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Book Details
Abstract
For courses in Managerial Economics.
A Problem-based Approach that Uses Modern Theories and Real-world Examples
Managerial Economics and Strategy uses real-world issues and examples to illustrate how economic principles impact business decisions. Emphases on agency and contract theory, managerial behavioral economics, game theory, and pricing are especially valuable to future managers. In-text examples and boxed mini-cases use actual data to illustrate the use of basic economic models, while Q&As pose important managerial or economic problems and demonstrate a step-by-step approach to solving them.
The Second Edition has been fully revised and updated to reflect new supply-and-demand curves and include discussions of corporate social responsibility, opportunistic behavior, and innovation. It also features new learning objectives, examples, end-of-chapter questions, and spreadsheet exercises.
MyEconLab® not included. Students, if MyEconLab is a recommended/mandatory component of the course, please ask your instructor for the correct ISBN and course ID. MyEconLab should only be purchased when required by an instructor. Instructors, contact your Pearson representative for more information.
MyEconLab is an online homework, tutorial, and assessment product designed to personalize learning and improve results. With a wide range of interactive, engaging, and assignable activities, students are encouraged to actively learn and retain tough course concepts.
Table of Contents
| Section Title | Page | Action | Price |
|---|---|---|---|
| Cover | Cover | ||
| Half Title Page | 1 | ||
| Title Page | 3 | ||
| Copyright Page | 4 | ||
| Brief Contents | 5 | ||
| Contents | 6 | ||
| Preface | 13 | ||
| Chapter 1 Introduction | 23 | ||
| 1.1 Managerial Decision Making | 23 | ||
| Profit | 24 | ||
| Trade‐Offs | 24 | ||
| Other Decision Makers | 25 | ||
| Strategy | 25 | ||
| 1.2 Economic Models | 25 | ||
| Mini‐Case Using an Income Threshold Model in China | 26 | ||
| Simplifying Assumptions | 26 | ||
| Testing Theories | 27 | ||
| Positive and Normative Statements | 28 | ||
| Summary | 29 | ||
| Chapter 2 Supply and Demand | 30 | ||
| Managerial Problem Carbon Taxes | 30 | ||
| 2.1 Demand | 32 | ||
| The Demand Curve | 33 | ||
| The Demand Function | 36 | ||
| Using Calculus Deriving the Slope of a Demand Curve | 37 | ||
| Summing Demand Curves | 38 | ||
| Mini‐Case Summing Corn Demand Curves | 38 | ||
| 2.2 Supply | 39 | ||
| The Supply Curve | 39 | ||
| The Supply Function | 40 | ||
| Summing Supply Curves | 41 | ||
| 2.3 Market Equilibrium | 42 | ||
| Using a Graph to Determine the Equilibrium | 42 | ||
| Using Algebra to Determine the Equilibrium | 43 | ||
| Forces That Drive the Market to Equilibrium | 43 | ||
| 2.4 Shocks to the Equilibrium | 44 | ||
| Effects of a Shift in the Demand Curve | 45 | ||
| Q&A 2.1 | 45 | ||
| Effects of a Shift in the Supply Curve | 46 | ||
| Managerial Implication Taking Advantage of Future Shocks | 47 | ||
| Effects of Shifts in both Supply and Demand Curves | 47 | ||
| Mini‐Case Genetically Modified Foods | 47 | ||
| Q&A 2.2 | 48 | ||
| 2.5 Effects of Government Interventions | 49 | ||
| Policies That Shift Curves | 49 | ||
| Mini‐Case Occupational Licensing | 49 | ||
| Price Controls | 50 | ||
| Mini‐Case Venezuelan Price Ceilings and Shortages | 52 | ||
| Sales Taxes | 55 | ||
| Q&A 2.3 | 57 | ||
