| Preface |
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xvii | |
| About the Authors |
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xxi | |
| Part I Introduction |
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1 | (62) |
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1 Introduction and Goals of the Firm |
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2 | (26) |
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2 | (1) |
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Managerial Challenge: How to Achieve Sustainability: Southern Company Electric Power Generation |
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2 | (2) |
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1-1 What Is Managerial Economics? |
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4 | (1) |
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1-2 The Decision-Making Model |
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5 | (3) |
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1-2a The Responsibilities of Management |
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5 | (1) |
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What Went Right/What Went Wrong: Saturn Corporation |
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6 | (1) |
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1-2b Moral Hazard in Teams |
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6 | (2) |
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8 | (1) |
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1-3a Risk-Bearing Theory of Profit |
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8 | (1) |
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1-3b Temporary Disequilibrium Theory of Profit |
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9 | (1) |
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1-3c Monopoly Theory of Profit |
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9 | (1) |
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1-3d Innovation Theory of Profit |
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9 | (1) |
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1-3e Managerial Efficiency Theory of Profit |
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9 | (1) |
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1-4 Objective of the Firm |
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9 | (2) |
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1-4a The Shareholder Wealth-Maximization Model of the Firm |
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10 | (1) |
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1-5 Separation of Ownership and Control: The Principal-Agent Problem |
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11 | (4) |
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1-5a Divergent Objectives and Agency Conflict |
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11 | (2) |
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13 | (2) |
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1-6 Implications of Shareholder Wealth Maximization |
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15 | (6) |
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What Went Right/What Went Wrong: Eli Lilly Depressed by Loss of Prozac Patent |
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15 | (2) |
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1-6a Caveats to Maximizing Shareholder Value |
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17 | (2) |
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19 | (1) |
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1-6c Goals in the Public Sector and Not-for-Profit Enterprises |
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19 | (1) |
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1-6d Not-for-Profit Objectives |
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20 | (1) |
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1-6e The Efficiency Objective in Not-for-Profit Organizations |
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20 | (1) |
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21 | (1) |
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22 | (6) |
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Case Exercise: Designing a Managerial Incentives Contract |
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23 | (1) |
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Case Exercise: Shareholder Value of Renewable Energy from Wind Power at Hydro Co.: Is RE < C? |
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24 | (4) |
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2 Fundamental Economic Concepts |
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28 | (35) |
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28 | (1) |
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Managerial Challenge: Why Charge $25 per Bag on Airline Flights? |
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28 | (1) |
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2-1 Demand and Supply: A Review |
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29 | (14) |
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2-1a The Diamond-Water Paradox and the Marginal Revolution |
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31 | (1) |
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2-1b Marginal Utility and Incremental Cost Simultaneously Determine Equilibrium Market Price |
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32 | (1) |
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2-1c Individual and Market Demand Curves |
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33 | (1) |
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34 | (2) |
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2-1e Import-Export Traded Goods |
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36 | (1) |
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International Perspectives: Exchange Rate Impacts on Demand: Cummins Engine Company |
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36 | (1) |
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2-1f Individual and Market Supply Curves |
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37 | (1) |
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2-1g Equilibrium Market Price of Gasoline |
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38 | (5) |
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43 | (5) |
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2-2a Total, Marginal, and Average Relationships |
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44 | (4) |
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2-3 The Net Present Value Concept |
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48 | (4) |
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2-3a Determining the Net Present Value of an Investment |
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48 | (2) |
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2-3b Sources of Positive Net Present Value Projects |
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50 | (1) |
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2-3c Risk and the NPV Rule |
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51 | (1) |
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2-4 Meaning and Measurement of Risk |
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52 | (5) |
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2-4a Probability Distributions |
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52 | (1) |
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53 | (1) |
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2-4c Standard Deviation: An Absolute Measure of Risk |
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54 | (1) |
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2-4d Normal Probability Distribution |
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54 | (2) |
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2-4e Coefficient of Variation: A Relative Measure of Risk |
