Managerial Economics and Strategy, 2/e

Book Description

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.

Table of Contents

  1. Practice, Engage, and Assess
  2. Managerial Economics and Strategy
  3. The Pearson Series in Economics
  4. Managerial Economics and Strategy
  5. Brief Contents
  6. Contents
  7. Preface
    1. What’s New in the Second Edition
    2. Main Innovations
    3. Features
    4. Alternative Organizations
    5. Supplements
  8. 1 Introduction
    1. 1.1 Managerial Decision Making Managerial Decision Making
      1. Profit
      2. Trade-Offs
      3. Other Decision Makers
      4. Strategy
    2. 1.2 Economic Models
      1. Simplifying Assumptions
      2. Testing Theories
      3. Positive and Normative Statements
    3. Summary
  9. 2 Supply and Demand
    1. Learning Objectives
    2. 2.1 Demand
      1. The Demand Curve
        1. Effects of a Price Change on the Quantity Demanded.
        2. Effects of Other Factors on Demand.
      2. The Demand Function
      3. Summing Demand Curves
    3. 2.2 Supply
      1. The Supply Curve
        1. Effects of Price on Supply.
        2. Effects of Other Variables on Supply.
      2. The Supply Function
      3. Summing Supply Curves
    4. 2.3 Market Equilibrium
      1. Using a Graph to Determine the Equilibrium
      2. Using Algebra to Determine the Equilibrium
      3. Forces That Drive the Market to Equilibrium
    5. 2.4 Shocks to the Equilibrium
      1. Effects of a Shift in the Demand Curve
        1. Q&A 2.1
          1. Answer
      2. Effects of a Shift in the Supply Curve
      3. Effects of Shifts in both Supply and Demand Curves
        1. Q&A 2.2
          1. Answer
    6. 2.5 Effects of Government Interventions
      1. Policies That Shift Curves
      2. Price Controls
        1. Price Ceilings.
        2. Price Floors.
        3. Why Supply Need Not Equal Demand.
      3. Sales Taxes
        1. Equilibrium Effects of a Specific Tax.
        2. The Same Equilibrium No Matter Who Pays the Tax.
        3. Pass-Through.
          1. Q&A 2.3
            1. Answer
    7. 2.6 When to Use the Supply-and-Demand Model
    8. Summary
    9. Questions
      1. 1. Demand  Demand  
      2. 2. Supply  Supply  
      3. 3. Market Equilibrium  Market Equilibrium  
      4. 4. Shocks to the Equilibrium  Shocks to the Equilibrium  
      5. 5. Effects of Government Interventions  Effects of Government Interventions  
      6. 6. When to Use the Supply-and-Demand Model  When to Use the Supply-and-Demand Model  
      7. 7. Managerial Problem  Managerial Problem  
      8. 8. MyEconLab Spreadsheet Exercises 17 MyEconLab Spreadsheet Exercises 17 
  10. 3 Empirical Methods for Demand Analysis
    1. Learning Objectives
    2. 3.1 Elasticity
      1. The Price Elasticity of Demand
        1. Arc Elasticity.
          1. Q&A 3.1
            1. Answer
        2. Point Elasticity.
      2. Elasticity Along the Demand Curve
        1. Q&A 3.2
          1. Answer
        2. Downward-Sloping Linear Demand Curves.
        3. Horizontal Demand Curves.
        4. Vertical Demand Curves.
      3. Other Demand Elasticities
      4. Demand Elasticities over Time
      5. Other Elasticities
      6. Estimating Demand Elasticities
    3. 3.2 Regression Analysis
      1. A Demand Function Example
        1. The Demand Function and the Inverse Demand Function.
        2. Random Errors.
        3. Regression Analysis Using Microsoft Excel.
        4. Ordinary Least Squares Regression.
      2. Multivariate Regression
        1. Q&A 3.3
          1. Answer
      3. Goodness of Fit and the R 2 [&~centgothbldmath~~COLOR~[H3 RUST]R^{~centgothbld~2}~norm~~COLOR~[Black]&] Statistic
    4. 3.3 Properties and Statistical Significance of Estimated CoefficientsProperties and Statistical Significance of Estimated Coefficients
