B to Buy 2 of Its Biggest Bottlers” - Apr 20, 2009
<< http://www.foxbusiness.com/story/markets/industries/retail/pepsico-offers-b-buy--biggest-bottlers/>>

“PepsiCo buys bottlers for $7.8bn” - Aug 5, 2009
<< http://www.foodproductiondaily.com/Processing/PepsiCo-buys-bottlers-for-7.8bn>>

“PepsiCo to buy bottlers in deals totaling $7.8B” - 8/4/2009
<< http://www.usatoday.com/money/industries/food/2009-08-04-pepsico_N.htm>>

Eminent Domain – Kelo vs New London

Text:
In class we discussed fairness and division. A well know case involving property rights and eminent domain embodies the concept of fairness in the public stage. In the case of Kelo v. City of New London, the township expropriated several residents’ property to allow Pfizer, a pharmaceutical manufacturer, to build a plant. The idea was that the overall community would benefit from the additional tax revenue and additional jobs. The action was strongly contested by the residents and eventually made it to the Supreme Court. A highly controversial decision was made in favor of the township, requiring the residents to relocate. However, the issue is still being debated in the public domain. What is a fair allocation of property rights – at what point does community benefit become significant enough to suspend individual property rights. As a follow-up, Pfizer recently announced that it would not use the land in new London to build a new plant, and although the company has pledged to pay taxes on the vacant lot, New London will not see any of the jobs Pfizer would have brought.

References:
“Kelo v. City of New London” – June 23, 2005
<< http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London>>

“Kelo v. New London” – June 24, 2005
<< http://www.pbs.org/now/politics/domaindebate.html>>

“Pfizer abandons site of infamous Kelo eminent domain taking” – November 9, 2009
<>

“Kelo v. City of New London, Connecticut (04-108)”
<>

“Pfizer's R&D Cuts Render Kelo v. New London Eminent Domain Case a Waste of Time” – November 10, 2009
<>

“Pfizer to Leave City That Won Land-Use Case”
<>

Patriots go for it on fourth

Text:
Football is full of controversy. Perhaps the most controversial play call of this season happened in the November matchup between the Patriots and Colts. After giving up a fourth quarter 17 point lead, the Patriots were stopped on their 28 yard line, 4th down, with 2 more to go. The Patriots coach, Bil Belichick, decided to go for it. Unfortunately, the Patriots did not get the first down and they lost the game. Why did Belichick decide to go for it when a punt seemed like a safer play? The following week, ESPN’s NFL Sunday Countdown analyzed the decision. Belichick gos-for-it on 4th 18% of the time compared to a league average of 15%. He is also more successful, converting 59% compared to a league average of 48%. In an earlier interview, Belichick cited an academic paper written by Berkley Economics professor David Romer, “A Dynamic-Programming Analysis of Football Strategy” February 2003. In the paper, Romer analyzes two years of NFL play data to calculate 4th down play success probabilities and determined that NFL should go-for-it on fourth more frequently to maximize their winning probability. Belichick’s decision has since been analyzed extensively and the numbers all seem to support his decision, but you can’t win all the time.

References:
“DO FIRMS MAXIMIZE? EVIDENCE FROM PROFESSIONAL FOOTBALL” – David Romer, University of California, Berkeley, July 2005
<>

“Pats-Colts analysis/reaction: The 4th-down call” – November 16, 2009
<< http://www.patriots.com/news/index.cfm?ac=generalnewsdetail&pid=40326&pcid=41&rss=1>>

“Defending Belichick’s Fourth-Down Decision” – November 16, 2009
<>

“ZEUS Computer Program Supports Belichick’s Fourth-Down Bid”
<>

“Number-crunchers: Bill Belichick's 4th-down gamble was the right call”
<>

“Belichick's 4th Down Decision vs the Colts”
<>

“David Romer”
<>

“Fourth-down analysis met with skepticism”
<>

Ranking the Rich

Text:
What is a nation’s fair share of aid or fighting poverty? The Center for Global Development (CGD) <<>> has developed a scorecard to rank nations’ contributions to poor and developing countries. The CGD publishes its ranking every year, and in 2009 CGD ranks the US 17th out of 22. The rank is base on various metrics and is normalized by national GDP and per capita GDP. Scandinavian countries all rank toward the top of the list. Sweden is 1st for example. If the Aid component of the index is examined, Sweden has a high score of 14.3 by contributing $4.2 B in aid. On the other hand, the US contributed $22.5 B in aid, but only scored 2.3. The population is a factor in this difference, i.e. $4 B on 10 million people seems like a much great contribution than $22.5 B on 300 million people. The argument is that the US should be spending more, maybe $120 B per year to keep up with the Scandinavians. Is this fair – is this the right way to look at the issue? Or, could it be that the
Scandinavian per capita income is just too high and they should be contributing more on a per capita?