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56 | (3) |
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What Went Right/What Went Wrong: Long-Term Capital Management (LTCM) |
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56 | (1) |
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2-5 Risk and Required Return |
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57 | (2) |
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59 | (1) |
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59 | (5) |
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Case Exercise: Revenue Management at American Airlines |
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61 | (2) |
| Part II Demand And Forecasting |
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63 | (172) |
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64 | (37) |
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64 | (1) |
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Managerial Challenge: Health Care Reform and Cigarette Taxes |
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64 | (2) |
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66 | (6) |
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3-1a The Demand Schedule Defined |
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66 | (1) |
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3-1b Constrained Utility Maximization and Consumer Behavior |
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67 | (5) |
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What Went Right/What Went Wrong: Chevy Volt |
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71 | (1) |
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3-2 The Price Elasticity of Demand |
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72 | (15) |
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3-2a Price Elasticity Defined |
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73 | (3) |
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3-2b Interpreting the Price Elasticity: The Relationship between the Price Elasticity and Sales Revenue |
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76 | (6) |
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3-2c The Importance of Elasticity-Revenue Relationships |
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82 | (2) |
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3-2d Factors Affecting the Price Elasticity of Demand |
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84 | (3) |
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International Perspectives: Free Trade and the Price Elasticity of Demand: Nestle Yogurt |
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86 | (1) |
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3-3 The Income Elasticity of Demand |
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87 | (3) |
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3-3a Income Elasticity Defined |
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87 | (3) |
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3-4 Cross Elasticity of Demand |
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90 | (2) |
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3-4a Cross Price Elasticity Defined |
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90 | (1) |
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3-4b Interpreting the Cross Price Elasticity |
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90 | (1) |
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3-4c Antitrust and Cross Price Elasticities |
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90 | (2) |
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3-4d An Empirical Illustration of Price, Income, and Cross Elasticities |
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92 | (1) |
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3-5 The Combined Effect of Demand Elasticities |
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92 | (1) |
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93 | (1) |
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94 | (7) |
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Case Exercise: Polo Golf Shirt Pricing |
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97 | (1) |
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Case Exercise: Fifty Years of Sales Maximization at Volkswagen |
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98 | (3) |
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101 | (40) |
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101 | (1) |
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Managerial Challenge: Demand for Whitman's Chocolate Samplers |
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101 | (1) |
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4-1 Statistical Estimation of the Demand Function |
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102 | (3) |
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4-1a Specification of the Model |
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103 | (2) |
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4-2 A Simple Linear Regression Model |
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105 | (5) |
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4-2a Assumptions Underlying the Simple Linear Regression Model |
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106 | (1) |
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4-2b Estimating the Population Regression Coefficients |
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107 | (3) |
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4-3 Using the Regression Equation to Make Predictions |
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110 | (8) |
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4-3a Inferences about the Population Regression Coefficients |
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112 | (3) |
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4-3b Correlation Coefficient |
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115 | (1) |
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4-3c The Analysis of Variance |
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116 | (2) |
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4-4 Multiple Linear Regression Model |
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118 | (4) |
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4-4a Use of Computer Programs |
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118 | (1) |
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4-4b Estimating the Population Regression Coefficients |
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118 | (1) |
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4-4c Using the Regression Model to Make Forecasts |
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118 | (1) |
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4-4d Inferences about the Population Regression Coefficients |
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119 | (2) |
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4-4e The Analysis of Variance |
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121 | (1) |
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122 | (1) |
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122 | (7) |
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Case Exercise: Soft Drink Demand Estimation |
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126 | (3) |
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4A Problems in Applying the Linear Regression Model |
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129 | (9) |
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129 | (7) |
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129 | (2) |
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131 | (1) |
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4A-1c Specification and Measurement Errors |
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132 | (1) |
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133 | (1) |