      1. Repeated Samples
      2. Desirable Properties for Estimated Coefficients
      3. A Focus Group Example
      4. Confidence Intervals
      5. Hypothesis Testing and Statistical Significance
    5. 3.4 Regression Specification
      1. Selecting Explanatory Variables
        1. Q&A 3.4
          1. Answer
        2. Correlation and Causation.
        3. Omitted Variables.
      2. Functional Form
    6. 3.5 Forecasting
      1. Extrapolation
        1. Trends.
        2. Seasonal Variation.
        3. Nonlinear Trends.
      2. Theory-Based Econometric Forecasting
    7. Summary
    8. Questions
      1. 1. Elasticity  Elasticity  
      2. 2. Regression Analysis  Regression Analysis  
      3. 3. Properties and Statistical Significance of Estimated Coefficients  Properties and Statistical Significance of Estimated Coefficients  
      4. 4. Regression Specification  Regression Specification  
      5. 5. Forecasting  Forecasting  
      6. 6. Managerial Problem  Managerial Problem  
      7. 7. MyEconLab Spreadsheet Exercises23
  11. 4 Consumer Choice
    1. Learning Objectives
    2. 4.1 Consumer Preferences
      1. Properties of Consumer Preferences
        1. Completeness.
        2. Transitivity.
        3. More Is Better.
      2. Preference Maps
        1. Preferences and Indifference Curves.
        2. Willingness to Substitute Between Goods.
        3. Curvature of Indifference Curves.
    3. 4.2 Utility
      1. Utility Functions
      2. Ordinal and Cardinal Utility
      3. Marginal Utility
      4. Marginal Rates of Substitution
    4. 4.3 The Budget Constraint
      1. Slope of the Budget Line
      2. Effects of a Change in Price on the Opportunity Set
      3. Effects of a Change in Income on the Opportunity Set
        1. Q&A 4.1
          1. Answer
        2. Q&A 4.2
          1. Answer
    5. 4.4 Constrained Consumer Choice
      1. The Consumer’s Optimal Bundle
        1. Interior Solutions.
          1. Q&A 4.3
            1. Answer
        2. Corner Solutions.
          1. Q&A 4.4
            1. Answer
      2. Promotions
        1. Buy One, Get One Free Promotion.
        2. BOGOF Versus a Half-Price Promotion.
    6. 4.5 Deriving Demand Curves
    7. 4.6 Behavioral Economics
      1. Tests of Transitivity
      2. Endowment Effects
      3. Salience
    8. Summary
    9. Questions
      1. 1. Consumer Preferences  Consumer Preferences  
      2. 2. Utility  Utility  
      3. 3. The Budget Constraint  The Budget Constraint  
      4. 4.Constrained Consumer Choice  
      5. 5. Deriving Demand Curves  Deriving Demand Curves  
      6. 6. Behavioral Economics  Behavioral Economics  
      7. 7. Managerial Problem  Managerial Problem  
      8. 8. MyEconLab Spreadsheet Exercises 11 MyEconLab Spreadsheet Exercises 11 
    10. Appendix 4A The Marginal Rate of Substitution The Marginal Rate of Substitution