| Managerial Implication Cost Pass‐Through | 58 | ||
| 2.6 When to Use the Supply‐and‐Demand Model | 58 | ||
| Managerial Solution Carbon Taxes | 60 | ||
| Summary | 62 | ||
| Questions | 62 | ||
| Chapter 3 Empirical Methods for Demand Analysis | 67 | ||
| Managerial Problem Estimating the Effect of an iTunes Price Change | 67 | ||
| 3.1 Elasticity | 68 | ||
| The Price Elasticity of Demand | 69 | ||
| Managerial Implication Changing Prices to Calculate an Arc Elasticity | 70 | ||
| Q&A 3.1 | 70 | ||
| Mini‐Case Demand Elasticities for Google Play and Apple Apps | 72 | ||
| Using Calculus The Point Elasticity of Demand | 72 | ||
| Elasticity Along the Demand Curve | 72 | ||
| Q&A 3.2 | 73 | ||
| Other Demand Elasticities | 76 | ||
| Mini‐Case Anti‐Smoking Policies May Reduce Drunk Driving | 76 | ||
| Demand Elasticities over Time | 77 | ||
| Other Elasticities | 77 | ||
| Estimating Demand Elasticities | 77 | ||
| 3.2 Regression Analysis | 78 | ||
| A Demand Function Example | 78 | ||
| Mini‐Case The Portland Fish Exchange | 80 | ||
| Multivariate Regression | 84 | ||
| Q&A 3.3 | 85 | ||
| Goodness of Fit and the R2 Statistic | 85 | ||
| Managerial Implication Focus Groups | 87 | ||
| 3.3 Properties and Statistical Significance of ‐Estimated Coefficients | 87 | ||
| Repeated Samples | 87 | ||
| Desirable Properties for Estimated Coefficients | 88 | ||
| A Focus Group Example | 88 | ||
| Confidence Intervals | 90 | ||
| Hypothesis Testing and Statistical Significance | 90 | ||
| 3.4 Regression Specification | 91 | ||
| Selecting Explanatory Variables | 91 | ||
| Mini‐Case Determinants of CEO Compensation | 92 | ||
| Q&A 3.4 | 93 | ||
| Functional Form | 95 | ||
| Managerial Implication Experiments | 97 | ||
| 3.5 Forecasting | 98 | ||
| Extrapolation | 98 | ||
| Theory‐Based Econometric Forecasting | 100 | ||
| Managerial Solution Estimating the Effect of an iTunes Price Change | 101 | ||
| Summary | 104 | ||
| Questions | 105 | ||
| Chapter 4 Consumer Choice | 108 | ||
| Managerial Problem Paying Employees to Relocate | 108 | ||
| 4.1 Consumer Preferences | 110 | ||
| Properties of Consumer Preferences | 110 | ||
| Mini‐Case You Can’t Have Too Much Money | 111 | ||
| Preference Maps | 112 | ||
| 4.2 Utility | 118 | ||
| Utility Functions | 118 | ||
| Ordinal and Cardinal Utility | 119 | ||
| Marginal Utility | 120 | ||
| Using Calculus Marginal Utility | 121 | ||
| Marginal Rates of Substitution | 121 | ||
| 4.3 The Budget Constraint | 121 | ||
| Slope of the Budget Line | 123 | ||
| Using Calculus The Marginal Rate of Transformation | 124 | ||
| Effects of a Change in Price on the ‐Opportunity Set | 124 | ||
| Effects of a Change in Income on the ‐Opportunity Set | 125 | ||
| Q&A 4.1 | 125 | ||
| Mini‐Case Rationing | 126 | ||
| Q&A 4.2 | 126 | ||
| 4.4 Constrained Consumer Choice | 127 | ||
| The Consumer’s Optimal Bundle | 127 | ||
| Q&A 4.3 | 129 | ||
| Mini‐Case Why Americans Buy More E‐Books Than Do Germans | 130 | ||
| Q&A 4.4 | 130 | ||
| Promotions | 131 | ||
| Managerial Implication Designing Promotions | 133 | ||
| 4.5 Deriving Demand Curves | 134 | ||
| 4.6 Behavioral Economics | 136 | ||
| Tests of Transitivity | 136 | ||
| Endowment Effects | 137 | ||
| Mini‐Case How You Ask the Question Matters | 137 | ||
| Salience | 138 | ||
| Managerial Implication Simplifying ‐Consumer Choices | 139 | ||
| Managerial Solution Paying Employees to Relocate | 139 | ||
| Summary | 141 | ||
| Questions | 142 | ||