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4A-1e Simultaneous Equation Relationships and the Identification Problem |
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133 | (3) |
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4A-2 Nonlinear Regression Models |
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136 | (7) |
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4A-2a Semilogarithmic Transformation |
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136 | (1) |
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4A-2b Double-Log Transformation |
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136 | (1) |
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4A-2c Reciprocal Transformation |
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137 | (1) |
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4A-2d Polynomial Transformation |
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137 | (1) |
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138 | (1) |
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138 | (3) |
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5 Business and Economic Forecasting |
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141 | (37) |
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141 | (1) |
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Managerial Challenge: Excess Fiber Optic Capacity at Global Crossing Inc. |
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141 | (2) |
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5-1 The Significance of Forecasting |
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143 | (1) |
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5-2 Selecting a Forecasting Technique |
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143 | (2) |
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5-2a Hierarchy of Forecasts |
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143 | (1) |
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5-2b Criteria Used to Select a Forecasting Technique |
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144 | (1) |
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5-2c Evaluating the Accuracy of Forecasting Models |
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144 | (1) |
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What Went Right/What Went Wrong: Crocs Shoes |
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144 | (1) |
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5-3 Alternative Forecasting Techniques |
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145 | (1) |
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5-4 Deterministic Trend Analysis |
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145 | (7) |
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5-4a Components of a Time Series |
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145 | (1) |
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5-4b Some Elementary Time-Series Models |
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146 | (1) |
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147 | (3) |
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150 | (2) |
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152 | (6) |
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153 | (2) |
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5-5b First-Order Exponential Smoothing |
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155 | (3) |
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5-6 Barometric Techniques |
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158 | (1) |
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5-6a Leading, Lagging, and Coincident Indicators |
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158 | (1) |
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5-7 Survey and Opinion-Polling Techniques |
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159 | (2) |
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5-7a Forecasting Macroeconomic Activity |
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160 | (1) |
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161 | (1) |
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5-8 Macroeconometric Models |
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161 | (4) |
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5-8a Advantages of Econometric Forecasting Techniques |
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161 | (1) |
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5-8b Single-Equation Models |
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161 | (2) |
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5-8c Multi-Equation Models |
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163 | (1) |
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5-8d Consensus Forecasts: Livingston and Blue Chip Forecaster Surveys |
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164 | (1) |
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5-9 Forecasting with Input-Output Tables |
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165 | (1) |
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International Perspectives: Long-Term Sales Forecasting by General Motors in Overseas Markets |
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165 | (1) |
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5-10 Advanced Material: Stochastic Time-series Analysis |
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166 | (3) |
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169 | (1) |
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169 | (9) |
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Case Exercise: Cruise Ship Arrivals in Alaska |
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173 | (1) |
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Case Exercise: Lumber Price Forecast |
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174 | (1) |
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Case Exercise: Forecasting in the Global Financial Crisis |
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175 | (3) |
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6 Managing in the Global Economy |
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178 | (57) |
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178 | (1) |
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Managerial Challenge: The Role of the FX Rate in Assessing Foreign Business Opportunity |
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178 | (3) |
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181 | (1) |
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What Went Right/What Went Wrong: Export Market Pricing at Toyota |
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181 | (1) |
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6-2 Import-Export Sales and Exchange Rates |
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182 | (3) |
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6-2a Foreign Exchange Risk |
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183 | (4) |
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International Perspectives: Collapse of Export and Domestic Sales at Cummins Engine |
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184 | (1) |
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185 | (2) |
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187 | (4) |
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189 | (2) |
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6-5 The Market for U.S. Dollars as Foreign Exchange |
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191 | (4) |
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6-5a Import-Export Flows and Transaction Demand for a Currency |
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192 | (1) |
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6-5b The Equilibrium Price of the U.S. Dollar |
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193 | (1) |
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6-5c Speculative Demand, Government Transfers, and Coordinated Intervention |