    11. Appendix 4B The Consumer Optimum The Consumer Optimum
  12. 5 Production
    1. Learning Objectives
    2. 5.1 Production Functions
    3. 5.2 Short-Run Production
      1. The Total Product Function
      2. The Marginal Product of Labor
        1. Q&A 5.1
          1. Answer
      3. The Average Product of Labor
      4. Graphing the Product Curves
        1. The Effect of Extra Labor.
        2. Relationships Among Product Curves.
      5. The Law of Diminishing Marginal Returns
    4. 5.3 Long-Run Production
      1. Isoquants
        1. Properties of Isoquants.
        2. Shapes of Isoquants.
      2. Substituting Inputs
        1. Substitutability of Inputs Varies Along an Isoquant.
          1. Q&A 5.2
            1. Answer
        2. Substitutability of Inputs and Marginal Products.
        3. Cobb-Douglas Production Functions.
    5. 5.4 Returns to Scale
      1. Constant, Increasing, and Decreasing Returns to Scale
        1. Q&A 5.3
          1. Answer
      2. Varying Returns to Scale
    6. 5.5 Innovation
      1. Process Innovation
      2. Organizational Innovation
    7. Summary
    8. Questions
      1. 1. Production Functions  Production Functions
      2. 2. Short-Run Production  Short-Run Production
      3. 3. Long-Run Production  Long-Run Production
      4. 4. Returns to Scale  Returns to Scale
      5. 5. Innovation  Innovation
      6. 6. Managerial Problem  Managerial Problem
      7. 7. MyEconLab Spreadsheet Exercises 9 MyEconLab Spreadsheet Exercises 9
  13. 6 Costs
    1. Learning Objectives
    2. 6.1 The Nature of Costs
      1. Opportunity Costs
      2. Q&A 6.1
        1. Answer
      3. Costs of Durable Inputs
      4. Sunk Costs
    3. 6.2 Short-Run Costs
      1. Common Measures of Cost
        1. Fixed Cost, Variable Cost, and Total Cost.
        2. Average Cost.
        3. Marginal Cost.
      2. Cost Curves
      3. Production Functions and the Shapes of Cost Curves
        1. The Variable Cost Curve.
        2. The Marginal Cost Curve.
        3. The Average Cost Curves.
      4. Short-Run Cost Summary
    4. 6.3 Long-Run Costs
      1. Input Choice
        1. The Isocost Line.
        2. Combining Cost and Production Information.
        3. Factor Price Changes.
          1. Q&A 6.2
            1. Answer
      2. The Shapes of Long-Run Cost Curves
        1. Q&A 6.3
          1. Answer
      3. Long-Run Average Cost as the Envelope of Short-Run Average Cost Curves
    5. 6.4 The Learning Curve
    6. 6.5 The Costs of Producing Multiple Goods
    7. Summary
    8. Questions
      1. 1. The Nature of Costs  The Nature of Costs
      2. 2. Short-Run Costs  Short-Run Costs
      3. 3. Long-Run Costs  Long-Run Costs
      4. 4. The Learning Curve  The Learning Curve
      5. 5. The Costs of Producing Multiple Goods  The Costs of Producing Multiple Goods
