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Topic 1. Introduction PDF

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31 views10 pages

Topic 1. Introduction PDF

Uploaded by

zhangyuruo098
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Topic 1: Introduction

ECON 3590
Business Economics
Spring 2023

1
Business Economics /
Managerial Economics
 Fundamental goal: Tools to make sound
managerial decisions from
 intermediate microeconomics

 game theory

 industrial organization

 Focus: Application of economic theory to real


business decisions

2
Topics Highlights
 Bargaining
 Hold-Up problem
 Contracting
 Vertical and horizontal integration
 Principal–agent problems
 Product differentiation
 Multistage and repeated games
 Customer search
3
Topics Highlights: Advanced
 Adverse selection
 Screening and signaling
 Auctions
 Limit pricing
 Predatory pricing
 Raising rivals’ costs
 Networks
 Penetration pricing
4
Managerial Economics
Manager: A decision maker who directs
resources to achieve a stated goal:
 Profit maximization / Maximizing value of firm
 Shape pricing and output decisions

 Optimize production process and input mix

 Choose product quality

 Guide horizontal and vertical merger decisions

 Optimally design internal and external


incentives 5
Managerial Decisions
 Should you purchase components/ inputs
from other manufacturers or produce them
within your own firm?
 Should you specialize in making one type of
product or produce several different types?
 How many outputs should you produce, and
at what price should you sell them?

6
Managerial Decisions
 How many employees should you hire, and
how should you compensate them?
 How can you ensure that employees work
hard and produce quality products?
 How will the actions of rival computer firms
affect your decisions?

7
Case: Nokia
 Nokia 3310: The world’s
best-selling phone
 sold 126 million units
from its launch in 2000
until its “retirement” in
2005

8
Case: Nokia
 Since 2007:declining market share as a result
of growing use of touchscreen smartphones
 iPhone Vs Android

 Share price has fallen from a high of US$40


in 2007 to under US$2 in 2012
 2011: strategic partnership with Microsoft
 2013: Microsoft announced its intent to
purchase Nokia’s mobile phone business unit
9
Case: Personal Computer
Industry
 At the start of the PC era, personal computer
makers enjoyed positive economic profits
 Over the past two decades, entry has led to
declines in PC prices and industry profitability
 In early 2000s, IBM, who launched the PC
era when it introduced the IBM PC in early
1980s, sold its PC business to China-
based Lenovo
 Compaq, an early leader, has since been
acquired by Hewlett-Packard 10

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