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193 | (1) |
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6-5d Short-Term Exchange Rate Fluctuations |
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194 | (1) |
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6-6 Determinants of Long-Run Trends in Exchange Rates |
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195 | (4) |
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6-6a The Role of Real Growth Rates |
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195 | (3) |
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6-6b The Role of Real Interest Rates |
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198 | (1) |
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6-6c The Role of Expected Inflation |
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198 | (1) |
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6-7 Purchasing Power Parity |
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199 | (10) |
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6-7a PPP Offers a Better Yardstick of Comparative Size of Business Activity |
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200 | (2) |
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What Went Right/What Went Wrong: Big Box U.S. Retailers in China |
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202 | (1) |
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6-7b Relative Purchasing Power Parity |
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202 | (1) |
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6-7c Qualifications of PPP |
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203 | (1) |
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6-7d The Appropriate Use of PPP: An Overview |
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204 | (2) |
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What Went Right/What Went Wrong: GM, Toyota, and the Celica GT-S Coupe |
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205 | (1) |
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6-7e Trade-Weighted Exchange Rate Index |
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206 | (3) |
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6-8 International Trade: A Managerial Perspective |
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209 | (10) |
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6-8a Shares of World Trade and Regional Trading Blocs |
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209 | (2) |
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6-8b Comparative Advantage and Free Trade |
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211 | (3) |
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6-8c Import Controls and Protective Tariffs |
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214 | (1) |
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6-8d The Case for Strategic Trade Policy |
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215 | (3) |
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218 | (1) |
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6-8f Network Externalities |
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218 | (1) |
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6-9 Free Trade Areas: The European Union and NAFTA |
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219 | (3) |
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6-9a Optimal Currency Areas |
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219 | (1) |
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220 | (1) |
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220 | (1) |
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6-9d Correlated Macroeconomic Shocks |
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221 | (1) |
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6-10 Largest U.S. Trading Partners: The Role of NAFTA |
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222 | (5) |
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6-10a A Comparison of the EU and NAFTA |
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224 | (1) |
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6-10b Gray Markets, Knockoffs, and Parallel Importing |
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225 | (5) |
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What Went Right/What Went Wrong: Ford Motor Co. and Exide Batteries: Are Country Managers Here to Stay? |
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226 | (1) |
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6-11 Perspectives on the U.S. Trade Deficit |
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227 | (2) |
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229 | (1) |
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230 | (2) |
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Case Exercise: Predicting the Long-Term Trends in Value of the U.S. Dollar and the Euro |
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231 | (1) |
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Case Exercise: Elaborate the Debate on NAFTA |
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231 | (1) |
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6A Foreign Exchange Risk Management |
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232 | (4) |
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International Perspectives: Toyota and Honda Buy U.S. Assembly Capacity |
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233 | (2) |
| Part III Production And Cost |
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235 | (98) |
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236 | (46) |
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236 | (1) |
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Managerial Challenge: Green Power Initiatives Examined: What Went Wrong in California's Deregulation of Electricity? |
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236 | (2) |
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7-1 The Production Function |
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238 | (3) |
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7-1a Fixed and Variable Inputs |
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239 | (2) |
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7-2 Production Functions with One Variable Input |
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241 | (7) |
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7-2a Marginal and Average Product Functions |
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241 | (1) |
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7-2b The Law of Diminishing Marginal Returns |
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242 | (1) |
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What Went Right/What Went Wrong: Factory Bottlenecks at a Boeing Assembly Plant |
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243 | (1) |
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7-2c Increasing Returns with Network Effects |
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243 | (2) |
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7-2d Producing Information Services under Increasing Returns |
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245 | (1) |
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7-2e The Relationship between Total, Marginal, and Average Product |
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246 | (2) |
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7-3 Determining the Optimal Use of the Variable Input |
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248 | (2) |
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7-3a Marginal Revenue Product |
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249 | (1) |
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7-3b Marginal Factor Cost |
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249 | (1) |
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249 | (1) |