      6. 6. Managerial Problem  Managerial Problem
      7. 7. MyEconLab Spreadsheet Exercises 7  MyEconLab Spreadsheet Exercises 7
    9. Appendix 6A Long-Run Cost Minimization Long-Run Cost Minimization
  14. 7 Firm Organization and Market Structure
    1. Learning Objectives
    2. 7.1 Ownership and Governance of Firms
      1. Private, Public, and Nonprofit Firms
      2. Ownership of For-Profit Firms
        1. Publicly Traded and Closely Held Corporations.
        2. Liability.
        3. Firm Size.
      3. Firm Governance
    3. 7.2 Profit Maximization
      1. Profit
      2. Two Steps to Maximizing Profit
        1. Output Rules.
          1. Q&A 7.1
            1. Answer
        2. Shutdown Rules.
      3. Profit over Time
    4. 7.3 Owners’ Versus Managers’ ObjectivesOwners’ Versus Managers’ Objectives
      1. Consistent Objectives
        1. Contingent Rewards.
        2. Profit Sharing.
          1. Q&A 7.2
            1. Answer
      2. Conflicting Objectives
        1. Revenue Objectives.
          1. Q&A 7.3
            1. Answer
        2. Other Objectives.
      3. Corporate Social Responsibility
        1. Ethical Obligations of Managers.
        2. Strategic CSR.
      4. Monitoring and Controlling a Manager’s Actions
      5. Takeovers and the Market for Corporate Control
    5. 7.4 The Make or Buy Decision
      1. Stages of Production
      2. Vertical Integration
        1. Quasi-Vertical Integration.
        2. Contracts Versus Spot Markets.
        3. Degrees of Vertical Integration.
      3. Profitability and the Supply Chain Decision
        1. Transaction Costs and Opportunistic Behavior.
        2. Security and Flexibility of Supply.
        3. Avoiding Government Intervention.
      4. Market Size and the Life Cycle of a Firm
    6. 7.5 Market Structure
      1. The Four Main Market Structures
        1. Perfect Competition.
        2. Monopoly.
        3. Oligopoly.
        4. Monopolistic Competition.
      2. Comparison of Market Structures
      3. Road Map to the Rest of the Book
    7. Summary
    8. Questions
      1. 1. Ownership and Governance of Firms  Ownership and Governance of Firms  
      2. 2. Profit Maximization  Profit Maximization  
      3. 3. Owners’ Versus Managers’ Objectives  Owners’ Versus Managers’ Objectives  
      4. 4. The Make or Buy Decision  The Make or Buy Decision  
      5. 5. Market Structure  Market Structure  
      6. 6. Managerial Problem  Managerial Problem  
      7. 7. MyEconLab Spreadsheet Exercises 26 MyEconLab Spreadsheet Exercises 26 
    9. Appendix 7A Interest Rates, Present Value, and Future Value Interest Rates, Present Value, and Future Value
  15. 8 Competitive Firms and Markets
    1. Learning Objectives
    2. 8.1 Perfect Competition
      1. Characteristics of a Perfectly Competitive Market
        1. Large Numbers of Buyers and Sellers.
        2. Identical Products.
        3. Full Information.
        4. Negligible Transaction Costs.
        5. Free Entry and Exit.
        6. Perfect Competition in the Chicago Mercantile Exchange.
      2. Deviations from Perfect Competition
    3. 8.2 Competition in the Short Run
      1. How Much to Produce
        1. Q&A 8.1
          1. Answer
      2. Whether to Produce
        1. The Market Price Is Above Minimum AC.
        2. The Market Price Is Between the Minimum AC and the Minimum AVC.
        3. The Market Price Is Less than the Minimum AVC.
      3. The Short-Run Firm Supply Curve
      4. The Short-Run Market Supply Curve
        1. Short-Run Market Supply with Identical Firms.
        2. Short-Run Market Supply with Firms That Differ.
      5. Short-Run Competitive Equilibrium
    4. 8.3 Competition in the Long Run
      1. Long-Run Competitive Profit Maximization
      2. The Long-Run Firm Supply Curve
      3. The Long-Run Market Supply Curve
        1. Entry and Exit.
        2. Long-Run Market Supply with Identical Firms and Free Entry.
        3. Long-Run Market Supply When Entry Is Limited.
        4. Long-Run Market Supply When Firms Differ.
      4. Long-Run Competitive Equilibrium
        1. Q&A 8.2
          1. Answer
      5. Zero Long-Run Profit with Free Entry
    5. 8.4 Competition Maximizes Economic Well-Being
      1. Consumer Surplus
        1. Measuring Consumer Surplus Using a Demand Curve.
        2. Effects of a Price Change on Consumer Surplus.
      2. Producer Surplus
        1. Measuring Producer Surplus Using a Supply Curve.
          1. Q&A 8.3
            1. Answer
        2. Using Producer Surplus.
          1. Q&A 8.4
            1. Answer
      3. Competition Maximizes Total Surplus
      4. Effects of Government Intervention
        1. Q&A 8.5
          1. Answer
    6. Summary
    7. Questions
      1. 1. Perfect Competition  Perfect Competition  
      2. 2. Competition in the Short Run  Competition in the Short Run  
      3. 3. Competition in the Long Run  Competition in the Long Run  
      4. 4. Competition Maximizes Economic Well-Being  Competition Maximizes Economic Well-Being  
