Microeconomics for Business: Writing Assignments on Porter's Five Competitive Forces

Groups of microeconomic principles students analyze the impact of Porter’s five competitive forces on an existing company. Five essays cover the forces: suppliers, substitutes, buyers, rivals, and new market entrants. Topics are tied to economic theory: production possibilities frontier, cross-price elasticity of demand, consumers, firms, and market structure. A sixth essay requires a comprehensive analysis of the five forces with which the company contends. Essays are graded using well-defined rubrics, and their short, uniform structure allows students to incorporate instructor feedback into future assignments. Students connect basic principles of economics to the functioning of a real firm.


Introduction
Teaching microeconomic principles in a business school environment requires a somewhat different focus relative to teaching the same class in a liberal arts setting.While the course content remains the same, business students desire to know exactly how economics will help them in the business world once they graduate, and abstract examples are unlikely to satisfy their demands.A useful tool for demonstrating to students the business application of economic theory is Porter's (2008) article "Five Competitive Forces that Shape Strategy." In this paper, I describe how Porter's five competitive forces can be incorporated into writing assignments for an undergraduate microeconomic principles course.The assignments are mapped to a standard microeconomic principles syllabus and require students to apply economic theory learned during the semester to a real firm of their choosing.The first assignment connects the production possibilities frontier with the limitations of the firm's suppliers.The second essay links the cross-price elasticity of demand with the substitutes for the firm's product.The third assignment uses consumer theory to analyze the firm's customers, while the fourth assignment uses firm theory to analyze the firm's direct competitors.The fifth essay applies theories of market structure to the challenges that the firm may encounter due to new entrants.Finally, the term paper combines the previous five essays to outline a complete analysis of the firm's competitive advantages and disadvantages.
The next section describes the learning goals of the essay assignments, followed by the description of the six assignments and the grading strategy.I then briefly discuss a student survey that was administered to gain feedback on the assignment framework.Finally, the paper concludes.

Learning Goals
There are two learning goals associated with this series of assignments.The first is to connect economic theory to real-world analysis to teach students how to apply what they learn in class to actual firm decision-making.The second goal is to improve students' writing in general and, more specifically, improve their ability to write technical papers on economic topics.
Students are encouraged to select a firm in an industry that holds their interest.In this way, the onus of connecting economic theory to relevant real-life examples is moved from the instructor to the student.Students are required to conduct research on their chosen firm and interpret their findings in the context of economic theory.As an additional benefit, this exercise helps students reach a deeper understanding of the theoretical mechanisms behind firm and consumer decisions.
These essay assignments touch on three of Hansen's (1986) five learning goals for economics courses.Students gain access to existing knowledge when they search for sources about the economic conditions of their selected firm.They display a command of existing knowledge when they write about the economic theory associated with the topic.Finally, students utilize existing knowledge to explore issues when they write their final essay on the current and future challenges facing their firm.
Writing assignments are superior to other assignments since, according to Hansen (1998), "students learn more economics and learn it better because they must not only explain clearly what they are learning, they must reflect further on what they have learned as they put their ideas into written form (p. 81)." Additionally, according to Coyle (2012), one of the main skills that employers claim graduates of economics programs lack is "the ability to communicate technical results to non-economists (p.x)." There also exists an expansive literature devoted to the value of adding writing assignments to economics courses; for examples, see Greenlaw (2003Greenlaw ( , 2009)), McCloskey (2000), Petr (1998), Smith, Broughton, andCopley (2005), and Walstad (2001).
The writing assignments described below are brief and repetitive.This is done purposefully to improve students' learning and writing skills.Hansen (1998) recommends that students create "a series of short papers on well-defined progressively more complex topics." The fact that assignments are brief means that the instructor can grade them more quickly to reduce the time it takes for students to receive feedback.Because the assignments are repeated, students have the opportunity to learn from their mistakes.As Cohen and Spencer (1993) point out, this is superior to long essays due at the end of the semester, since students have little incentive to go back and look at comments once the semester has ended.Simpson and Carroll (1999) show with survey data from Davidson graduates that short papers are the most helpful type of writing assignment to prepare students for their primary occupation.
Following another recommendation from Hansen (1998), each assignment has a structured rubric associated with it.The rubrics, listed at the end of this paper, offer students a clear idea of what questions they need to answer in their essays.In addition, weight is given to the quality of the writing to ensure that students do not simply hand in a series of bullet point answers but rather transform them into a polished brief.The required word count (500-700) and references (at least three), outlined in the syllabus, set transparent expectations for the assignment.Moreover, the explicit grading structure should make it easier for the instructor to grade the essays since every aspect of the assignment is clearly described.
Papers are assigned to groups of students to reduce the amount of time necessary for grading and to allow more students to choose the most popular companies-Apple, Tesla, Starbucks, etc.In addition, Strasser and Wolfe (2014) describe the benefits of having students work on writing projects in teams.These benefits include developing interpersonal skills as students must work together to craft the writing assignments.The repetitive nature of the essays also encourages group processing, since students must reflect on the division of labor in previous assignments to improve their work on future essays.

