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, and Role of Internet
R1 Review of Own- and Cross-price Elasticities, Market Definition, Consumer and Producer Surplus

Use of Supply and Demand Curves

Review of Logarithms
L2 Defining the Market

Discussion of Market Definition and Market Strategy

Case Study: Credit Cards in the U.K.
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
R2 Further Review of Supply and Demand
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
Homework set 1 due
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
R3 Review of the Economics of Production and Cost
L6 Consumer Demand

Introduction to Consumer Demand: Empirical Demand Analysis and Models of Consumer Choice
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
Homework set 2 due
R4 Review of the Economics of Demand
L8 Time and Uncertainty

Intertemporal Prices and Net Present Value

Uncertainty and Risk Aversion

Waiting and Option Value
L9 Market Power

Competition and Entry

Monopoly Power and Mark-up Pricing

Production across Multiple Plants

Pricing with Network Externalities
R5 Review of Market Power (Monopoly) Homework set 3 due
Review for Midterm Exam
Midterm Exam
L10 Pricing with Market Power

Various Forms of Price Discrimination

Segmented Markets and Pricing Oriented toward Market Segmentation

Examples of Price Discrimination in Practice
L11 Pricing with Market Power (cont.)

The Use of Two-part Tariffs

Volume Pricing

Commodity Bundling
R6 Review of Pricing with Market Power
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
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
Homework set 4 due
R7 Review of Game Theory
L14 Collusion and Competition in Oligopolistic Markets

Tacit Collusion

Examples: Electrical Equipment, Mineral Cartels
R8 Review of Game Theory, Collusion and Cartels
L15 Limiting Market Power

Antitrust Laws

U.S. vs. Microsoft®

Common Property Resources
Homework set 5 due
L16 Auctions and Bidding

Alternative Forms of Auctions and their Characteristics

The Winner's Curse
R9 Review of Auctions and Common Property Resources
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
L18 Incentives and Information

Principal-agent Problem and Incentives

Moral Hazard


Promotion Tournaments and Up-or-out Policies

Team Incentives

Back-loaded Wages
L19 Information and Market Structure

Markets with Asymmetric Information

Quality Uncertainty and the Market for "Lemons"

Adverse Selection

R10 Review of Transfer Pricing and Asymmetric Information Homework set 6 due
L20 Externalities and Market Structure

Positive and Negative Externalities

Market Failure and Forms of Government Intervention

Property Rights
Review for Final Exam
L21 Final Examination