| Appendix 4A The Marginal Rate of Substitution | 146 | ||
| Appendix 4B The Consumer Optimum | 146 | ||
| Chapter 5 Production | 148 | ||
| Managerial Problem Labor Productivity During Recessions | 148 | ||
| 5.1 Production Functions | 149 | ||
| 5.2 Short‐Run Production | 151 | ||
| The Total Product Function | 151 | ||
| The Marginal Product of Labor | 152 | ||
| Using Calculus Calculating the Marginal Product of Labor | 153 | ||
| Q&A 5.1 | 153 | ||
| The Average Product of Labor | 153 | ||
| Graphing the Product Curves | 154 | ||
| The Law of Diminishing Marginal Returns | 156 | ||
| Mini‐Case Malthus and the Green Revolution | 157 | ||
| 5.3 Long‐Run Production | 158 | ||
| Isoquants | 159 | ||
| Mini‐Case A Semiconductor Isoquant | 161 | ||
| Substituting Inputs | 162 | ||
| Q&A 5.2 | 163 | ||
| Using Calculus Cobb‐Douglas Marginal Products | 165 | ||
| 5.4 Returns to Scale | 165 | ||
| Constant, Increasing, and Decreasing Returns to Scale | 166 | ||
| Q&A 5.3 | 167 | ||
| Mini‐Case Returns to Scale for Crocs | 167 | ||
| Varying Returns to Scale | 168 | ||
| Managerial Implication Small Is Beautiful | 169 | ||
| 5.5 Innovation | 170 | ||
| Process Innovation | 171 | ||
| Mini‐Case Robots and the Food You Eat | 171 | ||
| Organizational Innovation | 172 | ||
| Mini‐Case A Good Boss Raises Productivity | 172 | ||
| Managerial Solution Labor Productivity During Recessions | 172 | ||
| Summary | 174 | ||
| Questions | 174 | ||
| Chapter 6 Costs | 178 | ||
| Managerial Problem Technology Choice at Home Versus Abroad | 178 | ||
| 6.1 The Nature of Costs | 179 | ||
| Opportunity Costs | 180 | ||
| Mini‐Case The Opportunity Cost of an MBA | 181 | ||
| Q&A 6.1 | 181 | ||
| Costs of Durable Inputs | 181 | ||
| Sunk Costs | 182 | ||
| Managerial Implication Ignoring Sunk Costs | 183 | ||
| 6.2 Short‐Run Costs | 183 | ||
| Common Measures of Cost | 183 | ||
| Using Calculus Calculating Marginal Cost | 185 | ||
| Cost Curves | 186 | ||
| Production Functions and the Shapes of Cost Curves | 188 | ||
| Using Calculus Calculating Cost Curves | 190 | ||
| Short‐Run Cost Summary | 191 | ||
| 6.3 Long‐Run Costs | 192 | ||
| Mini‐Case Short Run Versus Long Run in the Sharing Economy | 192 | ||
| Input Choice | 193 | ||
| Managerial Implication Cost Minimization by Trial and Error | 197 | ||
| Mini‐Case The Internet and Outsourcing | 198 | ||
| Q&A 6.2 | 199 | ||
| The Shapes of Long‐Run Cost Curves | 200 | ||
| Mini‐Case Economies of Scale at Google | 202 | ||
| Q&A 6.3 | 202 | ||
| Long‐Run Average Cost as the Envelope of Short‐Run Average Cost Curves | 203 | ||
| Mini‐Case Long‐Run Cost Curves in Beer Manufacturing and Oil Pipelines | 204 | ||
| 6.4 The Learning Curve | 205 | ||
| Mini‐Case Learning by Drilling | 207 | ||
| 6.5 The Costs of Producing Multiple Goods | 207 | ||
| Mini‐Case Medical Economies of Scope | 208 | ||
| Managerial Solution Technology Choice at Home Versus Abroad | 208 | ||
| Summary | 210 | ||
| Questions | 210 | ||
| Appendix 6A Long‐Run Cost Minimization | 215 | ||
| Chapter 7 Firm Organization and Market Structure | 216 | ||
| Managerial Problem Clawing Back Bonuses | 216 | ||
| 7.1 Ownership and Governance of Firms | 218 | ||
| Private, Public, and Nonprofit Firms | 218 | ||
| Mini‐Case Chinese State‐Owned Enterprises | 219 | ||
| Ownership of For‐Profit Firms | 220 | ||
| Firm Governance | 222 | ||
| 7.2 Profit Maximization | 222 | ||
| Profit | 222 | ||
| Two Steps to Maximizing Profit | 223 | ||