References:
Commitment to Development Index 2009
<< http://www.cgdev.org/section/initiatives/_active/cdi/>>

Per Capita Foreign Aid Assistance by World's Wealthiest Countries, 2002
<< http://www.infoplease.com/ipa/A0930884.html>>

Ranking the Rich 2004 - By FOREIGN POLICY, Center for Global Development
<< http://www.foreignpolicy.com/issue_mayjun_2004/cgddetail.php>>

Airline seat auction

Text:
Northwest Airlines has started auctioning vouchers for overbooked flights. It seems NWA thought they were overpaying passengers for displacing them from flights and are using the auction mechanism to lower the amount they pay per voucher. Too bad they do not take the same perspective on regular seat sales.

References:
You Tell Us What Your Seat Is Worth
<< http://freakonomics.blogs.nytimes.com/2008/07/24/you-tell-us-what-your-seat-is-worth/>>

Symbiotic Relationships in Nature

Nature provides some great models of competition and cooperation. One of the most striking examples is the symbiotic relationship between crocodiles and the Egyptian Plover bird. Typically, crocodiles eat anything and everything, including birds. However, the crocodile makes an exception for the Plover by allowing the bird to crawl into its mouth and clean its teeth. By cooperating the plover is able to eat and the crocodile maintains its teeth and is able to capture future meals. The cycle continues and both animals are better off together than individually.

References:
Odd Couple
<< http://magma.nationalgeographic.com/ngexplorer/0601/articles/mainarticle.html>>

Crocodiles
<< http://en.wikipedia.org/wiki/Crocodile>>

Egyptian Plover
<< http://en.wikipedia.org/wiki/Egyptian_Plover>>

Airbus vs Boeing

Text:
Competition may involve interesting alliances between public and private entities. The competition between Airbus and Boeing is a classic example of competition between these alliances. The argument is over government subsidies that each company receives from their home country and whether that is fair or promotes competition. For example, Airbus receives several billion dollars from the EU, and Boeing has huge military contracts with the US. Airbus has developed their market share to over 50% in recent years, but the company is still receiving large subsidies. Boeing is contesting the Airbus subsidies with the WTO in response to what it views as anti-competitive cooperation between Airbus and the EU.

References:
Airbus vs. Boeing : Big government subsidies don't fly
<< http://www.nytimes.com/2004/09/17/opinion/17iht-edair_ed3_.html>>

Boeing, Airbus Showdown At 40,000 Feet
<< http://www.forbes.com/2005/05/31/cx_da_0531topnews.html>>

Airbus Subsidies Don’t Fly
<< http://www.businessweek.com/debateroom/archives/2007/10/airbus_subsidie.html>>

Boeing Vs. Airbus: The Unwinnable WTO Dispute
<< http://www.theglobalist.com/StoryId.aspx?StoryId=6011>>

Preemptive strikes - Israel vs Iran

Text:
Israel has been threatening to attack Iran if that country continues to develop nuclear weapons. Iran responds by threatening to attack Israel in response. Both countries’ rhetoric constitutes strategic moves, a threat, but the threats must be credible to be effective. Israel has been threatening Iran for several years and Iran has pledged to eliminate Israel from the map at its first opportunity. Both have engaged in ‘war game’ type exercises to reinforce their respective threats, but so far, neither side has attacked the other. However, although neither side is establishing credibility though action, Iran may have the credibility edge because its leadership’s behavior is somewhat irrational.

References:
Israeli minister threatens Iran
<< http://news.bbc.co.uk/2/hi/7440472.stm>>

Iran to hit Israeli nuke sites if attacked: minister
<< http://www.reuters.com/article/idUSTRE5B81QJ20091209>>

Iran Threatens Strike on Israel's Nuclear Facilities if Attacked
<< http://www.foxnews.com/story/0,2933,534800,00.html>>

Western envoys threaten Iran with new UN sanctions
<< http://www.google.com/hostednews/afp/article/ALeqM5jkovaqxUUNw9Tyv2JB1GcPMUEuAw>>