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7-4 Production with Multiple Variable Inputs |
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250 | (4) |
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7-4a Production (Output Constant) Isoquants |
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250 | (2) |
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7-4b The Marginal Rate of Technical Substitution |
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252 | (2) |
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7-5 Determining the Optimal Combination of Inputs |
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254 | (3) |
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255 | (1) |
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7-5b Minimizing Cost Subject to an Output Constraint |
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256 | (1) |
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7-6 A Fixed Proportions Optimal Production Process |
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257 | (2) |
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7-6a Production Processes and Process Rays |
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258 | (1) |
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7-7 Measuring the Efficiency of a Production Process |
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259 | (1) |
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260 | (6) |
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7-8a Measuring Returns to Scale |
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261 | (1) |
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7-8b Increasing and Decreasing Returns to Scale |
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262 | (1) |
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7-8c The Cobb-Douglas Production Function |
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262 | (1) |
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7-8d Empirical Studies of the Cobb-Douglas Production Function in Manufacturing |
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263 | (1) |
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7-8e A Cross-Sectional Analysis of U.S. Manufacturing Industries |
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263 | (3) |
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266 | (1) |
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267 | (5) |
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Case Exercise: The Production Function for Wilson Company |
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270 | (2) |
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7A Production Economics of Renewable and Exhaustible Natural Resources, Advanced Material |
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272 | (9) |
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272 | (4) |
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7A-2 Exhaustible Natural Resources |
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276 | (5) |
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281 | (1) |
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282 | (25) |
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282 | (1) |
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Managerial Challenge: Can a Leaner General Motors Compete Effectively? |
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282 | (1) |
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8-1 The Meaning and Measurement of Cost |
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283 | (5) |
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8-1a Accounting versus Economic Costs |
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284 | (1) |
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8-1b Three Contrasts between Accounting and Economic Costs |
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284 | (4) |
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8-2 Short-Run Cost and Product Functions |
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288 | (5) |
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8-2a Average and Marginal Cost Functions |
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288 | (5) |
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8-3 Long-Run Cost Functions |
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293 | (1) |
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8-3a Optimal Capacity Utilization: Three Concepts |
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293 | (1) |
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8-4 Economies and Diseconomies of Scale |
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294 | (7) |
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8-4a The Percentage of Learning |
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295 | (3) |
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8-4b Diseconomies of Scale |
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298 | (1) |
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8-4c The Overall Effects of Scale Economies and Diseconomies |
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298 | (4) |
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International Perspectives: How Japanese Companies Deal with the Problems of Size |
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299 | (2) |
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301 | (1) |
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302 | (5) |
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Case Exercise: Cost Analysis of Patio Furniture |
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304 | (2) |
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Case Exercise: Profit Margins on the Amazon Kindle |
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306 | (1) |
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9 Applications of Cost Theory |
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307 | (26) |
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307 | (1) |
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Managerial Challenge: How Exactly Have Computerization and Information Technology Lowered Costs at Chevron, Timken, and Merck? |
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307 | (1) |
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9-1 Estimating Cost Functions |
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308 | (11) |
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9-1a Issues in Cost Definition and Measurement |
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309 | (1) |
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9-1b Controlling for Other Variables |
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309 | (1) |
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9-1c The Form of the Empirical Cost-Output Relationship |
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310 | (2) |
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What Went Right/What Went Wrong: Boeing: The Rising Marginal Cost of Wide-Bodies |
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311 | (1) |
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9-1d Statistical Estimation of Short-Run Cost Functions |
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312 | (1) |
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9-1e Statistical Estimation of Long-Run Cost Functions |
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313 | (1) |
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9-1f Determining the Optimal Scale of an Operation |
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313 | (3) |
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9-1g Economies of Scale versus Economies of Scope |
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316 | (1) |
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9-1h Engineering Cost Techniques |
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316 | (2) |
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9-1i The Survivor Technique |