| Using Calculus Maximizing Profit | 224 | ||
| Q&A 7.1 | 225 | ||
| Managerial Implication Marginal Decision Making | 225 | ||
| Profit over Time | 227 | ||
| Managerial Implication Stock Prices Versus Profit | 227 | ||
| 7.3 Owners’ Versus Managers’ Objectives | 228 | ||
| Consistent Objectives | 228 | ||
| Q&A 7.2 | 230 | ||
| Conflicting Objectives | 231 | ||
| Q&A 7.3 | 232 | ||
| Mini‐Case Company Jets | 233 | ||
| Corporate Social Responsibility | 234 | ||
| Monitoring and Controlling a Manager’s Actions | 235 | ||
| Takeovers and the Market for Corporate Control | 236 | ||
| Mini‐Case The Yahoo! Poison Pill | 238 | ||
| 7.4 The Make or Buy Decision | 238 | ||
| Stages of Production | 239 | ||
| Vertical Integration | 239 | ||
| Profitability and the Supply Chain Decision | 241 | ||
| Mini‐Case Vertical Integration at Zara | 242 | ||
| Mini‐Case Aluminum | 243 | ||
| Market Size and the Life Cycle of a Firm | 244 | ||
| 7.5 Market Structure | 246 | ||
| The Four Main Market Structures | 246 | ||
| Comparison of Market Structures | 247 | ||
| Road Map to the Rest of the Book | 248 | ||
| Managerial Solution Clawing Back Bonuses | 249 | ||
| Summary | 250 | ||
| Questions | 250 | ||
| Appendix 7A Interest Rates, Present Value, and Future Value | 254 | ||
| Chapter 8 Competitive Firms and Markets | 256 | ||
| Managerial Problem The Rising Cost of Keeping On Truckin’ | 256 | ||
| 8.1 Perfect Competition | 258 | ||
| Characteristics of a Perfectly Competitive Market | 258 | ||
| Deviations from Perfect Competition | 259 | ||
| 8.2 Competition in the Short Run | 260 | ||
| How Much to Produce | 261 | ||
| Q&A 8.1 | 263 | ||
| Using Calculus Profit Maximization with a Specific Tax | 264 | ||
| Whether to Produce | 264 | ||
| Mini‐Case Fracking and Shutdowns | 266 | ||
| Managerial Implication Sunk Costs and the Shutdown Decision | 267 | ||
| The Short‐Run Firm Supply Curve | 267 | ||
| The Short‐Run Market Supply Curve | 267 | ||
| Short‐Run Competitive Equilibrium | 270 | ||
| 8.3 Competition in the Long Run | 272 | ||
| Long‐Run Competitive Profit Maximization | 272 | ||
| The Long‐Run Firm Supply Curve | 272 | ||
| Mini‐Case The Size of Ethanol Processing Plants | 272 | ||
| The Long‐Run Market Supply Curve | 273 | ||
| Mini‐Case Entry and Exit of Solar Power Firms | 274 | ||
| Mini‐Case An Upward‐Sloping Long‐Run Supply Curve for Cotton | 276 | ||
| Long‐Run Competitive Equilibrium | 277 | ||
| Q&A 8.2 | 279 | ||
| Zero Long‐Run Profit with Free Entry | 279 | ||
| 8.4 Competition Maximizes Economic Well‐Being | 279 | ||
| Consumer Surplus | 280 | ||
| Managerial Implication Willingness to Pay on eBay | 283 | ||
| Producer Surplus | 284 | ||
| Q&A 8.3 | 286 | ||
| Q&A 8.4 | 286 | ||
| Competition Maximizes Total Surplus | 287 | ||
| Mini‐Case The Deadweight Loss of Christmas Presents | 289 | ||
| Effects of Government Intervention | 291 | ||
| Q&A 8.5 | 291 | ||
| Managerial Solution The Rising Cost of Keeping On Truckin’ | 292 | ||
| Summary | 294 | ||
| Questions | 294 | ||
| Chapter 9 Monopoly | 299 | ||
| Managerial Problem Brand‐Name and Generic Drugs | 299 | ||
| 9.1 Monopoly Profit Maximization | 301 | ||
| Marginal Revenue | 301 | ||
| Using Calculus Deriving a Monopoly’s Marginal Revenue Function | 304 | ||
| Q&A 9.1 | 305 | ||
| Choosing Price or Quantity | 307 | ||
| Two Steps to Maximizing Profit | 307 | ||
| Using Calculus Solving for the Profit‐Maximizing Output | 309 | ||
| Effects of a Shift of the Demand Curve | 310 | ||