Electing the Pope

Text:
I recently watched the movie “Angels and Demons”. In the movie, the Catholic church is in the process of electing a new Pope. The process is not really covered in the film, but I was curious how it worked. The Catholic Church has been electing leadership for nearly 1000 years. Making it the institution with the in the longest history of electing leadership. The rules have changed slightly over time, but the main details follow:

(from http://www.religionfacts.com/christianity/features/papal_elections.htm)
The Voting Process
Traditionally, each pope issues a decree detailing how his successor shall be elected. Popes usually make small adjustments to the procedures, although the basic method remains the same. Pope John Paul II detailed the procedures for electing the 266th pope in the Apostolic Constitution Universi Dominici Gregis. In this document, the pontiff explains that his changes are occasioned by the revisions to Canon Law made by the Second Vatican Council (Vatican II), but he has generally determined "not to depart in substance from the wise and venerable tradition already established."

Pope John Paul II established the following rules for electing his successor:
The maximum number of elector cardinals is 120.
Any cardinal who turns 80 years old before the day the papacy is vacated cannot take part in the election.
A two-thirds-plus-one majority is required to elect a pope.
For as long as necessary, two votes are held in the morning and afternoon, for a total of four per day.
If a new pope is not selected after 12 to 13 days, the cardinals may choose to allow selection of a new pope by a simple majority (i.e., 50% plus one). {UMG}

A conclave ballot.
There are no hanging chads in conclave. The pope is elected by write-in vote on a secret ballot. Each cardinal is given a small rectangular ballot with the Latin words Eligo in Summum Pontificem, "I elect as supreme pontiff," printed at the top. He silently indicates his vote by writing a person's name with a pen below those words.

After writing his vote, the cardinal folds the ballot twice, holds it in the air, and carries it to the Sistine Chapel's altar. He declares aloud, "I call as my witness Christ the Lord who will be my judge, that my vote is given to the one who before God I think should be elected." He places his ballot on a paten (plate) that is resting on a chalice (cup), then uses the plate to drop the ballot into the chalice. He bows before the altar, then returns to his seat. The use of the paten and chalice for this purpose is significant in two ways: they are the vessels used to serve the sacred bread and wine in Mass and using the plate makes it hard for a cardinal to cast more than one ballot.

Tallying the Votes
After all the cardinals have voted, the votes are tallied by three scrutineers, who are chosen from among the electors by lot at each new vote. The scrutineers sit at a table in the front of the Sistine Chapel by the altar. The first scrutineer uses the paten as a cover and shakes the chalice to mix the ballots. The third scrutineer then counts the votes without unfolding them. If the number of the ballots does not match the number of cardinals voting, all the ballots are immediately burned and the voting starts again.

If the right number of ballots has been received, the tallying procedure begins. The steps are as follows:
§ The first scrutineer takes a ballot, notes the name on it, and passes it to the second scrutineer.
§ The second scrutineer notes the name and passes it to the third scrutineer.
§ The third scrutineer reads aloud the name on the ballot, pierces the ballot with a needle through the word Eligo at the top of the ballot, and slides the ballot onto a string of thread.
§ Each elector notes the name that is read.
§ Once all ballots are read, the scrutineers write down the official count on a separate sheet of paper.
§ The third scrutineer ties the ends of the thread on which the ballots are placed in a knot to preserve the vote.
§ The ballots are placed in a receptacle.
After the vote, all the ballots and notes are burned. If the proper majority has been reached and the elected person has accepted, white smoke appears above the Vatican to inform the anxiously-awaiting world that a pope has been elected. If a pope has not been elected, water or a special chemical is added to the ballots so that black smoke appears. The vote is repeated for as long as it takes until a pope has been elected. In 1978, Pope John Paul II was elected after eight ballots over two days.


References:
A taxonomy of runoff methods
<< http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V9P-4SN92BG-1&_user=4941578&_rdoc=1&_fmt=&_orig=search&_sort=d&_docanchor=&view=c&_searchStrId=1131582180&_rerunOrigin=google&_acct=C000065788&_version=1&_urlVersion=0&_userid=4941578&md5=537fbc87329435ef25963d61761550ff>>

Smoke over the Vatican: Picking the pope
<< http://www.cnn.com/SPECIALS/2005/pope/stories/selection.process/index.html>>

Papal Conclave
<< http://en.wikipedia.org/wiki/Papal_conclave>>

How the Pope is Elected
<<http://www.religionfacts.com/christianity/features/papal_elections.htm>>

Angels and Demons
<< http://www.sonypictures.com.au/movies/angelsanddemons/>>