Delivered at:: Department of Management

Course type:: Compulsory course

When:: 1 year, 3, 4 module

Instructor

Storchevoy, Maxim

Full Syllabus

Abstract

The students will be need to analyze many practical mini-cases based on real experience of various companies and will need to apply economic theory for better understanding of the economic reality and making better managerial decisions. We assume that students already know the basics of microeconomics but require deep and diverse practice in application of economic principles to real life issues.

Learning Objectives

The purpose of the course is to teach the students how to apply the principles and models of economic theory for making managerial decisions: 1) estimating and analyzing demand, 2) cost analysis, 3) smart pricing (price discrimination, tying, bundling, non-linear pricing), 3) competing in various market structures, 4) making decisions about product quality and differentiation, 5) using network effects, 6) spending on advertising, 7) investing in R&D.

Expected Learning Outcomes

Students are expected know how to use marginal analysis in managerial decisions
Students are expected know how to find an optimal distribution of resources, optimal prices and quantities
Students are expected know how to estimate demand on the basis of available data
Students are expected know how to make production and pricing decisions for various cost structures
Students are expected know how to use various techniques of smart pricing (price discrimination, tying, bundling, etc.)
Students are expected know how to make decisions about of price and quantity competition in various market structures
Students are expected know how to make decisions about product quality and degree of differentiation
Students are expected know how to use advertising expenses to maximize profit
Students are expected know how to invest in R&D to maximize profit and create competitive advantage

Course Contents

Demand Evaluation and Simple Profit Maximization
Market power and demand function with negative slope. How to evaluate demand? Surveys, experiments and historical data. Class experiment with demand evaluation. Marginal revenue function.
Perfect Price Discrimination
Definition of price discrimination. Reservation prices. Perfect Price discrimination vs. traditional pricing. Examples: bazaar, professional services, B2B pricing, auctions, taxation. English, Dutch and sealed-bid auction. Class experiment with auction.
Group Price Discrimination
Observed characteristics. Personal (gender, age, citizenship, appearance, etc.). Space (country, city, district, captive audience). Time (season, weekday, hour). Examples of group prices discrimination.
Versioning
Menu of options. Selfselection of various types of consumers. Versioning in functionality and in quality. Damaging products. Examples of versioning.
Bundling
Definition of bundling. Software bundling: two products and two groups of consumers. Condition of successful bundling. Graphical tool for bundling analysis. Examples of bundling.
Tying and Subscription
Definition of tying. Tying and tied goods. Examples of tying. Ownership vs. Subscription. Examples of choice between ownership and subscription.
Block Pricing and Two-Part Tariff
Block pricing as an instrument to extract all consumer surplus. Block demand curve. Block pricing as a method of price discrimination. Two-Part Tariff: entry fee and unit price.
Optimal Tariffs
Tools for comparisons of various tariffs and designing an optimal combination of tariffs.
Cost Calculation
Fixed costs and variable costs. Total, average and marginal costs. Cost tables and cost curves. Relationship between various cost functions. Short run and long run costs. Economy of scale. Economy of scope.
Perfect Competition
Market with many sellers. Price takers. Individual firm supply. Market supply. Short run equilibrium. Long run equilibrium. Shifts in demand and costs.
Quantity Competition
Oligopoly (few sellers) and interdependency. Game theory. Duopoly. Cournot model. Simultaneous and Sequential equilibriums. How to apply this model to reality?
Price Competition
Bertrand model. Homogeneous product. Simultaneous and Sequential equilibriums. Second mover advantage. How to apply this model to reality?
Anticompetitive Pricing
Limit price and deterrence of entry. When limit price is possible? Expanding capacities. Predatory price. Credible threats. Examples of anticompetitive pricing.
Collusion
Types of collusion: explicit agreement, cartel, implicit collusion. Profit maximization. Factors of stability of a cartel (number of seller, stability of demand, differentiation of products, etc.). Class experiment with cartel.
Product Differentiation
Vertical and horizontal differentiation. Demand for characteristics model (hedonic demand). Hotelling model. Choice of price and choice of location. Collusion. Median voter theorem.
Network Effects
Externalities and network effect. Demand for network good. Types of network effect. Battle of standards. Excess Inertia and Excess momentum. Compatibility. Two-side markets (platforms).
Advertising
Optimal spending of advertising. Information vs. persuasion advertising. Advertising under monopoly. Advertising under competition: homogeneous vs. heterogeneous products. Free-riding problem and its solutions. Wasteful Persuasion.
R&D
Product and process innovation. Innovation under monopoly, competition and oligopoly. Trade secrets vs. patents. Economics of patents.

Assessment Elements

Essay
Class Participation
Tests
Exam
1. Экзамен проводится в электронной форме (решение тестов по материалам курса). Описание формы ответа изложена в тексте каждого вопроса. 2. Экзамен проводится на платформе MS TEAMS. Студенты будут включены в команду типа “EFM 2020 – FINAL EXAM - #”. Тест станет доступен в момент начала экзамена. Время начала экзамена указано в расписании. Рекомендуется предварительно проверить возможность связи заранее. 3. Выполненные теста и количество правильных ответов отражается системой автоматически после прохождения электронного теста. Тест основывается на материале лекций и семинаров. Тест будет включать в себя от 10 до 20 вопросов с четырьмя вариантами ответов или необходимостью дать числовой ответ. Продолжительность финального теста составляет 80 минут. Студентам, чья накопленная промежуточная оценка составляет 7,5 - 10 баллов, не обязательно сдавать итоговый экзамен. В этом случае накопленная оценка выбирается в качестве итоговой оценки. 4. Студент должен подключиться к команде «EFM 2020 – FINAL EXAM - #», и зайти в канал ОБЩИЙ за 10 минут до объявленного времени начала экзамена и быть в этот период на связи. 5. Во время выполнения теста студент НЕ ДОЛЖЕН ПОКИДАТЬ ОТКРЫТОЕ ОКНО БРАУЗЕРА ИЛИ ПРИЛОЖЕНИЯ С ТЕСТОМ, в том числе переходить в другие вкладки браузера, открывать калькулятор или другие приложения. В противном случае система засчитает его ответ как неверный. 6. Если к началу экзамена студент по каким-либо причинам не смог подключиться или у него не открылось задание, то в течение 10 минут после начала экзамена ему следует обратиться к преподавателю через ЧАТ, если не открылось задание, и в остальных случаях посредством электронной почты, с которой обычно велась переписка с преподавателем. 7. Компьютер/планшет, смартфон студента должен удовлетворять требованиям: установлен MS TEAMS, есть интернет-соединение, произведена авторизация в MS TEAMS с помощью корпоративной электронной почты. 8. Процедура пересдачи подразумевает использование усложненных заданий вопросов и другой их набор.

Interim Assessment

Interim assessment (4 module)
0.1 * Class Participation + 0.2 * Essay + 0.5 * Exam + 0.2 * Tests

Bibliography

Recommended Core Bibliography

Intermediate microeconomics with calculus, Varian, H., 2014

Recommended Additional Bibliography

Leon Bazil. (2012). Business Games for Management and Economics:Learning by Playing. World Scientific Publishing Co. Pte. Ltd. https://doi.org/10.1142/8191

Master’s Programme 'Management and Analytics for Business'

Contacts

Qtem

Economic Foundations of Management