Managerial economics and strategy

✍ Scribed by Jeffrey M. Perloff; James A. Brander

• Year: 2020
• Tongue: English
• Leaves: 720
• Edition: Third
• Category: Library

✦ Table of Contents

Cover
Brief Contents
Contents
Preface
Chapter 1 Introduction
1.1 Managerial Decision Making
Profit
Trade‐Offs
Other Decision Makers
Strategy
1.2 Economic Models
MINI‐CASE Using an Income Threshold Model in China
Simplifying Assumptions
Testing Theories
Positive and Normative Statements
New Theories
1.3 Using Economic Skills in Your Career
Summary
Chapter 2 Supply and Demand
MANAGERIAL PROBLEM Carbon Taxes
2.1 Demand
The Demand Curve
The Demand Function
USING CALCULUS Deriving the Slope of a Demand Curve
Summing Demand Curves
MINIv‐CASE Summing Corn Demand Curves
2.2 Supply
The Supply Curve
The Supply Function
Summing Supply Curves
2.3 Market Equilibrium
Using a Graph to Determine the Equilibrium
Using Math to Determine the Equilibrium
Forces That Drive the Market to Equilibrium
MINI‐CASE Speed of Adjustment to New Information
2.4 Shocks to the Equilibrium
Effects of a Shift in the Demand Curve
Q&A 2.1
Effects of a Shift in the Supply Curve
MINI‐CASE The Opioid Epidemic Reduces Labor Market Participation
Q&A 2.2
MANAGERIAL IMPLICATION Taking Advantage of Future Shocks
2.5 Effects of Government Interventions
Policies That Shift Curves
MINI‐CASE Occupational Licensing
Price Controls
MINI‐CASE Venezuelan Price Ceilings and Shortages
Sales Taxes
Q&A 2.3
MANAGERIAL IMPLICATION Cost Pass‐Through
2.6 When to Use the Supply‐and‐Demand Model
Managerial Solution Carbon Taxes
Summary
Questions
Chapter 3 Empirical Methods for Demand Analysis
MANAGERIAL PROBLEM Estimating the Effect of an iTunes Price Change
3.1 Elasticity
The Price Elasticity of Demand
MANAGERIAL IMPLICATION Changing Prices to Calculate an Arc Elasticity
Q&A 3.1
MINI‐CASE Demand Elasticities for Google Play and Apple Apps
USING CALCULUS The Point Elasticity of Demand
Elasticity Along the Demand Curve
Q&A 3.2
Other Types of Demand Elasticities
MINI‐CASE Anti‐Smoking Policies May Reduce Drunk Driving
Demand Elasticities over Time
Other Elasticities
Estimating Demand Elasticities
3.2 Regression Analysis
A Demand Function Example
MINI‐CASE The Portland Fish Exchange
Multivariate Regression
Q&A 3.3
Goodness of Fit and the Statistic
MANAGERIAL IMPLICATION Focus Groups
3.3 Properties and Statistical Significance of Estimated Coefficients
Repeated Samples
Desirable Properties for Estimated Coefficients
A Focus Group Example
Confidence Intervals
Hypothesis Testing and Statistical Significance
3.4 Regression Specification
Selecting Explanatory Variables
MINI‐CASE Determinants of CEO Compensation
Q&A 3.4
Functional Form
MANAGERIAL IMPLICATION Experiments
3.5 Forecasting
Extrapolation
Theory‐Based Econometric Forecasting
Managerial Solution Estimating the Effect of an iTunes Price Change
Summary
Questions
Appendix 3A The Identification Problem
Chapter 4 Consumer Choice
MANAGERIAL PROBLEM Paying Employees to Relocate
4.1 Consumer Preferences
Properties of Consumer Preferences
MINI‐CASE You Can’t Have Too Much Money
Preference Maps
4.2 Utility
Utility Functions
Ordinal and Cardinal Utility
Marginal Utility
USING CALCULUS Marginal Utility
