Economic Analysis for Business Decisions

Lecture Notes

ses #	TOPICS	Lecture notes	handouts
L1	Markets Introduction to the Course Types of Markets: Competitive, Monopoly/Monopsony and Oligopoly/Oligopsony The Boundaries of a Market Product Boundaries, Geographical Boundaries Examples: Bicycles, Prescription Drugs, Airline Travel, Role of Internet	Course Overview Markets (PDF)	Extra Sources (PDF) Questions for U.K. Credit Card Case Discussion (PDF)
L2	Defining the Market Discussion of Market Definition and Market Strategy Case Study: Credit Cards in the U.K.	Market Definition (PDF)	Table: Profitability of Consumer Groups - Stuart, Harborne W., Jr. “Pricing for Profit: The U.K. Credit Card Industry in the Late 1980s (A).” Boston, MA: Harvard Business School, 1997. Case No. 9-897-168. Tips for Homework Solutions and Exams (PDF) Exhibit 2: UK Credit Card System - Stuart, Harborne W., Jr. “Pricing for Profit: The U.K. Credit Card Industry in the Late 1980s (A).” Boston, MA: Harvard Business School, 1997. Case No. 9-897-168.
L3	Analysis of Competitive Markets Supply-Demand Analysis of Government Intervention in Competitive Markets (Examples: Taxes, Subsidies, Tariffs, Import Quotas) Detailed Analysis of the Sugar Quota and its Effects	Analysis of Competitive Markets (PDF)	Thurow, Roger and Geoff Winestock. A Global Journal Report — Bittersweet: How an Addiction To Sugar Subsidies Hurts Development –Politically Vital Farm Support, Especially in EU, Throttles Exports From Poor Nations — Negating $50 Billion in Aid." The Wall Street Journal, 16 September 2002. Sugar Surplus (PDF)
L4	Production and Cost Brief Review of Production Economics and Cost Minimization Cost Concepts: Fixed, Variable and Sunk Total, Average, and Marginal Cost in the Short Run and Long Run Accounting Cost vs. Economic Cost	Production and Cost I (PDF)
L5	Production and Cost (cont.) Airline Cost Example: User Cost of Capital Economies of Scale and Scope The Learning Curve and Cost Reduction over Time	Production and Cost II (PDF)
L6	Consumer Demand Introduction to Consumer Demand: Empirical Demand Analysis and Models of Consumer Choice	Consumer Demand Introduction (PDF)
L7	Consumer Demand (cont.) Pricing, Product Characteristics and Quality The Analysis of Network Externalities, and their Competitive and Strategic Implications Example from the Software Industry	Consumer Demand and Product Characteristics (PDF)
L8	Time and Uncertainty Intertemporal Prices and Net Present Value Uncertainty and Risk Aversion Waiting and Option Value	Time and Uncertainty (PDF)
L9	Market Power Competition and Entry Monopoly Power and Mark-up Pricing Production across Multiple Plants Pricing with Network Externalities	Market Power (PDF)
L10	Pricing with Market Power Various Forms of Price Discrimination Segmented Markets and Pricing Oriented toward Market Segmentation Examples of Price Discrimination in Practice	Pricing with Market Power I (PDF)	Maremont, Mark. “The Only Difference is When You Throw Them Away.” Business Week, 12 July 1993.
L11	Pricing with Market Power (cont.) The Use of Two-part Tariffs Volume Pricing Commodity Bundling	Pricing with Market Power II	Game Theory Cournot Questions (PDF) Tran, Khanh T.L. “Fans of Web Games Pay to Play.” The Wall Street Journal, 9 November 2000.
L12	Game Theory and Competitive Strategy Thinking Strategically Duopoly Exercise (in class) to Introduce Cournot First-mover Advantage: Stackelberg Repeated Cournot Cournot-Nash in detail Nash Equilibrium in Other Kinds of Games	Game Theory and Competitive Strategy I (PDF)
L13	Game Theory and Competitive Strategy (cont.) Dominant Strategies Nash Equilibrium again Repeated Games The Prisoners’ Dilemma Sequential Games Threats and Credibility Pre-emptive Moves Entry Deterrence	Game Theory and Competitive Strategy II (PDF)	Barnett, F. William. “Making Game Theory Work in Practice.” The Wall Street Journal, 13 February 1995. Myerson, Allen R. “Philip Morris Cuts Cigarette Prices, Stunning Market – Stocks Plunge as Result – 40 cent-a-pack Reduction in No. 1 Marlboro Brand is Directed at Its Lower-Cost Rivals.” The New York Times, 3 April 1993. Ortega, Bob. “Retail Combat – Warehouse-Club War Leaves Few Standing, And They Are Bruised – Wal-Mart and Price-Costco Survive Bitter U.S. Clash, Will Resume it in Mexico – An Intense Game of Chicken.” The Wall Street Journal, 18 November 1993.
L14	Collusion and Competition in Oligopolistic Markets Tacit Collusion Examples: Electrical Equipment, Mineral Cartels	Collusion and Competition in Oligopolistic Markets (PDF)
L15	Limiting Market Power Antitrust Laws U.S. vs. Microsoft® Common Property Resources	Limiting Market Power (PDF)	Antitrust and Monopolies (PDF) Surowiecki, James. “Mixed Motives.” The Financial Page, The New Yorker, 8 November 2004.
L16	Auctions and Bidding Alternative Forms of Auctions and their Characteristics The Winner’s Curse	Auctions and Bidding (PDF)	Double Marginalization (PDF)
L17	Transfer Pricing and Vertical Integration Transfer Pricing in the Vertically Integrated Firm Transfer Pricing with Outside Markets Double Marginalization Costs and Benefits of Vertical Integration	Transfer Pricing and Vertical Integration (PDF)	Outsourcing Sales (PDF) Phillips, Michael M. “Taking Shelter – As Congress Ponders New Tax Breaks, Firms Already Find Plenty – Using Tactics Such as Shifting Profit to Havens Abroad, Some Pare Bills to Zero – GM Keeps the Tab Down.” The Wall Street Journal, 9 August 1999.
L18	Incentives and Information Principal-agent Problem and Incentives Moral Hazard Multi-tasking Promotion Tournaments and Up-or-out Policies Team Incentives Back-loaded Wages	Incentives and Employment (PDF)
L19	Information and Market Structure Markets with Asymmetric Information Quality Uncertainty and the Market for “Lemons” Adverse Selection Signaling	Asymmetric Information and Market Structure (PDF)
L20	Externalities and Market Structure Positive and Negative Externalities Market Failure and Forms of Government Intervention Property Rights	Externalities and Market Structure (PDF)	Other Economics Courses (PDF)
L21	Final Examination