| 9.2 Market Power | 311 | ||
| Market Power and the Shape of the Demand Curve | 311 | ||
| Managerial Implication Checking Whether the Firm Is Maximizing Profit | 312 | ||
| Mini‐Case Cable Cars and Profit Maximization | 312 | ||
| The Lerner Index | 313 | ||
| Mini‐Case Apple’s iPad | 314 | ||
| Q&A 9.2 | 314 | ||
| Sources of Market Power | 315 | ||
| 9.3 Market Failure Due to Monopoly Pricing | 316 | ||
| Q&A 9.3 | 318 | ||
| 9.4 Causes of Monopoly | 319 | ||
| Cost‐Based Monopoly | 320 | ||
| Q&A 9.4 | 321 | ||
| Government Creation of Monopoly | 322 | ||
| Mini‐Case The Canadian Medical Marijuana Market | 322 | ||
| Mini‐Case Botox | 323 | ||
| 9.5 Advertising | 325 | ||
| Deciding Whether to Advertise | 325 | ||
| How Much to Advertise | 326 | ||
| Using Calculus Optimal Advertising | 327 | ||
| Q&A 9.5 | 327 | ||
| Mini‐Case Super Bowl Commercials | 328 | ||
| 9.6 Networks, Dynamics, and Behavioral ‐Economics | 328 | ||
| Network Externalities | 329 | ||
| Network Externalities and Behavioral Economics | 330 | ||
| Network Externalities as an Explanation for Monopolies | 330 | ||
| Mini‐Case Critical Mass and eBay | 331 | ||
| Managerial Implication Introductory Prices | 331 | ||
| Managerial Solution Brand‐Name and Generic Drugs | 332 | ||
| Summary | 333 | ||
| Questions | 334 | ||
| Chapter 10 Pricing with Market Power | 338 | ||
| Managerial Problem Sale Prices | 338 | ||
| 10.1 Conditions for Price Discrimination | 340 | ||
| Why Price Discrimination Pays | 340 | ||
| Mini‐Case Disneyland Pricing | 342 | ||
| Which Firms Can Price Discriminate | 343 | ||
| Managerial Implication Preventing Resale | 343 | ||
| Mini‐Case Preventing Resale of Designer Bags | 344 | ||
| Not All Price Differences Are Price Discrimination | 345 | ||
| Types of Price Discrimination | 345 | ||
| 10.2 Perfect Price Discrimination | 345 | ||
| How a Firm Perfectly Price Discriminates | 346 | ||
| Perfect Price Discrimination Is Efficient but Harms Some Consumers | 347 | ||
| Mini‐Case Botox Revisited | 349 | ||
| Q&A 10.1 | 350 | ||
| Individual Price Discrimination | 350 | ||
| Mini‐Case Google Uses Bidding for Ads to Price Discriminate | 351 | ||
| 10.3 Group Price Discrimination | 352 | ||
| Group Price Discrimination with Two Groups | 352 | ||
| Using Calculus Maximizing Profit for a Group Discriminating Monopoly | 353 | ||
| Q&A 10.2 | 355 | ||
| Identifying Groups | 357 | ||
| Managerial Implication Discounts | 358 | ||
| Effects of Group Price Discrimination on Total Surplus | 359 | ||
| 10.4 Nonlinear Price Discrimination | 360 | ||
| 10.5 Two‐Part Pricing | 362 | ||
| Two‐Part Pricing with Identical Consumers | 362 | ||
| Two‐Part Pricing with Differing Consumers | 364 | ||
| Mini‐Case Available for a Song | 366 | ||
| 10.6 Bundling | 366 | ||
| Pure Bundling | 367 | ||
| Mixed Bundling | 368 | ||
| Q&A 10.3 | 370 | ||
| Requirement Tie‐In Sales | 371 | ||
| Managerial Implication Ties That Bind | 371 | ||
| 10.7 Peak‐Load Pricing | 371 | ||
| Mini‐Case Downhill Pricing | 373 | ||
| Managerial Solution Sale Prices | 374 | ||
| Summary | 375 | ||
| Questions | 376 | ||
| Chapter 11 Oligopoly and Monopolistic Competition | 381 | ||
| Managerial Problem Gaining an Edge from Government Aircraft Subsidies | 381 | ||
| 11.1 Cartels | 383 | ||
| Why Cartels Succeed or Fail | 383 | ||
| Mini‐Case The Apple‐Google‐Intel‐Adobe‐Intuit‐Lucasfilm‐Pixar Wage Cartel | 386 | ||
| Maintaining Cartels | 386 | ||