Marginal Rates of Substitution
4.3 The Budget Constraint
Slope of the Budget Line
USING CALCULUS The Marginal Rate of Transformation
Effects of a Change in Price on the Opportunity Set
Effects of a Change in Income on the Opportunity Set
Q&A 4.1
MINI‐CASE Rationing
Q&A 4.2
4.4 Constrained Consumer Choice
The Consumer’s Optimal Bundle
Q&A 4.3
MINI‐CASE Why Americans Buy More E‐Books Than Do Germans
Q&A 4.4
Promotions
MANAGERIAL IMPLICATION Designing Promotions
4.5 Deriving Demand Curves
4.6 Behavioral Economics
Tests of Transitivity
Endowment Effects
MINI‐CASE How You Ask the Question Matters
Salience
MANAGERIAL IMPLICATION Simplifying Consumer Choices
Managerial Solution Paying Employees to Relocate
Summary
Questions
Appendix 4A The Marginal Rate of Substitution
Appendix 4B The Consumer Optimum
Chapter 5 Production
MANAGERIAL PROBLEM Labor Productivity During Recessions
5.1 Production Functions
5.2 Short‐Run Production
The Total Product Function
The Marginal Product of Labor
USING CALCULUS Calculating the Marginal Product of Labor
Q&A 5.1
The Average Product of Labor
Graphing the Product Curves
The Law of Diminishing Marginal Returns
MINI‐CASE Malthus and the Green Revolution
5.3 Long‐Run Production
Isoquants
MINI‐CASE Self‐Driving Trucks
Substituting Inputs
Q&A 5.2
USING CALCULUS Cobb‐Douglas Marginal Products
5.4 Returns to Scale
Constant, Increasing, and Decreasing Returns to Scale
Q&A 5.3
MINI‐CASE Returns to Scale for Crocs
Varying Returns to Scale
MANAGERIAL IMPLICATION Small Is Beautiful
5.5 Innovation
Process Innovation
MINI‐CASE Robots and the Food You Eat
Organizational Innovation
MINI‐CASE A Good Boss Raises Productivity
MANAGERIAL IMPLICATION Technical Progress and Competitive Advantage
Managerial Solution Labor Productivity During Recessions
Summary
Questions
Chapter 6 Costs
MANAGERIAL PROBLEM Technology Choice at Home Versus Abroad
6.1 The Nature of Costs
Opportunity Costs
MINI‐CASE The Opportunity Cost of an MBA
Q&A 6.1
Costs of Durable Inputs
Sunk Costs
MANAGERIAL IMPLICATION Ignoring Sunk Costs
6.2 Short‐Run Costs
MINI‐CASE Costs of Building a Guitar
Common Measures of Cost
USING CALCULUS Calculating Marginal Cost
Cost Curves
Q&A 6.2
Production Functions and the Shapes of Cost Curves
Short‐Run Cost Summary
6.3 Long‐Run Costs
MINI‐CASE Short Run Versus Long Run in the Sharing Economy
Input Choice
MANAGERIAL IMPLICATION Cost Minimization by Trial and Error
MINI‐CASE The Internet and Outsourcing
Q&A 6.3
The Shapes of Long‐Run Cost Curves
MINI‐CASE Economies of Scale at Google
Q&A 6.4
6.4 The Learning Curve
MINI‐CASE Solar Power Learning Curves
6.5 The Costs of Producing Multiple Goods
MINI‐CASE Medical Economies of Scope
Managerial Solution Technology Choice at Home Versus Abroad
Summary
Questions
Appendix 6A Calculating Cost Curves
Appendix 6B Long‐Run Cost Minimization
Chapter 7 Firm Organization and Market Structure
MANAGERIAL PROBLEM Amazon’s Delivery Services
7.1 Ownership and Governance of Firms
Private, Public, and Nonprofit Firms
MINI‐CASE Chinese State‐Owned Enterprises
Ownership of For‐Profit Firms
Firm Governance
7.2 Profit Maximization
Profit
Two Steps to Maximizing Profit
USING CALCULUS Maximizing Profit
Q&A 7.1
MANAGERIAL IMPLICATION Marginal Decision Making
