AUSTRALIAN GRADUATE SCHOOL OF MANAGEMENT

Managerial Economics

Term 3, 2002

Lecturer

· Chongwoo Choe

· Office: Room 335, AGSM Bldg.

· Office Hours: TBA

· (Phone) 9931-9528; (Fax) 9313-7279; (Email) c.choe@agsm.edu.au

Lecture Time/Venue

· Lecture: TBA

Objectives of the Subject

The subject has three broad themes:

· Foundations of managerial economics: techniques for managerial decision making and the analysis of markets;

· Market structure and managerial decisions: diverse pricing techniques and strategic issues in various market settings;

· Managerial decisions in organizations: private information, organization design and incentive compensation

Assessment

The assessment for the subject is based on the following weights.

· Two equally weighted group problem sets 30%

· One individual assignment (depending on enrolment number) 20%

· Two-hour comprehensive final exam 50%

Late submission will incur a 10% penalty for each day (or a fraction thereof) of late submission. The maximum penalty is 50% of the mark, and submission after 5 days of the due date will not be accepted. Final marks for the subject will be moderated to fit the following curve:

A 30-50% of class

B 35-55% of class

C 0-20% of class

Fail < 10% of class

Mean between 70 to 74.

Course Material

Lectures will be mainly based on lecture slides and material from the course pack.

· Lecture slides

They can be downloaded from the subject homepage (TBA) about one week before each lecture. Feel free to download lecture slides but please do not print them from the computer lab since hardcopies will be distributed at the beginning of each lecture. Subject home page will have additional information updated regularly.

· Course pack

Course pack contains cases, articles and chapters from the books for additional reading. At times, more reading material will be distributed throughout the term.

· Books for additional reading (available in the Frank Lowy library)

Besanko, David, Dranove, David and Mark Shanley (2000), Economics of Strategy, 2^nd edition, Wiley. (BDS)

Brickley, James, Smith, Clifford and Jerold Zimmerman (1997), Managerial Economics and Organizational Architecture, Irwin. (BSZ)

Gans, Joshua, King, Stephen and Gregory, N. Mankiw (1999), Principles of Microeconomics, Harcourt Brace & Company. (GKM)

Mansfield, Edwin (1997), Applied Microeconomics, 2^nd edition, Norton. (M)

Mansfield, Edwin and Gary Yohe (2000), Microeconomics, 10^th edition, Norton (MY)

Mansfield, Edwin, Allen, Bruce, Doherty, Neil and Keith Weigelt (2002), Managerial Economics: Theory, Applications and Cases, 5^th edition, Norton. (MADW)

Milgrom, Paul and John Roberts (1992), Economics, Organization & Management, Prentice Hall. (MR)

Shapiro, Carl and Hal Varian (1999), Information Rules, Harvard Business School Press. (SV)

Varian, Hal (1999), Intermediate Microeconomics, 5^th edition, Norton. (V)

· Problem sets

They will be distributed about two weeks before the due date. You can also download them from the subject homepage. Answers to problem sets will be made available for download after the due date.

Course Outline and Reading Guide

The following is a skeletal outline of the subject. Depending on circumstances, topics may be reshuffled or modified. Readings are divided into two types:

1. Background reading: You may read these before each lecture. Most of the background reading material is based on GKM, which, I assume, you have read in term 1.

2. Required reading: You should read these before each lecture since class discussions will be based on these.

Theme 1: Foundations of Managerial Economics

· Week 1: Techniques for managerial decision making

1. Background reading: none

2. Required reading

· MADW, pp 36-80 (course pack)

· MY, pp 493-509 (course pack)

· Week 2: Revision of demand, supply and costs

1. Background reading: GKM, Chapters 4, 5, 6, 13

2. Required reading:

· The case of black gold, M, pp 162-180 (course pack)

· The case of milk and dairy products, M, pp 273-295 (course pack)

Theme 2: Market Structure and Managerial Decisions

· Week 3: Revision of market structure

1. Background reading: GKM, Chapters 14, 15, 16, 17

2. Required reading

· BDS, pp 227-259 (course pack)

· Week 4: Commitment and dynamic competition

1. Background reading: GKM, Chapter 15

2. Required reading

· Garda, R. A. and M. Marn (1993), Price Wars, The McKinsey Quarterly, pp 87-100 (course pack)

· BDS, pp 268-281, 290-297 (course pack)

· Week 5: Topics in pricing

1. Background reading: material from weeks 4 and 5

2. Required reading

· MADW, pp 477-522 (course pack)

· Week 6: Economics of information technology

1. Background reading: none

2. Required reading

· V, pp 602-616 (course pack)

· SV, pp 19-51 (course pack)

· Shapiro, C. and H. Varian, Versioning: The Smart Way to Sell Information, Harvard Business Review, November – December, 1998, pp 106-114. (course pack)

Theme 3: Managerial Decisions in Organizations

· Week 7: Private information and economic organizations

1. Background reading: none

2. Required reading

· MR, pp 126-159, 166-194 (course pack)

· Week 8: Case discussion

1. Background reading: material from week 7

2. Required reading

· HBS Case (9-797-011), Coming Soon: A Theater Near You (course pack)

· Week 9: Incentive compensation

1. Background reading:

· Kohn, A. (1993), Why Incentive Plans Cannot Work, Harvard Business Review, 54-63 (course pack)

· Jensen, M. and K. Murphy, CEO Incentives – It’s Not How Much You Pay, But How, Harvard Business Review, 138-153 (course pack)

2. Required reading

· BSZ, pp 266-288 (course pack)

· Week 10: Review and final exam