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318 | (1) |
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318 | (1) |
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319 | (8) |
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320 | (1) |
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320 | (3) |
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9-2c Some Limitations of Break-Even Analysis |
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323 | (1) |
|
9-2d Doing a Break-Even versus a Contribution Analysis |
|
|
323 | (2) |
|
9-2e A Limitation of Contribution Analysis |
|
|
325 | (1) |
|
|
|
325 | (2) |
|
9-2g Inherent Business Risk |
|
|
327 | (1) |
|
|
|
327 | (1) |
|
|
|
328 | (6) |
|
Case Exercise: Cost Functions |
|
|
329 | (1) |
|
Case Exercise: Charter Airline Operating Decisions |
|
|
330 | (3) |
| Part IV Pricing And Output Decisions: Strategy And Tactics |
|
333 | (224) |
|
10 Prices, Output, and Strategy: Pure and Monopolistic Competition |
|
|
334 | (50) |
|
|
|
334 | (1) |
|
Managerial Challenge: Resurrecting Apple in the Tablet World |
|
|
334 | (1) |
|
|
|
335 | (1) |
|
10-2 Competitive Strategy |
|
|
336 | (5) |
|
What Went Right/What Went Wrong: Xerox |
|
|
337 | (1) |
|
10-2a Generic Types of Strategies |
|
|
338 | (1) |
|
10-2b Product Differentiation Strategy |
|
|
338 | (1) |
|
10-2c Cost-Based Strategy |
|
|
338 | (1) |
|
10-2d Information Technology Strategy |
|
|
339 | (2) |
|
10-2e The Relevant Market Concept |
|
|
341 | (1) |
|
10-3 Porter's Five Forces Strategic Framework |
|
|
341 | (10) |
|
10-3a The Threat of Substitutes |
|
|
342 | (1) |
|
10-3b The Threat of Entry |
|
|
343 | (3) |
|
10-3c The Power of Buyers and Suppliers |
|
|
346 | (1) |
|
10-3d The Intensity of Rivalrous Tactics |
|
|
347 | (4) |
|
10-3e The Myth of Market Share |
|
|
351 | (1) |
|
10-4 A Continuum of Market Structures |
|
|
351 | (4) |
|
|
|
352 | (1) |
|
|
|
353 | (1) |
|
10-4c Monopolistic Competition |
|
|
354 | (1) |
|
|
|
354 | (1) |
|
10-5 Price-Output Determination under Pure Competition |
|
|
355 | (7) |
|
|
|
355 | (3) |
|
10-5b Profit Maximization under Pure Competition (Short Run): Adobe Corporation |
|
|
358 | (1) |
|
|
|
359 | (3) |
|
10-6 Price-Output Determination under Monopolistic Competition |
|
|
362 | (3) |
|
What Went Right/What Went Wrong: The Dynamics of Competition at Amazon.com |
|
|
363 | (1) |
|
|
|
363 | (1) |
|
|
|
363 | (2) |
|
10-7 Selling and Promotional Expenses |
|
|
365 | (4) |
|
10-7a Determining the Optimal Level of Selling and Promotional Outlays |
|
|
366 | (1) |
|
10-7b Optimal Advertising Intensity |
|
|
367 | (1) |
|
10-7c The Net Value of Advertising |
|
|
368 | (1) |
|
10-8 Competitive Markets under Asymmetric Information |
|
|
369 | (4) |
|
10-8a Incomplete versus Asymmetric Information |
|
|
369 | (1) |
|
10-8b Search Goods versus Experience Goods |
|
|
370 | (1) |
|
10-8c Adverse Selection and the Notorious Firm |
|
|
370 | (2) |
|
10-8d Insuring and Lending under Asymmetric Information: Another Lemons Market |
|
|
372 | (1) |
|
10-9 Solutions to the Adverse Selection Problem: Advanced Material |
|
|
373 | (5) |
|
10-9a Mutual Reliance: Hostage Mechanisms Support Asymmetric Information Exchange |
|
|
373 | (1) |
|
10-9b Brand-Name Reputations as Hostages |
|
|
374 | (2) |
|
10-9 c Price Premiums with Non-Redeployable Assets |
|
|
376 | (2) |
|
|
|
378 | (1) |
|
|
|
379 | (5) |
|
Case Exercise: Netflix and Redbox Compete for Movie Rentals |
|
|
381 | (1) |
|
Case Exercise: Saving Sony Music |
|
|
382 | (2) |
|
11 Price and Output Determination: Monopoly and Dominant Firms |
|
|
384 | (27) |
|
|
|
384 | (1) |
|
Managerial Challenge: Dominant Microprocessor Company Intel Adapts to Next Trend |
|
|
384 | (1) |
|
|
|
385 | (1) |
|
11-2 Sources of Market Power for a Monopolist |
|
|
386 | (4) |
|
11-2a Increasing Returns from Network Effects |
|
|
386 | (4) |
|
What Went Right/What Went Wrong: Pilot Error at Palm |
|
|
389 | (1) |
|
11-3 Price and Output Determination for a Monopolist |
|
|
390 | (5) |
|
11-3a Spreadsheet Approach: Profit versus Revenue Maximization for Polo Golf Shirts |
|
|
390 | (1) |
|
|
|
391 | (1) |
|
|
|
392 | (1) |
|
11-3d The Importance of the Price Elasticity of Demand |
|
|
393 | (2) |
|
11-4 The Optimal Markup, Contribution Margin, and Contribution Margin Percentage |
|
|
395 | (7) |
|
11-4a Gross Profit Margins |
|
|
397 | (1) |
|
11-4b Components of the Margin |
|
|
397 | (1) |
|
11-4c Monopolists and Capacity Investments |
|
|
398 | (1) |
|
|
|
399 | (1) |
|
11-4e Using Limit Pricing to Hamper the Sales of Generic Drugs |
|
|
400 | (2) |
|
What Went Right/What Went Wrong: Pfizer Sustains Sales of Off-Patent Lipitor |
|
|
401 | (1) |
|
11-5 Regulated Monopolies |
|
|
402 | (1) |
|
11-5a Electric Power Companies |
|
|
402 | (1) |
|
What Went Right/What Went Wrong: The Public Service Company of New Mexico |
|
|
402 | (1) |
|
11-5b Natural Gas Companies |
|
|
403 | (1) |
|
11-6 The Economic Rationale for Regulation |
|
|
403 | (2) |
|
11-6a Natural Monopoly Argument |
|
|
403 | (2) |
|
|
|
405 | (1) |
|
|
|
405 | (6) |
|
Case Exercise: Differential Pricing of Pharmaceuticals: The HIV/AIDS Crisis |
|
|
409 | (1) |
|
Case Exercise: Limit Pricing as Strategic Entry Deterrence: Ace Inhibitor |
|
|
410 | (1) |
|
12 Price and Output Determination: Oligopoly |
|
|
411 | (35) |
|
|
|
411 | (1) |
|
Managerial Challenge: Google's Android and Apple's iPhone Displace Nokia in Smart phones? |
|
|
411 | (2) |
|
12-1 Oligopolistic Market Structures |
|
|
413 | (5) |
|
12-1a Oligopoly in the United States: Relative Market Shares |
|
|
413 | (5) |
|
12-2 Interdependencies in Oligopolistic Industries |
|
|
418 | (3) |
|
|
|
420 | (1) |
|
12-3 Cartels and Other Forms of Collusion |
|
|
421 | (12) |
|
12-3a Factors Affecting the Likelihood of Successful Collusion |
|
|
423 | (1) |
|
12-3b Cartel Profit Maximization and the Allocation of Restricted Output |
|
|
424 | (7) |
|
International Perspectives: The OPEC Cartel |
|
|
426 | (5) |
|
12-3c Cartel Analysis: Algebraic Approach |
|
|
431 | (2) |
|
|
|
433 | (4) |
|
12-4a Barometric Price Leadership |
|
|
433 | (1) |
|
12-4b Dominant Firm Price Leadership |
|
|
434 | (3) |
|
12-5 The Kinked Demand Curve Model |
|
|
437 | (1) |
|
|
|
438 | (5) |
|
What Went Right/What Went Wrong: Good-Better-Best Product Strategy at Marriott Corporation and Kodak |
|
|
441 | (2) |
|
|
|
443 | (1) |
|
|
|
444 | (2) |
|
13 Best-Practice Tactics: Game Theory |
|
|
446 | (62) |
|
|
|
446 | (1) |
|
Managerial Challenge: Large-Scale Entry Deterrence of Low-Cost Discounters: Southwest Airline/AirTran |
|
|
446 | (2) |
|
13-1 Oligopolistic Rivalry and Game Theory |
|
|
448 | (5) |
|
What Went Right/What Went Wrong: Nintendo's Wii U |
|
|
448 | (1) |
|
13-1a A Conceptual Framework for Game Theory Analysis |
|
|
449 | (1) |
|
13-1b Components of a Game |
|
|
450 | (2) |
|
13-1c Cooperative and Noncooperative Games |
|
|
452 | (1) |
|
13-1d Other Types of Games |
|
|
452 | (1) |
|
13-2 Analyzing Simultaneous Games |
|
|
453 | (4) |
|
13-2a The Prisoner's Dilemma |
|
|
453 | (2) |
|
13-2b Dominant Strategy Defined |
|
|
455 | (2) |
|
13-3 Nash Equilibrium Strategy Defined |
|
|
457 | (6) |
|
13-3a Mixed Nash Equilibrium Strategy |
|
|
460 | (3) |
|
13-4 The Escape from Prisoner's Dilemma |
|
|
463 | (8) |
|
13-4a Multiperiod Punishment and Reward Schemes in Repeated Play Games |
|
|
463 | (1) |
|
13-4b Unraveling and the Chain Store Paradox |
|
|
464 | (2) |
|
13-4c Mutual Forbearance and Cooperation in Repeated Prisoner's Dilemma Games |
|
|
466 | (1) |
|
13-4d Winning Strategies in Evolutionary Computer Tournaments: Tit for Tat |
|
|
467 | (1) |
|
13-4e Bayesian Reputation Effects |
|
|
467 | (2) |
|
13-4f Price-Matching Guarantees |
|
|
469 | (2) |
|
13-5 Analyzing Sequential Games |
|
|
471 | (6) |
|
13-5a Industry Standards as Coordination Devices |
|
|
471 | (2) |
|
13-5b Importance of the Order of Play |
|
|
473 | (1) |
|
13-5c A Sequential Coordination Game |
|
|
474 | (2) |
|
13-5d Subgame Perfect Equilibrium in Sequential Games |
|
|
476 | (1) |
|
13-6 Business Rivalry as a Self-Enforcing Sequential Game |
|
|
477 | (3) |
|
13-6a First-Mover and Fast-Second Advantages |