Social Responsibility
MINI‐CASE Trends in Social Responsibility
Forcing Firms to Maximize Profit: The Survivor Principle and Competition for Corporate Control
7.3 Profits Over Time
Interest Rates
Investing and Profit Maximizing Over Time
Q&A 7.2
MANAGERIAL IMPLICATION Stock Prices Versus Profit
7.4 The Make or Buy Decision
Stages of Production
Vertical Integration
Profitability and the Supply Chain Decision
MINI‐CASE Netflix
MINI‐CASE The Gig Economy
Market Size and the Life Cycle of a Firm
7.5 Market Structure
The Four Main Market Structures
Comparison of Market Structures
Disruptive Innovations and the Evolution of Market Structure
Road Map to the Rest of the Book
Managerial Solution Amazon’s Delivery Services
Summary
Questions
Chapter 8 Competitive Firms and Markets
MANAGERIAL PROBLEM The Rising Cost of Keeping On Truckin’
8.1 Perfect Competition
Characteristics of a Perfectly Competitive Market
Deviations from Perfect Competition
8.2 Competition in the Short Run
How Much to Produce
Q&A 8.1
USING CALCULUS Profit Maximization with a Specific Tax
Whether to Produce
MINI‐CASE Fracking and Shutdowns
Q&A 8.2
MANAGERIAL IMPLICATION Sunk Costs and the Shutdown Decision
The Short‐Run Firm Supply Curve
The Short‐Run Market Supply Curve
Short‐Run Competitive Equilibrium
8.3 Competition in the Long Run
Long‐Run Competitive Profit Maximization
The Long‐Run Firm Supply Curve
MINI‐CASE The Size of Ethanol Processing Plants
The Long‐Run Market Supply Curve
MINI‐CASE Industries with High Entry and Exit Rates
MINI‐CASE An Upward‐Sloping Long‐Run Supply Curve for Cotton
Long‐Run Competitive Equilibrium
Q&A 8.3
Zero Long‐Run Profit with Free Entry
8.4 Competition Maximizes Economic Well‐Being
Consumer Surplus
MANAGERIAL IMPLICATION Willingness to Pay on eBay
MINI‐CASE Digital Surplus
Producer Surplus
Q&A 8.4
Q&A 8.5
Competition Maximizes Total Surplus
MINI‐CASE The Deadweight Loss of Holiday Gifts
Effects of Government Intervention
Q&A 8.6
Managerial Solution The Rising Cost of Keeping On Truckin’
Summary
Questions
Chapter 9 Monopoly
MANAGERIAL PROBLEM Brand‐Name and Generic Drugs
9.1 Monopoly Profit Maximization
Marginal Revenue
USING CALCULUS Deriving a Monopoly’s Marginal Revenue Function
Q&A 9.1
Choosing Price or Quantity
Two Steps to Maximizing Profit
USING CALCULUS Solving for the Profit‐Maximizing Output
MINI‐CASE Apple’s iPad
Q&A 9.2
Effects of a Shift of the Demand Curve
Q&A 9.3
MINI‐CASE Taylor Swift Concert Pricing
Q&A 9.4
9.2 Market Power
Market Power and the Shape of the Demand Curve
MANAGERIAL IMPLICATION Checking Whether the Firm Is Maximizing Profit
The Lerner Index
Q&A 9.5
Sources of Market Power
9.3 Market Failure Due to Monopoly Pricing
Q&A 9.6
9.4 Causes of Monopoly
Cost‐Based Monopoly
Q&A 9.7
Government Creation of Monopoly
MINI‐CASE The Canadian Medical Marijuana Market
MINI‐CASE Botox
9.5 Advertising
Deciding Whether to Advertise
How Much to Advertise
USING CALCULUS Optimal Advertising
Q&A 9.8
MINI‐CASE Super Bowl Commercials
9.6 Internet Monopolies: Network Effects and Scale Economies
Network Externalities
MANAGERIAL IMPLICATION Introductory Prices
Behavioral Network Externalities
Two‐Sided Markets
Natural Monopoly on the Internet
MINI‐CASE Critical Mass and eBay
