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Regular version of the site
Master 2019/2020

Economic Foundations of Management

Type: Compulsory course (Management and Analytics for Business)
Area of studies: Management
When: 1 year, 3, 4 module
Mode of studies: offline
Instructors: Maxim Storchevoy
Master’s programme: Management and Analytics for Business
Language: English
ECTS credits: 6

Course Syllabus

Abstract

The students will be need to analyze many practical mini-cases based on real experience of various companies and will need to apply economic theory for better understanding of the economic reality and making better managerial decisions. We assume that students already know the basics of microeconomics but require deep and diverse practice in application of economic principles to real life issues.
Learning Objectives

Learning Objectives

  • The purpose of the course is to teach the students how to apply the principles and models of economic theory for making managerial decisions: 1) estimating and analyzing demand, 2) cost analysis, 3) smart pricing (price discrimination, tying, bundling, non-linear pricing), 3) competing in various market structures, 4) making decisions about product quality and differentiation, 5) using network effects, 6) spending on advertising, 7) investing in R&D.
Expected Learning Outcomes

Expected Learning Outcomes

  • Students are expected know how to use marginal analysis in managerial decisions
  • Students are expected know how to find an optimal distribution of resources, optimal prices and quantities
  • Students are expected know how to estimate demand on the basis of available data
  • Students are expected know how to make production and pricing decisions for various cost structures
  • Students are expected know how to use various techniques of smart pricing (price discrimination, tying, bundling, etc.)
  • Students are expected know how to make decisions about of price and quantity competition in various market structures
  • Students are expected know how to make decisions about product quality and degree of differentiation
  • Students are expected know how to use advertising expenses to maximize profit
  • Students are expected know how to invest in R&D to maximize profit and create competitive advantage
Course Contents

Course Contents

  • Demand Evaluation and Simple Profit Maximization
    Market power and demand function with negative slope. How to evaluate demand? Surveys, experiments and historical data. Class experiment with demand evaluation. Marginal revenue function.
  • Perfect Price Discrimination
    Definition of price discrimination. Reservation prices. Perfect Price discrimination vs. traditional pricing. Examples: bazaar, professional services, B2B pricing, auctions, taxation. English, Dutch and sealed-bid auction. Class experiment with auction.
  • Group Price Discrimination
    Observed characteristics. Personal (gender, age, citizenship, appearance, etc.). Space (country, city, district, captive audience). Time (season, weekday, hour). Examples of group prices discrimination.
  • Versioning
    Menu of options. Selfselection of various types of consumers. Versioning in functionality and in quality. Damaging products. Examples of versioning.
  • Bundling
    Definition of bundling. Software bundling: two products and two groups of consumers. Condition of successful bundling. Graphical tool for bundling analysis. Examples of bundling.
  • Tying and Subscription
    Definition of tying. Tying and tied goods. Examples of tying. Ownership vs. Subscription. Examples of choice between ownership and subscription.
  • Block Pricing and Two-Part Tariff
    Block pricing as an instrument to extract all consumer surplus. Block demand curve. Block pricing as a method of price discrimination. Two-Part Tariff: entry fee and unit price.
  • Optimal Tariffs
    Tools for comparisons of various tariffs and designing an optimal combination of tariffs.
  • Cost Calculation
    Fixed costs and variable costs. Total, average and marginal costs. Cost tables and cost curves. Relationship between various cost functions. Short run and long run costs. Economy of scale. Economy of scope.
  • Perfect Competition
    Market with many sellers. Price takers. Individual firm supply. Market supply. Short run equilibrium. Long run equilibrium. Shifts in demand and costs.
  • Quantity Competition
    Oligopoly (few sellers) and interdependency. Game theory. Duopoly. Cournot model. Simultaneous and Sequential equilibriums. How to apply this model to reality?
  • Price Competition
    Bertrand model. Homogeneous product. Simultaneous and Sequential equilibriums. Second mover advantage. How to apply this model to reality?
  • Anticompetitive Pricing
    Limit price and deterrence of entry. When limit price is possible? Expanding capacities. Predatory price. Credible threats. Examples of anticompetitive pricing.
  • Collusion
    Types of collusion: explicit agreement, cartel, implicit collusion. Profit maximization. Factors of stability of a cartel (number of seller, stability of demand, differentiation of products, etc.). Class experiment with cartel.
  • Product Differentiation
    Vertical and horizontal differentiation. Demand for characteristics model (hedonic demand). Hotelling model. Choice of price and choice of location. Collusion. Median voter theorem.
  • Network Effects
    Externalities and network effect. Demand for network good. Types of network effect. Battle of standards. Excess Inertia and Excess momentum. Compatibility. Two-side markets (platforms).
  • Advertising
    Optimal spending of advertising. Information vs. persuasion advertising. Advertising under monopoly. Advertising under competition: homogeneous vs. heterogeneous products. Free-riding problem and its solutions. Wasteful Persuasion.
  • R&D
    Product and process innovation. Innovation under monopoly, competition and oligopoly. Trade secrets vs. patents. Economics of patents.
Assessment Elements