|
|
478 | (2) |
|
13-7 Credible Threats and Commitments |
|
|
480 | (1) |
|
13-8 Mechanisms for Establishing Credibility |
|
|
481 | (2) |
|
13-9 Replacement Guarantees |
|
|
483 | (6) |
|
13-9a Hostages Support the Credibility of Commitments |
|
|
484 | (1) |
|
13-9b Credible Commitments of Durable Goods Monopolists |
|
|
485 | (1) |
|
13-9c Planned Obsolescence |
|
|
486 | (1) |
|
13-9d Post-Purchase Discounting Risk |
|
|
487 | (2) |
|
13-9e Lease Prices Reflect Anticipated Risks |
|
|
489 | (1) |
|
|
|
489 | (1) |
|
|
|
490 | (7) |
|
Case Exercise: International Perspectives: The Superjumbo Dilemma |
|
|
495 | (2) |
|
13A Entry Deterrence and Accommodation Games |
|
|
497 | (9) |
|
13A-1 Excess Capacity as a Credible Threat |
|
|
497 | (1) |
|
13A-2 Precommitments Using Non- Redeployable Assets |
|
|
497 | (3) |
|
13A-3 Customer Sorting Rules |
|
|
500 | (5) |
|
13A-3a A Role for Sunk Costs in Decision Making |
|
|
501 | (1) |
|
13A-3b Perfectly Contestable Markets |
|
|
502 | (1) |
|
13A-3c Brinkmanship and Wars of Attrition |
|
|
503 | (2) |
|
13A-4 Tactical Insights about Slippery Slopes |
|
|
505 | (1) |
|
|
|
506 | (1) |
|
|
|
507 | (1) |
|
14 Pricing Techniques and Analysis |
|
|
508 | (49) |
|
|
|
508 | (1) |
|
Managerial Challenge: Pricing the Chevy Volt |
|
|
508 | (1) |
|
14-1 A Conceptual Framework for Proactive, Systematic-Analytical, Value-Based Pricing |
|
|
509 | (4) |
|
What Went Right/What Went Wrong: Zerex Anticorrosive Antifreeze |
|
|
510 | (3) |
|
14-2 Optimal Differential Price Levels |
|
|
513 | (9) |
|
|
|
513 | (2) |
|
|
|
515 | (1) |
|
14-2c Multiple-Product Pricing Decision |
|
|
516 | (1) |
|
14-2d Differential Pricing and the Price Elasticity of Demand |
|
|
517 | (5) |
|
What Went Right/What Went Wrong: Two-Part Pricing at Disney World |
|
|
522 | (1) |
|
14-3 Differential Pricing in Target Market Segments |
|
|
522 | (11) |
|
14-3a Direct Segmentation with "Fences" |
|
|
523 | (3) |
|
14-3b Optimal Two-Part Tariffs |
|
|
526 | (1) |
|
What Went Right/What Went Wrong: Unlimited Data at Verizon Wireless |
|
|
526 | (1) |
|
|
|
527 | (1) |
|
What Went Right/What Went Wrong: Price-Sensitive Customers Redeem |
|
|
528 | (1) |
|
|
|
528 | (3) |
|
14-3e Price Discrimination |
|
|
531 | (2) |
|
|
|
533 | (7) |
|
14-4a Product Life Cycle Framework |
|
|
533 | (2) |
|
14-4b Full-Cost Pricing versus Incremental Contribution Analysis |
|
|
535 | (2) |
|
14-4c Pricing on the Internet |
|
|
537 | (3) |
|
|
|
540 | (1) |
|
|
|
541 | (4) |
|
Case Exercise: Partitioning the Price of the Chevy Volt |
|
|
543 | (2) |
|
14A The Practice of Revenue Management |
|
|
545 | (11) |
|
14A-1 A Cross-Functional Systems Management Process |
|
|
546 | (2) |
|
14A-2 Sources of Sustainable Price Premiums |
|
|
548 | (1) |
|
14A-3 Revenue Management Decisions, Advanced Material |
|
|
548 | (12) |
|
14A-3a Proactive Price Discrimination |
|
|
549 | (1) |
|
14A-3b Capacity Reallocation |
|
|
550 | (3) |
|
14A-3c Optimal Overbooking |
|
|
553 | (3) |
|
|
|
556 | (1) |
|
|
|
556 | (1) |
| Part V Organizational Architecture And Regulation |
|
557 | |
|
15 Contracting, Governance, and Organizational Form |
|
|
558 | (65) |
|
|
|
558 | (1) |
|
Managerial Challenge: Controlling the Vertical: Microsoft WebTV versus Google Fiber |
|
|
558 | (1) |
|
|
|
559 | (1) |
|
15-2 The Role of Contracting in Cooperative Games |
|
|
560 | (5) |
|
15-2a Vertical Requirements Contracts |
|
|
561 | (1) |
|
15-2b The Function of Commercial Contracts |
|
|
562 | (3) |
|
15-2c Incomplete Information, Incomplete Contracting, and Post-Contractual Opportunism |
|
|
565 | (1) |
|
15-3 Corporate Governance and the Problem of Moral Hazard |
|
|
565 | (4) |
|
What Went Right/What Went Wrong: Forecasting the Great Recession with Workouts and Rollovers |
|
|
567 | (1) |
|
15-3a The Need for Governance Mechanisms |
|
|
568 | (1) |
|
What Went Right/What Went Wrong: Moral Hazard and Holdup at Enron and WorldCom |
|
|
569 | (1) |
|
15-4 The Principal-Agent Model |
|
|
569 | (8) |
|
15-4a The Efficiency of Alternative Hiring Arrangements |
|
|
569 | (2) |
|
15-4b Creative Ingenuity and the Moral Hazard Problem in Managerial Contracting |
|
|
571 | (2) |
|
15-4c Formalizing the Principal-Agent Problem |
|
|
573 | (1) |
|
15-4d Screening and Sorting Managerial Talent with Optimal Incentives Contracts |
|
|
574 | (10) |
|
What Went Right/What Went Wrong: Why Have Restricted Stock Grants Replaced Executive Stock Options at Microsoft? |
|
|
575 | (2) |
|
15-5 Choosing the Efficient Organizational Form |
|
|
577 | (5) |
|
What Went Right/What Went Wrong: Cable Allies Refuse to Adopt Microsoft's WebTV as an Industry Standard |
|
|
580 | (1) |
|
International Perspectives: Economies of Scale and International Joint Ventures in Chip Making |
|
|
581 | (1) |
|
15-6 Prospect Theory Motivates Full-Line Forcing |
|
|
582 | (2) |
|
15-7 Vertical Integration |
|
|
584 | (5) |
|
What Went Right/What Went Wrong: Dell Replaces Vertical. Integration with Virtual Integration |
|
|
587 | (1) |
|
15-7a The Dissolution of Assets in a Partnership |
|
|
588 | (1) |
|
|
|
589 | (2) |
|
|
|
591 | (3) |
|
Case Exercise: Borders Books and Amazon.com Decide to Do Business Together |
|
|
592 | (1) |
|
Case Exercise: Designing a Managerial Incentive Contract |
|
|
592 | (1) |
|
Case Exercise: The Division of Investment Banking Fees in a Syndicate |
|
|
593 | (1) |
|
15A Auction Design and Information Economics |
|
|
594 | (24) |
|
15A-1 Optimal Mechanism Design |
|
|
594 | (1) |
|
15A-1a Queue Service Rules |
|
|
594 | (1) |
|
15A-2 First-Come, First-Served versus Last-Come, First-Served |
|
|
595 | (2) |
|
15A-2a Stratified Lotteries for Concerts |
|
|
596 | (1) |
|
|
|
597 | (14) |
|
|
|
597 | (1) |
|
15A-3b Winner's Curse in Asymmetric Information Bidding Games |
|
|
598 | (2) |
|
15A-3c Information Revelation in Common-Value Auctions |
|
|
600 | (1) |
|
15A-3d Bayesian Strategy with Open Bidding Design |
|
|
601 | (2) |
|
15A-3e Strategic Underbidding in Private- Value Auctions |
|
|
603 | (2) |
|
15A-3f Second-Highest Sealed-Bid Auctions: A Revelation Mechanism |
|
|
605 | (2) |
|
15A-3g Revenue Equivalence of Alternative Auction Types |
|
|
607 | (2) |
|
15A-3h Contractual Approaches to Asymmetric Information in Online Auctions |
|
|
609 | (2) |
|
15A-4 Incentive-Compatible Revelation Mechanisms |
|
|
611 | (8) |
|
15A-4a Cost Revelation in Joint Ventures and Partnerships |
|
|
611 | (1) |
|
15A-4b Cost Overruns with Simple Profit-Sharing Partnerships |
|
|
612 | (2) |
|
15A-4c Clarke-Groves Incentive-Compatible Revelation Mechanism |
|
|
614 | (1) |
|
15A-4d An Optimal Incentives Contract |
|
|
614 | (1) |
|
International Perspectives: Joint Venture in Memory Chips: IBM, Siemens, and Toshiba |
|
|
615 | (1) |
|
15A-4e Implementation of IC Contracts |
|
|
616 | (1) |
|
International Perspectives: Whirlpool's Joint Venture in Appliances Improves upon Maytag's Outright Purchase of Hoover |
|
|
617 | (1) |
|
|
|
618 | (1) |
|
|
|
619 | (4) |
|
Case Exercise: Spectrum Auction |
|
|
620 | (1) |
|
Case Exercise: Debugging Computer Software: Versioning at Intel |
|
|
621 | (2) |
|
|
|
623 | (37) |
|
|
|
623 | (1) |
|
Managerial Challenge: Cap and Trade, Deregulation, and the Coase Theorem |
|
|
623 | (1) |
|
16-1 The Regulation of Market Structure and Conduct |
|
|
624 | (3) |
|
|
|
625 | (1) |
|
|
|
625 | (1) |
|
16-1c Contestable Markets |
|
|
626 | (1) |
|
16-2 Antitrust Statutes and Their Regulatory Enforcement |
|
|
627 | (3) |
|
16-2a The Sherman Act (1890) |
|
|
627 | (1) |
|
16-2b The Clayton Act (1914) |
|
|
627 | (1) |
|
16-2c The Robinson-Patman Act (1936) |
|
|
628 | (1) |
|
16-2d The Hart-Scott-Rodino Antitrust Improvement Act (1976) |
|
|
629 | (1) |
|
16-3 Antitrust Prohibition of Selected Business Decisions |
|
|
630 | (7) |
|
16-3a Collusion: Price Fixing |
|
|
630 | (2) |
|
16-3b Mergers That Substantially Lessen Competition |
|
|
632 | (1) |
|
16-3c Merger Guidelines (2010) |
|
|
633 | (1) |
|
|
|
633 | (2) |
|
16-3e Wholesale Price Discrimination |
|
|
635 | (1) |
|
|
|
636 | (1) |
|
16-3g Resale Price Maintenance Agreements |
|
|
636 | (1) |
|