Disruptive Technologies
Managerial Solution Brand‐Name and Generic Drugs
Summary
Questions
Chapter 10 Pricing with Market Power
MANAGERIAL PROBLEM Sale Prices
10.1 Conditions for Price Discrimination
Why Price Discrimination Pays
MINI‐CASE Disneyland Pricing
Which Firms Can Price Discriminate
MANAGERIAL IMPLICATION Preventing Resale
MINI‐CASE Preventing Resale of Designer Bags
Not All Price Differences Are Price Discrimination
Types of Price Discrimination
10.2 Perfect Price Discrimination
How a Firm Perfectly Price Discriminates
Perfect Price Discrimination Is Efficient but Harms Some Consumers
MINI‐CASE Botox Revisited
Q&A 10.1
Individual Price Discrimination
MINI‐CASE Google Uses Bidding for Ads to Price Discriminate
10.3 Group Price Discrimination
Group Price Discrimination with Two Groups
USING CALCULUS Maximizing Profit for a Group Discriminating Monopoly
MINI‐CASE Age Discrimination
Q&A 10.2
Identifying Groups
MANAGERIAL IMPLICATION Discounts
Effects of Group Price Discrimination on Total Surplus
10.4 Nonlinear Price Discrimination
10.5 Two‐Part Pricing
Two‐Part Pricing with Identical Consumers
Two‐Part Pricing with Differing Consumers
MINI‐CASE Available for a Song
10.6 Bundling
Pure Bundling
Mixed Bundling
Q&A 10.3
Requirement Tie‐In Sales
MANAGERIAL IMPLICATION Ties That Bind
10.7 Peak‐Load Pricing
MINI‐CASE Downhill Pricing
Peak‐Load Pricing with a Capacity Constraint
Dynamic Pricing
Q&A 10.4
Managerial Solution Sale Prices
Summary
Questions
Chapter 11 Oligopoly and Monopolistic Competition
MANAGERIAL PROBLEM Gaining an Edge from Government Aircraft Subsidies
11.1 Cartels
Why Cartels Succeed or Fail
MINI‐CASE Employer “No‐Poaching” Cartels
Maintaining Cartels
MINI‐CASE Cheating on the Maple Syrup Cartel
11.2 Cournot Oligopoly
Airlines
USING CALCULUS Deriving the Cournot Equilibrium
The Number of Firms
MINI‐CASE Mobile Phone Number Portability
Nonidentical Firms
Q&A 11.1
Q&A 11.2
Mergers
MINI‐CASE Airline Mergers
11.3 Bertrand Oligopoly
Identical Products
Differentiated Products
MANAGERIAL IMPLICATION Differentiating a Product Through Marketing
MINI‐CASE Rising Market Power
11.4 Monopolistic Competition
MANAGERIAL IMPLICATION Managing in the Monopolistically Competitive Food Truck Market
Equilibrium
Q&A 11.3
Profitable Monopolistically Competitive Firms
MINI‐CASE Subsidizing the Entry Cost of Dentists
Managerial Solution Gaining an Edge from Government Aircraft Subsidies
Summary
Questions
Appendix 11A Nash‐Bertrand Equilibrium
Chapter 12 Game Theory and Business Strategy
MANAGERIAL PROBLEM Dying to Work
12.1 Oligopoly Games
Dominant Strategies
Best Responses
Failure to Maximize Joint Profits
MINI‐CASE Strategic Advertising
Q&A 12.1
Pricing Games in Two‐Sided Markets
12.2 Types of Nash Equilibria
Multiple Equilibria
MINI‐CASE Cheap Talk in eBay’s Best Offer Market
MINI‐CASE Timing Radio Ads
Mixed‐Strategy Equilibria
MINI‐CASE Competing E‐Book Formats
Q&A 12.2
12.3 Information and Rationality
Incomplete Information
MANAGERIAL IMPLICATION Solving Coordination Problems
Rationality
MANAGERIAL IMPLICATION Using Game Theory to Make Business Decisions
12.4 Bargaining
Bargaining Games
The Nash Bargaining Solution
Q&A 12.3
USING CALCULUS Maximizing the Nash Product