| Mini‐Case Cheating on the Maple Syrup Cartel | 387 | ||
| 11.2 Cournot Oligopoly | 388 | ||
| Airlines | 390 | ||
| Using Calculus Deriving a Cournot Firm’s Marginal Revenue | 393 | ||
| The Number of Firms | 394 | ||
| Mini‐Case Mobile Phone Number Portability | 395 | ||
| Nonidentical Firms | 395 | ||
| Q&A 11.1 | 396 | ||
| Q&A 11.2 | 398 | ||
| Managerial Implication Differentiating a Product Through Marketing | 399 | ||
| Mergers | 400 | ||
| Mini‐Case Acquiring Versus Merging | 401 | ||
| 11.3 Bertrand Oligopoly | 402 | ||
| Identical Products | 402 | ||
| Differentiated Products | 404 | ||
| 11.4 Monopolistic Competition | 405 | ||
| Managerial Implication Managing in the Monopolistically Competitive Food Truck Market | 406 | ||
| Equilibrium | 407 | ||
| Q&A 11.3 | 408 | ||
| Profitable Monopolistically Competitive Firms | 408 | ||
| Mini‐Case Zoning Laws as a Barrier to Entry by Hotel Chains | 409 | ||
| Managerial Solution Gaining an Edge from Government Aircraft Subsidies | 409 | ||
| Summary | 411 | ||
| Questions | 411 | ||
| Appendix 11A Cournot Oligopoly with Many Firms | 415 | ||
| Appendix 11B Nash‐Bertrand Equilibrium | 417 | ||
| Chapter 12 Game Theory and Business Strategy | 418 | ||
| Managerial Problem Dying to Work | 418 | ||
| 12.1 Oligopoly Games | 421 | ||
| Dominant Strategies | 422 | ||
| Best Responses | 423 | ||
| Failure to Maximize Joint Profits | 425 | ||
| Mini‐Case Strategic Advertising | 427 | ||
| Q&A 12.1 | 428 | ||
| 12.2 Types of Nash Equilibria | 429 | ||
| Multiple Equilibria | 430 | ||
| Mini‐Case Timing Radio Ads | 432 | ||
| Mixed‐Strategy Equilibria | 432 | ||
| Mini‐Case Competing E‐Book Formats | 436 | ||
| Q&A 12.2 | 436 | ||
| 12.3 Information and Rationality | 437 | ||
| Incomplete Information | 438 | ||
| Managerial Implication Solving Coordination Problems | 439 | ||
| Rationality | 439 | ||
| Managerial Implication Using Game Theory to Make Business Decisions | 440 | ||
| 12.4 Bargaining | 441 | ||
| Bargaining Games | 441 | ||
| The Nash Bargaining Solution | 441 | ||
| Q&A 12.3 | 443 | ||
| Using Calculus Maximizing the Nash Product | 443 | ||
| Mini‐Case Nash Bargaining over Coffee | 443 | ||
| Inefficiency in Bargaining | 444 | ||
| 12.5 Auctions | 444 | ||
| Elements of Auctions | 445 | ||
| Bidding Strategies in Private‐Value Auctions | 446 | ||
| Mini‐Case Experienced Bidders | 447 | ||
| The Winner’s Curse | 448 | ||
| Managerial Implication Auction Design | 449 | ||
| Managerial Solution Dying to Work | 449 | ||
| Summary | 450 | ||
| Questions | 451 | ||
| Chapter 13 Strategies over Time | 456 | ||
| Managerial Problem Intel and AMD’s Advertising Strategies | 456 | ||
| 13.1 Repeated Games | 458 | ||
| Strategies and Actions in Dynamic Games | 458 | ||
| Cooperation in a Repeated Prisoner’s Dilemma Game | 459 | ||
| Mini‐Case Tit‐for‐Tat Strategies in Trench Warfare | 461 | ||
| Implicit Versus Explicit Collusion | 462 | ||
| Finitely Repeated Games | 463 | ||
| 13.2 Sequential Games | 463 | ||
| Stackelberg Oligopoly | 464 | ||
| Credible Threats | 467 | ||
| Q&A 13.1 | 468 | ||
| 13.3 Deterring Entry | 469 | ||
| Exclusion Contracts | 469 | ||
| Mini‐Case Pay‐for‐Delay Agreements | 470 | ||
| Limit Pricing | 471 | ||
| Mini‐Case Pfizer Uses Limit Pricing to Slow Entry | 472 | ||
| Q&A 13.2 | 472 | ||
| Entry Deterrence in a Repeated Game | 473 | ||
| 13.4 Cost and Innovation Strategies | 474 | ||
| Investing to Lower Marginal Cost | 474 | ||
