MANAGERIAL ECONOMICS
Mediterranean School of Business


Eugenio J. Miravete - University of Texas at Austin and CEPR.

Managerial economics studies the behavior of individual economic units, i.e., consumers and producers. We will study first consumers’ decisions regarding quantity purchase at a given price, and also producers’ output decisions given the price of factors. Later, we will study how these economic agents interact to form markets. The different market configurations that we cover in this course basically differ in the importance of firms’ market power and the existence of strategic considerations among firms’ choices when managers make their decisions. Finally, we will use these tools to understand the managerial decision process within the framework of antitrust and public policy considerations to favor competition.

The tools covered in this course should help us understand the role of price discounts, entry deterrence, and product differentiation, as well as to how do they serve to the business purposes of firms and how do they affect consumer welfare. Thus, we will be able to understand the logic behind some common business practices as well as the reasons for regulation of some industries and the economic impact of particular public policies (restrictions on advertising or horizontal mergers for instance).

SYLLABUS.

TOPICS

Thursday

Lecture 1: Demand and Suppply.

• Baye, ch. 2 and ch. 3 (only pp. 74-89).
• Motivating question: Oil Embargo.

Lecture 2: Production and Costs.

• Baye, ch. 5.
• Motivating question: Transport Service.

HBS Case: "Lille Tissages , S.A." (9-198-005)

Lecture 3: Review of “Lille Tissages” and summary.

Friday

Lecture 1: Competition vs. Monopoly.

• Baye, ch. 8.
• Motivating question: Wine Import Tax.

Lecture 2: Price Discrimination.

• Baye, ch. 11.
• Motivating question: Tokyo's Taxi Fares.

HBS Case: “Beauregard Textile Company.” (9-191-058)

Lecture 3: Review of “Beauregard” and summary.

Saturday

Lecture 1: Game Theory, Oligopoly, and Collusion.

• Baye, ch. 9 and 10.
• Motivating question: Cigarette Advertising.

Lecture 2: Business Strategy.

• Baye, ch. 13.
• Motivating question: General Electric & Westinghouse.

HBS Case: “The Breakfast Cereal Industy” (9-190-116) together with “Product Proliferation and Preemption.” (9-190-117)

Questions for cases (9-190-116) and (9-190-117)

Lecture 3: Review of “Breakfast Cereal & Product Proliferation” and summary.

Sunday

Lecture 1: Market Structure and Strategic Competition .

• Proposed Merger: Staples and Office Depot.
• Proposed Merger: Heinz and Beech-Nut.

Lecture 2: Cartels and Antitrust.

Movie: The Lysine Cartel in Action:

1. Showing desdain for customers and antitrust enforcement.
2. Telephone call from ADM Headquarters.
3. Using Trade Association to cover conspiracy.
4. Cartel members fix prices on a global basis.
5. Cartel members allocate worldwide sales volumes.
6. Co-conspirator threatens retalieation if others fail on the agreement.
7. Compensation scheme (side payments) to end cheating incentives.
8. Conspirators report year-end sales "right on target".