Assignment
During the second week of class, students are instructed to form into groups of three to five.The groups are then charged with selecting a company to research and analyze for the remainder of the semester.Firms are assigned in the order that the requests are received via email from students and each firm can only be assigned to one group.The directions for selecting a company are below.
Assignment: To answer this question, your group must choose an existing company.The company can produce final consumer goods or services (i.e., watches, phones, legal services, etc.) or intermediate goods or services (microchips, accounting services, etc.).You should choose a company that interests you, as you will be using the same company to answer homework questions throughout the semester.Please select a public company, as private companies do not release as much information to the public.You may wish to read "The Five Competitive Forces that Shape Strategy" by Michael Porter to prepare for this assignment.
I give six homework assignments throughout the semester, with each assignment worth The first essay is assigned after the instructor covers the topic of production possibilities frontiers.Students are instructed to research the suppliers on which their firm depends and to connect their research to the theory of the production possibilities frontier.
Assignment: As a group and using 500-700 words, describe the suppliers of your company and connect their ability to supply your company to the economic theory of production possibilities frontiers and marginal costs.Use the homework 1 grading rubric as a guide for what topics your essay should cover.Your group should e-mail me one copy of the essay in Microsoft Word with all of the group members' names included in it.You should cite at least three sources and remember that Wikipedia is not an acceptable source.Questions 1-3 on the rubric require teams to research their company's suppliers.According to Porter (2008), the research should focus on: 1) concentration of the supplier's industry versus the firm's industry, 2) dependence of the suppliers on the firm's industry for revenue, 3) prevalence of switching costs for the firm to find new suppliers, 4) differentiation of suppliers' products, 5) substitutability of suppliers' products, and 6) whether the suppliers can threaten to integrate forward and compete directly with the firm.
Questions 4-6 require students to think about the implication of the production possibilities frontier on the suppliers' costs, and, subsequently, on their firm's costs.The primary connection that students should make in the essay is that efficient production implies that increases in output imply higher marginal costs.If students feel that their supplier could increase production without raising costs, they should infer that production must not be efficient.
Questions 7-10 on the rubric cover grammar and spelling, the flow of the arguments, citation requirements, and essay length.These points are awarded similarly for each of the six essays and reflect Hansen's (1998) focus on writing quality in his rubrics.The fact that each rubric has the same four questions (relating to writing skills) on it allows groups to learn from previous mistakes and improve the quality of their writing over the semester.

B. Assignment 2: Substitutes and Cross-Price Elasticity of Demand
In the second essay, groups connect the cross-price elasticity of demand to potential substitutes for their company's products.It is important for this assignment to make clear to students that they are not supposed to consider direct competitors of their firm (firms that produce the same product, like a different brand of tea), but rather focus on those whose output is dissimilar but substitutable (continuing with the above example, hot cocoa).
Assignment: As a group and using 500-700 words, describe the substitute goods and services your company must compete with.Note that you are not describing direct competitors in your industry, but rather the firms in other industries who offer goods or services that could be used in place of your product.Connect your essay to the measure of cross-price elasticity discussed in class.Questions 1-4 require teams to consider the substitutes that may replace their company's products both currently and with the advent of new technology.For example, the emergence of Netflix and Hulu has hurt demand for cable and satellite television.According to Porter (1998), firms should consider: 1) the price-performance trade-off between their products and potential substitutes and 2) the cost of switching to a substitute product.
Questions 5-6 ask students to demonstrate their understanding of the measure of cross-price elasticity of demand.Teams must estimate and explain the magnitude and sign of the cross-price elasticity based on their answers to the first four questions.In addition, students must show that they understand the application of cross-price elasticity by describing how a fall in the price of a substitute would impact demand for their firm's products.

C. Assignment 3: Buyers and Consumer Choice
The third essay connects consumer choice theory to the group's company buyers.
Assignment: As a group and using 500-700 words, describe the customers for your company's goods or services.Specifically, describe how numerous the buyers are, how responsive they might be to price changes, whether they treat the product as inferior, a necessity, or a luxury, and anything else you think is important to understand about your firm's customers.Connect your essay to the measures of price and income elasticities of demand to determine how your firm's revenue responds to price and consumer wealth fluctuations.Use the homework 3 grading rubric as a guide for what topics your essay should cover.Questions 1-4 require teams to research their company's customer base.How these questions are answered depends primarily on whether a team has chosen a producer of intermediate or final goods.According to Porter (2008), the firm should be concerned about: 1) the number of buyers and the volume of their purchases, 2) product differentiation, 3) the size of switching costs for buyers, 4) whether buyers can credibly threaten to integrate backward and directly compete with the firm, 5) the size of the product as a portion of the buyers' budget, 6) how cash-strapped the buyers are, 7) the quality of the products in the market, and 8) the effect of the product on costs of other inputs for the buyer.
Question 5 requires teams to use the previously gathered information to determine whether their company faces elastic or inelastic demand for its product, while question six requires teams to determine whether demand for its product will be positively or negatively influenced by increased consumer wealth.

