This course presents the main microeconomic tools that are useful to inform business decision making. These tools are relevant to production and pricing decisions and are also important to understanding the market environment in which firms operate. The main emphasis of the course is in developing analytical skills to understand a range of problems commonly faced by firms and the costs and benefits of alternative solutions that managers can consider.
Each 3-hour session will have two parts. The first part will be structured as a participative lecture and its main objective will be to present problems for which economics has provided interesting insights, to explain the solutions suggested by economics, and to understand their applicability to business. During this part of the session, you are encouraged to participate asking clarification questions and relating your own work experience to the topics.
The second part of the session will be a discussion session. We will generally discuss a case study, except for two sessions in which we will discuss the results of a game played during the previous days. In both cases, the second part of the session will be related to the contents of the previous week's lecture.
After each session, you are expected to (a) study the class notes, making sure to understand the concepts and analytical tools; and (b) carefully read the case material to be discussed in the following session or (in case of games) (c) actively participate in the game to be played during the week.
There are ten topics covered in this course, corresponding to the ten weeks in which the course takes place:
1. ECONOMICS, MARKETS AND ORGANIZATIONS
Readings:
- Milgrom and Roberts (1992), Chapter 1.
- Brickley, Smith, and Zimmerman (2009), Chapters 2-3.
2. DEMAND
Readings:
- Brickley, Smith and Zimmerman (2009), Chapter 4.
Exercise: Expatriation Game - Instructions.
3. PRODUCTION AND COST
Readings:
- Pyndick and Rubinfeld (2015), Chapters 6-7.
- Brickley, Smith and Zimmerman (2009), Chapter 5.
Exercise: Expatriation Game - Discussion of results.
4. COMPETITIVE MARKETS
Readings:
- Brickley, Smith and Zimmerman (2009), Chapter 6 (pp. 180-185).
- Horngren, Foster and Datar (2015), Chapter 25.
- Milgrom and Roberts (1992), Chapter 3.
Case: FinePrint Company
5. PRICING WITH MARKET POWER
Readings:
- Brickley, Smith and Zimmerman (2009), Chapter 7.
- Milgrom and Roberts (1992), Chapter 3 (pp. 73-77) and Chapter 4.
Case: Transfer Pricing at Timken
6. BUSINESS STRATEGIES: A GAME THEORY PERSPECTIVE
Readings:
- Brickley, Smith and Zimmerman (2009), Chapter 9.
Exercise: Sequential game - Instructions
7. EXTERNALITIES
Reading:
- Pindyck and Rubinfeld (2015), Chapter 18.
Exercise: Sequential game - Discussion of results
8. ASYMMETRIC INFORMATION
Readings:
- Milgrom and Roberts (1992), Chapter 5 (adverse selection).
- Milgrom and Roberts (1992), Chapter 6 (moral hazard).
Case: India's Alibaba: IndiaMART Network Effects
9. EMPLOYEE COMPENSATION
Readings:
- Brickley, Smith, and Zimmerman (2009), Chapter 14
Case: Innovation at Progressive (A): Pay-As-You-Go Insurance
10. INCENTIVE COMPENSATION
Readings:
- Brickley, Smith, and Zimmerman (2009), Chapter 15.
Wrap-up session in preparation for final exam.