MINI‐CASE Nash Bargaining over Coffee
Inefficiency in Bargaining
12.5 Auctions
Elements of Auctions
Bidding Strategies in Private‐Value Auctions
MINI‐CASE Experienced Bidders
The Winner’s Curse
MANAGERIAL IMPLICATION Auction Design
Managerial Solution Dying to Work
Summary
Questions
Chapter 13 Strategies Over Time
MANAGERIAL PROBLEM Intel and AMD’s Advertising Strategies
13.1 Repeated Games
Strategies and Actions in Dynamic Games
Cooperation in a Repeated Prisoners’ Dilemma Game
MINI‐CASE Tit‐for‐Tat Strategies in Trench Warfare
Implicit Versus Explicit Collusion
MINI‐CASE Signaling Drug Price Increases
Finitely Repeated Games
13.2 Sequential Games
Stackelberg Oligopoly
Q&A 13.1
Credible Threats
Q&A 13.2
13.3 Deterring Entry
Exclusion Contracts
MINI‐CASE Pay‐for‐Delay Agreements
Limit Pricing
MINI‐CASE Pfizer Uses Limit Pricing to Slow Entry
Q&A 13.3
Entry Deterrence in a Repeated Game
13.4 Cost and Innovation Strategies
Investing to Lower Marginal Cost
Learning by Doing
Raising Rivals’ Costs
Q&A 13.4
MINI‐CASE Auto Union Negotiations
13.5 Disadvantages of Moving First
The Holdup Problem
MINI‐CASE Venezuelan Nationalization
MANAGERIAL IMPLICATION Avoiding Holdups
Too‐Early Product Innovation
MINI‐CASE Advantages and Disadvantages of Moving First
13.6 Behavioral Game Theory
Ultimatum Games
MINI‐CASE GM’s Ultimatum
Levels of Reasoning
MANAGERIAL IMPLICATION Taking Advantage of Limited Strategic Thinking
Managerial Solution Intel and AMD’s Advertising Strategies
Summary
Questions
Appendix 13A A Mathematical Approach to Stackelberg Oligopoly
Chapter 14 Decision Making Under Uncertainty
MANAGERIAL PROBLEM BP’s Risk and Limited Liability
14.1 Assessing Risk
Probability
MINI‐CASE Risk of a Cyberattack
Expected Value
Q&A 14.1
Variance and Standard Deviation
MANAGERIAL IMPLICATION Summarizing Risk
14.2 Attitudes Toward Risk
Expected Utility
Risk Aversion
Q&A 14.2
USING CALCULUS Diminishing Marginal Utility of Wealth
MINI‐CASE Stocks’ Risk Premium
Risk Neutrality
Risk Preference
MINI‐CASE Gambling
Risk Attitudes of Managers
Q&A 14.3
14.3 Reducing Risk
Obtaining Information
MINI‐CASE Bond Ratings
Diversification
MANAGERIAL IMPLICATION Diversify Your Savings
Insurance
Q&A 14.4
MINI‐CASE Flooded by Insurance Claims
14.4 Investing Under Uncertainty
Risk‐Neutral Investing
Risk‐Averse Investing
Q&A 14.5
Oligopolistic R&D Investments Under Uncertainty
14.5 Behavioral Economics and Uncertainty
Biased Assessment of Probabilities
MINI‐CASE Biased Estimates
Violations of Expected Utility Theory
Prospect Theory
MANAGERIAL IMPLICATION Loss Aversion Contracts
Managerial Solution BP’s Risk and Limited Liability
Summary
Questions
Chapter 15 Asymmetric Information
MANAGERIAL PROBLEM Clawing Back Bonuses
15.1 Adverse Selection
Adverse Selection in Insurance Markets
Products of Unknown Quality
Q&A 15.1
Q&A 15.2
MINI‐CASE Reducing Consumers’ Information
15.2 Reducing Adverse Selection
Restricting Opportunistic Behavior
Equalizing Information
MANAGERIAL IMPLICATION Using Brand Names and Warranties as Signals
MINI‐CASE Discounts for Data
MINI‐CASE Adverse Selection and Remanufactured Goods
15.3 Moral Hazard
Moral Hazard in Insurance Markets
Moral Hazard in Principal‐Agent Relationships
MINI‐CASE Honest Cabbies?