| Learning by Doing | 476 | ||
| Raising Rivals’ Costs | 476 | ||
| Q&A 13.3 | 477 | ||
| Mini‐Case Auto Union Negotiations | 477 | ||
| 13.5 Disadvantages of Moving First | 478 | ||
| The Holdup Problem | 478 | ||
| Mini‐Case Venezuelan Nationalization | 479 | ||
| Managerial Implication Avoiding Holdups | 480 | ||
| Too‐Early Product Innovation | 481 | ||
| Mini‐Case Advantages and Disadvantages of Moving First | 481 | ||
| 13.6 Behavioral Game Theory | 482 | ||
| Ultimatum Games | 482 | ||
| Mini‐Case GM’s Ultimatum | 482 | ||
| Levels of Reasoning | 484 | ||
| Managerial Implication Taking Advantage of ‐Limited Strategic Thinking | 485 | ||
| Managerial Solution Intel and AMD’s ‐Advertising Strategies | 486 | ||
| Summary | 486 | ||
| Questions | 487 | ||
| Appendix 13A A Mathematical Approach to Stackelberg Oligopoly | 492 | ||
| Chapter 14 Managerial Decision Making Under Uncertainty | 493 | ||
| Managerial Problem BP’s Risk and Limited Liability | 493 | ||
| 14.1 Assessing Risk | 495 | ||
| Probability | 496 | ||
| Expected Value | 497 | ||
| Q&A 14.1 | 498 | ||
| Variance and Standard Deviation | 499 | ||
| Managerial Implication Summarizing Risk | 500 | ||
| 14.2 Attitudes Toward Risk | 500 | ||
| Expected Utility | 500 | ||
| Risk Aversion | 501 | ||
| Q&A 14.2 | 503 | ||
| Using Calculus Diminishing Marginal Utility of Wealth | 504 | ||
| Mini‐Case Stocks’ Risk Premium | 504 | ||
| Risk Neutrality | 505 | ||
| Risk Preference | 506 | ||
| Mini‐Case Gambling | 506 | ||
| Risk Attitudes of Managers | 507 | ||
| 14.3 Reducing Risk | 508 | ||
| Obtaining Information | 508 | ||
| Mini‐Case Bond Ratings | 509 | ||
| Diversification | 510 | ||
| Managerial Implication Diversify Your Savings | 512 | ||
| Insurance | 513 | ||
| Q&A 14.3 | 514 | ||
| Mini‐Case Limited Insurance for Natural Disasters | 515 | ||
| 14.4 Investing Under Uncertainty | 517 | ||
| Risk‐Neutral Investing | 517 | ||
| Risk‐Averse Investing | 518 | ||
| Q&A 14.4 | 518 | ||
| 14.5 Behavioral Economics and Uncertainty | 519 | ||
| Biased Assessment of Probabilities | 519 | ||
| Mini‐Case Biased Estimates | 520 | ||
| Violations of Expected Utility Theory | 521 | ||
| Prospect Theory | 522 | ||
| Managerial Implication Loss Aversion Contracts | 524 | ||
| Managerial Solution BP’s Risk and Limited Liability | 524 | ||
| Summary | 525 | ||
| Questions | 526 | ||
| Chapter 15 Asymmetric Information | 531 | ||
| Managerial Problem Limiting Managerial Incentives | 531 | ||
| 15.1 Adverse Selection | 534 | ||
| Adverse Selection in Insurance Markets | 534 | ||
| Products of Unknown Quality | 534 | ||
| Q&A 15.1 | 537 | ||
| Q&A 15.2 | 538 | ||
| Mini‐Case Reducing Consumers’ Information | 538 | ||
| 15.2 Reducing Adverse Selection | 539 | ||
| Restricting Opportunistic Behavior | 539 | ||
| Equalizing Information | 540 | ||
| Managerial Implication Using Brand Names and Warranties as Signals | 542 | ||
| Mini‐Case Discounts for Data | 542 | ||
| Mini‐Case Adverse Selection and Remanufactured Goods | 544 | ||
| 15.3 Moral Hazard | 544 | ||
| Moral Hazard in Insurance Markets | 545 | ||
| Moral Hazard in Principal‐Agent Relationships | 545 | ||
| Mini‐Case Selfless or Selfish Doctors? | 549 | ||
| Q&A 15.3 | 549 | ||
| 15.4 Using Contracts to Reduce Moral Hazard | 550 | ||
| Fixed‐Fee Contracts | 550 | ||
| Contingent Contracts | 552 | ||
| Mini‐Case Sing for Your Supper | 554 | ||
| Q&A 15.4 | 554 | ||
| 15.5 Using Monitoring to Reduce Moral Hazard | 556 | ||