16-4 Command and Control Regulatory Constraints: An Economic Analysis |
|
|
637 | (3) |
|
16-4a The Deregulation Movement |
|
|
639 | (1) |
|
What Went Right/What Went Wrong: The Need for a Regulated Clearinghouse to Control Counterparty Risk at AIG |
|
|
639 | (1) |
|
16-5 Regulation of Externalities |
|
|
640 | (7) |
|
16-5a Coasian Bargaining for Reciprocal Externalities |
|
|
641 | (1) |
|
16-5b Qualifications of the Coase Theorem |
|
|
642 | (1) |
|
16-5c Impediments to Bargaining |
|
|
643 | (1) |
|
16-5d Resolution of Externalities by Regulatory Directive |
|
|
644 | (1) |
|
16-5e Resolution of Externalities by Taxes and Subsidies |
|
|
645 | (2) |
|
16-5f Resolution of Externalities by Sale of Pollution Rights: Cap and Trade |
|
|
647 | (1) |
|
16-6 Governmental Protection of Business |
|
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647 | (1) |
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16-6a Licensing and Permitting |
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647 | (1) |
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648 | (1) |
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16-7 The Optimal Deployment Decision: To License or Not |
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648 | (6) |
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16-7a Pros and Cons of Patent Protection and Licensure of Trade Secrets |
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649 | (4) |
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What Went Right/What Went Wrong: Delayed Release at Aventis |
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650 | (2) |
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What Went Right/What Went Wrong: Technology Licenses Cost Palm Its Lead in PDAs |
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652 | (1) |
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What Went Right/What Went Wrong: Motorola: What They Didn't Know Hurt Them |
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|
653 | (1) |
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16-7b Conclusion on Licensing |
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653 | (1) |
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654 | (1) |
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655 | (5) |
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Case Exercise: Do Luxury Good Manufacturers Have a Legitimate Interest in Minimum Resale Price Maintenance: Leegin v. Kay's Kloset? |
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657 | (1) |
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Case Exercise: Microsoft Tying Arrangements |
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658 | (1) |
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Case Exercise: Music Recording Industry Consolidating |
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659 | (1) |
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17 Long-Term Investment Analysis |
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|
660 | |
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660 | (1) |
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Managerial Challenge: Industrial Renaissance in America: Insourcing of GE Appliances |
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660 | (1) |
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17-1 The Nature of Capital Expenditure Decisions |
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661 | (1) |
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17-2 A Basic Framework for Capital Budgeting |
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662 | (1) |
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17-3 The Capital Budgeting Process |
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662 | (6) |
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17-3a Generating Capital Investment Projects |
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663 | (1) |
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17-3b Estimating Cash Flows |
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663 | (2) |
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17-3c Evaluating and Choosing the Investment Projects to Implement |
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665 | (3) |
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17-4 Estimating the Firm's Cost of Capital |
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668 | (4) |
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17-4a Cost of Debt Capital |
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669 | (1) |
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17-4b Cost of Internal Equity Capital |
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669 | (2) |
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17-4c Cost of External Equity Capital |
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671 | (1) |
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17-4d Weighted Cost of Capital |
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671 | (1) |
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17-5 Cost-Benefit Analysis |
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|
672 | (2) |
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17-5a Accept-Reject Decisions |
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673 | (1) |
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17-5b Program-Level Analysis |
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674 | (1) |
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17-6 Steps in Cost-Benefit Analysis |
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674 | (2) |
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17-7 Objectives and Constraints in Cost-Benefit Analysis |
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676 | (1) |
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17-8 Analysis and Valuation of Benefits and Costs |
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677 | (2) |
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677 | (1) |
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677 | (1) |
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17-8c Indirect Costs or Benefits and Intangibles |
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677 | (1) |
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17-8d The Appropriate Rate of Discount |
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678 | (1) |
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17-9 Cost-Effectiveness Analysis |
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679 | (1) |
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679 | (1) |
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17-9b Objective-Level Studies |
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680 | (1) |
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|
680 | (1) |
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|
681 | |
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Case Exercise: Industrial Development Tax Relief and Incentives |
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684 | (1) |
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Case Exercise: Multigenerational Effects of Ozone Depletion and Greenhouse Gases |
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|
685 | (3) |
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Case Exercise: Can Tidal Power Be Harnessed in the Bay of Fundy |
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|
688 | |
| Appendices |
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A The Time Value of Money |
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|
A-1 | |
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B Differential Calculus Techniques in Management |
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|
B-1 | |
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|
C-1 | |
| Check Answers to Selected End-of-Chapter Exercises |
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D-1 | |
| Glossary |
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G-1 | |
| Index |
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I-1 | |