The Owner‐Manager Relationship
MINI‐CASE Company Jets
Q&A 15.3
15.4 Using Contracts to Reduce Moral Hazard
Fixed‐Fee Contracts
Contingent Contracts
Q&A 15.4
MINI‐CASE Sing for Your Supper
Q&A 15.5
15.5 Using Monitoring to Reduce Moral Hazard
Hostages
MINI‐CASE Capping Oil and Gas Bankruptcies
MANAGERIAL IMPLICATION Efficiency Wages
After‐the‐Fact Monitoring
Managerial Solution Clawing Back Bonuses
Summary
Questions
Chapter 16 Government and Business
MANAGERIAL PROBLEM Licensing Inventions
16.1 Market Failure and Government Policy
The Pareto Principle
Cost‐Benefit Analysis
16.2 Regulation of Imperfectly Competitive Markets
Regulating to Correct a Market Failure
Q&A 16.1
MINI‐CASE Natural Gas Regulation
Regulatory Capture
Applying the Cost‐Benefit Principle to Regulation
16.3 Antitrust Law and Competition Policy
Mergers
MINI‐CASE Are Monopoly Mergers Harmful?
Q&A 16.2
Predatory Actions
Vertical Relationships
MINI‐CASE Piping Up About Exclusive Dealing
16.4 Externalities
MANAGERIAL IMPLICATION Disney Internalizes an Externality
The Inefficiency of Competition with Externalities
Reducing Externalities
MINI‐CASE Pulp and Paper Mill Pollution and Regulation
Q&A 16.3
MINI‐CASE Why Tax Drivers
The Coase Theorem
MANAGERIAL IMPLICATION Buying a Town
16.5 Open‐Access, Club, and Public Goods
Open‐Access Common Property
MINI‐CASE Spam
Club Goods
MINI‐CASE Piracy
Public Goods
16.6 Intellectual Property
Patents
Q&A 16.4
MANAGERIAL IMPLICATION Trade Secrets
Copyright Protection
Managerial Solution Licensing Inventions
Summary
Questions
Chapter 17 Global Business
MANAGERIAL PROBLEM Responding to Exchange Rates
17.1 Reasons for International Trade
Comparative Advantage
Q&A 17.1
MANAGERIAL IMPLICATION Brian May’s Comparative Advantage
Increasing Returns to Scale
MINI‐CASE Barbie Doll Varieties
17.2 Exchange Rates
Determining the Exchange Rate
Exchange Rates and the Pattern of Trade
MANAGERIAL IMPLICATION Limiting Arbitrage and Gray Markets
Managing Exchange Rate Risk
17.3 International Trade Policies
Quotas and Tariffs in Competitive Markets
MINI‐CASE Russian Food Ban
Q&A 17.2
Rent Seeking
Noncompetitive Reasons for Trade Policy
MINI‐CASE Protection of U.S. Steel, Aluminum, and Washing Machines
Trade Liberalization and the World Trading System
Trade Liberalization Problems
17.4 Multinational Enterprises
Becoming a Multinational
MINI‐CASE What’s an American Car?
International Transfer Pricing
Q&A 17.3
MINI‐CASE Profit Repatriation
17.5 Outsourcing
Managerial Solution Responding to Exchange Rates
Summary
Questions
Answers to Selected Questions
Definitions
References
Sources for Managerial Problems, Mini‐Cases, and Managerial Implications
Index
Credits