| Hostages | 556 | ||
| Mini‐Case Capping Oil and Gas Bankruptcies | 557 | ||
| Managerial Implication Efficiency Wages | 558 | ||
| After‐the‐Fact Monitoring | 559 | ||
| Managerial Solution Limiting Managerial Incentives | 559 | ||
| Summary | 560 | ||
| Questions | 561 | ||
| Chapter 16 Government and Business | 566 | ||
| Managerial Problem Licensing Inventions | 566 | ||
| 16.1 Market Failure and Government Policy | 568 | ||
| The Pareto Principle | 568 | ||
| Cost‐Benefit Analysis | 569 | ||
| 16.2 Regulation of Imperfectly Competitive Markets | 569 | ||
| Regulating to Correct a Market Failure | 570 | ||
| Q&A 16.1 | 572 | ||
| Mini‐Case Natural Gas Regulation | 573 | ||
| Regulatory Capture | 575 | ||
| Applying the Cost‐Benefit Principle to Regulation | 575 | ||
| 16.3 Antitrust Law and Competition Policy | 576 | ||
| Mergers | 578 | ||
| Mini‐Case Are Monopoly Mergers Harmful? | 579 | ||
| Predatory Actions | 579 | ||
| Vertical Relationships | 579 | ||
| Mini‐Case Piping Up about Exclusive Dealing | 581 | ||
| 16.4 Externalities | 581 | ||
| The Inefficiency of Competition with ‐Externalities | 582 | ||
| Reducing Externalities | 584 | ||
| Mini‐Case Pulp and Paper Mill Pollution and Regulation | 586 | ||
| Q&A 16.2 | 587 | ||
| Mini‐Case Why Tax Drivers | 588 | ||
| The Coase Theorem | 589 | ||
| Managerial Implication Buying a Town | 591 | ||
| 16.5 Open‐Access, Club, and Public Goods | 591 | ||
| Open‐Access Common Property | 592 | ||
| Mini‐Case Spam | 593 | ||
| Club Goods | 593 | ||
| Mini‐Case Piracy | 594 | ||
| Public Goods | 594 | ||
| 16.6 Intellectual Property | 597 | ||
| Patents | 597 | ||
| Q&A 16.3 | 598 | ||
| Managerial Implication Trade Secrets | 599 | ||
| Copyright Protection | 600 | ||
| Managerial Solution Licensing Inventions | 600 | ||
| Summary | 602 | ||
| Questions | 603 | ||
| Chapter 17 Global Business | 608 | ||
| Managerial Problem Responding to Exchange Rates | 608 | ||
| 17.1 Reasons for International Trade | 610 | ||
| Comparative Advantage | 610 | ||
| Q&A 17.1 | 613 | ||
| Managerial Implication Brian May’s Comparative Advantage | 613 | ||
| Increasing Returns to Scale | 614 | ||
| Mini‐Case Barbie Doll Varieties | 615 | ||
| 17.2 Exchange Rates | 616 | ||
| Determining the Exchange Rate | 616 | ||
| Exchange Rates and the Pattern of Trade | 617 | ||
| Managerial Implication Limiting Arbitrage and Gray Markets | 617 | ||
| Managing Exchange Rate Risk | 618 | ||
| 17.3 International Trade Policies | 619 | ||
| Quotas and Tariffs in Competitive Markets | 619 | ||
| Mini‐Case Russian Food Ban | 621 | ||
| Q&A 17.2 | 624 | ||
| Rent Seeking | 625 | ||
| Noncompetitive Reasons for Trade Policy | 626 | ||
| Mini‐Case Dumping and Countervailing Duties for Solar Panels | 628 | ||
| Trade Liberalization and the World Trading System | 629 | ||
| Trade Liberalization Problems | 630 | ||
| 17.4 Multinational Enterprises | 631 | ||
| Becoming a Multinational | 632 | ||
| Mini‐Case What’s an American Car? | 632 | ||
| International Transfer Pricing | 633 | ||
| Q&A 17.3 | 634 | ||
| Mini‐Case Profit Repatriation | 636 | ||
| 17.5 Outsourcing | 637 | ||
| Managerial Solution Responding to Exchange Rates | 639 | ||
| Summary | 640 | ||
| Questions | 641 | ||
| Answers to Selected Questions | 645 | ||
| Definitions | 657 | ||
| References | 662 | ||
| Sources for Managerial Problems, Mini‐Cases, and Managerial Implications | 668 | ||
| Index | 678 | ||
| Credits | 702 |