Assessment Elements

  • non-blocking Essay
  • non-blocking Class Participation
  • non-blocking Tests
  • non-blocking Exam
    1. Экзамен проводится в электронной форме (решение тестов по материалам курса). Описание формы ответа изложена в тексте каждого вопроса. 2. Экзамен проводится на платформе MS TEAMS. Студенты будут включены в команду типа “EFM 2020 – FINAL EXAM - #”. Тест станет доступен в момент начала экзамена. Время начала экзамена указано в расписании. Рекомендуется предварительно проверить возможность связи заранее. 3. Выполненные теста и количество правильных ответов отражается системой автоматически после прохождения электронного теста. Тест основывается на материале лекций и семинаров. Тест будет включать в себя от 10 до 20 вопросов с четырьмя вариантами ответов или необходимостью дать числовой ответ. Продолжительность финального теста составляет 80 минут. Студентам, чья накопленная промежуточная оценка составляет 7,5 - 10 баллов, не обязательно сдавать итоговый экзамен. В этом случае накопленная оценка выбирается в качестве итоговой оценки. 4. Студент должен подключиться к команде «EFM 2020 – FINAL EXAM - #», и зайти в канал ОБЩИЙ за 10 минут до объявленного времени начала экзамена и быть в этот период на связи. 5. Во время выполнения теста студент НЕ ДОЛЖЕН ПОКИДАТЬ ОТКРЫТОЕ ОКНО БРАУЗЕРА ИЛИ ПРИЛОЖЕНИЯ С ТЕСТОМ, в том числе переходить в другие вкладки браузера, открывать калькулятор или другие приложения. В противном случае система засчитает его ответ как неверный. 6. Если к началу экзамена студент по каким-либо причинам не смог подключиться или у него не открылось задание, то в течение 10 минут после начала экзамена ему следует обратиться к преподавателю через ЧАТ, если не открылось задание, и в остальных случаях посредством электронной почты, с которой обычно велась переписка с преподавателем. 7. Компьютер/планшет, смартфон студента должен удовлетворять требованиям: установлен MS TEAMS, есть интернет-соединение, произведена авторизация в MS TEAMS с помощью корпоративной электронной почты. 8. Процедура пересдачи подразумевает использование усложненных заданий вопросов и другой их набор.
Interim Assessment

Interim Assessment

  • Interim assessment (4 module)
    0.1 * Class Participation + 0.2 * Essay + 0.5 * Exam + 0.2 * Tests
Bibliography

Bibliography

Recommended Core Bibliography

  • Intermediate microeconomics with calculus, Varian, H., 2014

Recommended Additional Bibliography

  • Leon Bazil. (2012). Business Games for Management and Economics:Learning by Playing. World Scientific Publishing Co. Pte. Ltd. https://doi.org/10.1142/8191