D. Assignment 4: Competitors and Firm Choice
In the fourth essay, groups apply the theory of firm choice to understand the challenges facing their company in the form of direct competitors.
Assignment: As a group and using 500-700 words, describe the direct competitors in your company's industry.Specifically, describe how numerous the competitors are, whether competitors are all of an equal size or if some are much larger than others, if it is a slow-or high-growth industry, and anything else you think is important to understand about your competitors.Additionally, determine whether the products in the industry are differentiable, have high fixed costs, or are perishable.State whether you believe your firm has a dominant or a weak position relative to its rivals.Finally, connect your statement to the material we covered on firm choice.Do you think your firm will make economic profit in the long run?If so, which assumptions of perfect competition might be violated to allow this to happen?Use the homework 4 grading rubric as a guide for what topics your essay should cover.Questions 1-4 ask groups to research and describe their company's competitors and the key features of their products.According to Porter (2008), firms should care about 1) the number of competitors and their relative size, 2) how quickly the industry grows, 3) whether there are barriers to exit, 4) the goals of rivals that go beyond economic profit, 5) product differentiation, 6) the magnitude of fixed costs, 7) the incremental size of capacity increases, and 8) product perishability.
Questions 5-6 connect the research conducted by students to the firm's problem and the assumptions of perfect competition.Students must apply the theory to determine how likely long-run economic profits are to arise in their industry.If they believe that their firm has been earning positive long-run economic profits, they must explain how this is possible, since it violates the theory of perfect competition.

E. Assignment 5: New Entrants and Market Structure
The fifth essay asks students to research the market structure of their company's industry and use that information to determine the likelihood of new competitors entering their market.
Assignment: As a group and using 500-700 words, describe the market structure in your company's industry.Specifically, describe any barriers to entry, startup requirements for new entrants, benefits of scale to both producers and consumers, and expected retaliation from current industry producers.State whether you believe your firm has a dominant or a weak position relative to new entrants.Could new competition cut into your firm's long-run economic profits?Finally, connect your statement to the material on market structure covered in class.Which type of market does your firm operate in competitive, monopolistic, oligopolistic, or monopolistically competitive?How does this market structure impact your firm's long-run economic profit?Use the homework 5 grading rubric as a guide for what topics your essay should cover.Questions 1-4 require students to research the market structure of their company's industry to determine how competitive it is and how likely it is to experience new entrants.According to Porter (2008), the firm should be concerned about 1) the supply-side economies of scale, 2) the demand-side benefits of scale, 3) the switching costs of customers, 4) the capital startup costs of entering the market, 5) the advantage of incumbents, 6) access to distribution channels, and 7) government barriers to entry.
Questions 5-6 ask students to apply economic theory to determine if new entrants are a threat to their firm and what type of market structure best describes their company's industry.F. Assignment 6: Porter's Five Forces The final assignment asks students to combine all of the research they did for the previous five essays to write a longer summary paper on their company's relationship with the five competitive forces.
Assignment: As a group and using 1000-1500 words, describe the five competitive forces facing your company: suppliers, substitutes, buyers, sellers, and new market entrants.Explain which competitive force should be of the most concern to your company and which force should be of the least concern to your company.Next, explain how your company has managed to remain profitable up to this point.Finally, describe the biggest challenge that you expect your company to face in the future.Your answers should connect directly to the economics lessons learned in class.Groups should build on the research in the preceding five assignments to describe the greatest challenge(s) to their firm, how the firm should behave to maintain profitability, and which issues the firm is likely to experience in the future.For full credit, students must reference relevant economic theory to support their claims.

Survey Results
These essays were assigned in a principles of microeconomics course during the fall of 2018, and the students were subsequently surveyed at the end of the semester.The purpose of the survey is to ascertain how effective the assignments are based on the stated learning goals.
The fall 2018 class had 36 students, 34 of whom completed the survey.Based on the results in Table 1, it appears that the learning goals were fairly well met.In general, it appears that the essays were written by multiple members of the group and that free riders were not pervasive.Students mostly liked the format of having many short essays throughout the semester and used the graded rubrics to improve their writing as the semester progressed.In addition, students felt that the assignments enabled them to connect economic theory to real business concerns.

Conculsion
This paper describes a semester-long framework for integrating business strategy into a microeconomic principles course; in particular, the aim is to make economic theory more relevant to business students.Using Porter's (2008) five competitive forces as an outline, groups of students are assigned biweekly essays which connect various aspects of economic theory to business strategy.The use of essay assignments is intended to deepen student learning while simultaneously improving students' writing skills.Based on student feedback, this framework appears to be quite effective in meeting its learning objectives.
Use the homework 2 grading rubric as a guide for what topics your essay should cover.
Use the homework 6 grading rubric as a guide for what topics your essay should cover.

Table 1 :
Survey ResultsQuestion 1: How many of your group members worked on the Five Competitive Forces essays during the semester?Did you find the feedback from the previous rubrics useful when writing the essay for the next assignment?Did you like the design of the essay assignments; specifically, the fact that the assignments were short and numerous?