      5. 5. Managerial Problem  Managerial Problem  
      6. 6. MyEconLab Spreadsheet Exercises 22 MyEconLab Spreadsheet Exercises 22 
  16. 9 Monopoly
    1. Learning Objectives
    2. 9.1 Monopoly Profit Maximization
      1. Marginal Revenue
        1. Marginal Revenue and Price.
        2. The Marginal Revenue Curve.
          1. Q&A 9.1
            1. Answer
        3. Marginal Revenue and Price Elasticity of Demand.
      2. Choosing Price or Quantity
      3. Two Steps to Maximizing Profit
        1. Profit-Maximizing Output.
        2. The Shutdown Decision.
      4. Effects of a Shift of the Demand Curve
    3. 9.2 Market Power
      1. Market Power and the Shape of the Demand Curve
      2. The Lerner Index
        1. Q&A 9.2
          1. Answer
      3. Sources of Market Power
    4. 9.3 Market Failure Due to Monopoly Pricing
      1. Q&A 9.3
        1. Answer
    5. 9.4 Causes of Monopoly
      1. Cost-Based Monopoly
        1. Cost Advantages.
        2. Natural Monopoly.
          1. Q&A 9.4
            1. Answer
      2. Government Creation of Monopoly
        1. Barriers to Entry.
        2. Patents.
    6. 9.5 Advertising
      1. Deciding Whether to Advertise
      2. How Much to Advertise
        1. Q&A 9.5
          1. Answer
    7. 9.6 Networks, Dynamics, and Behavioral Economics
      1. Network Externalities
        1. Direct Size Effects.
        2. Indirect Effects.
      2. Network Externalities and Behavioral Economics
      3. Network Externalities as an Explanation for Monopolies
    8. Summary
    9. Questions
      1. 1. Monopoly Profit Maximization  Monopoly Profit Maximization  
      2. 2. Market Power Market Power 
      3. 3. Market Failure Due to Monopoly Pricing  Market Failure Due to Monopoly Pricing  
      4. 4. Causes of Monopoly  Causes of Monopoly  
      5. 5. Advertising  Advertising  
      6. 6. Networks, Dynamics, and Behavioral Economics
      7. 7. Managerial Problem  Managerial Problem  
      8. 8. MyEconLab Spreadsheet Exercises 25 MyEconLab Spreadsheet Exercises 25 
  17. 10 Pricing with Market Power
    1. Learning Objectives
    2. 10.1 Conditions for Price Discrimination
      1. Why Price Discrimination Pays
      2. Which Firms Can Price Discriminate
      3. Not All Price Differences Are Price Discrimination
      4. Types of Price Discrimination
    3. 10.2 Perfect Price Discrimination
      1. How a Firm Perfectly Price Discriminates
      2. Perfect Price Discrimination Is Efficient but Harms Some Consumers
        1. Q&A 10.1
          1. Answer
      3. Individual Price Discrimination
    4. 10.3 Group Price Discrimination
      1. Group Price Discrimination with Two Groups
        1. A Graphical Approach.
        2. Prices and Elasticities.
          1. Q&A 10.2
            1. Answer
      2. Identifying Groups
      3. Effects of Group Price Discrimination on Total Surplus
        1. Group Price Discrimination Versus Competition.
        2. Group Price Discrimination Versus Single-Price Monopoly.
    5. 10.4 Nonlinear Price Discrimination
    6. 10.5 Two-Part Pricing
      1. Two-Part Pricing with Identical Consumers
      2. Two-Part Pricing with Differing Consumers
    7. 10.6 Bundling
      1. Pure Bundling
      2. Mixed Bundling
        1. Q&A 10.3
          1. Answer
      3. Requirement Tie-In Sales
    8. 10.7 Peak-Load Pricing
    9. Summary
    10. Questions
      1. 1. Conditions for Price Discrimination   Conditions for Price Discrimination  
      2. 2. Perfect Price Discrimination  Perfect Price Discrimination  
      3. 3. Group Price Discrimination  Group Price Discrimination  
      4. 4. Nonlinear Price Discrimination  Nonlinear Price Discrimination  
      5. 5. Two-Part Pricing  Two-Part Pricing  
      6. 6. Bundling  Bundling  
      7. 7. Peak-Load Pricing  Peak-Load Pricing  
      8. 8. Managerial Problem  Managerial Problem  
      9. 9. MyEconLab Spreadsheet Exercises 23 MyEconLab Spreadsheet Exercises 23 
  18. 11 Oligopoly and Monopolistic Competition
    1. Learning Objectives
    2. 11.1 Cartels
      1. Why Cartels Succeed or Fail
        1. Why Cartels Form.
        2. Why Cartels Fail.
      2. Maintaining Cartels
        1. Detection and Enforcement.
        2. Government Support.
        3. Barriers to Entry.
    3. 11.2 Cournot Oligopoly
      1. Airlines
        1. A Graphical Approach.
        2. An Algebraic Approach.
      2. The Number of Firms
      3. Nonidentical Firms
        1. Unequal Costs.
          1. Q&A 11.1
            1. Answer
        2. Differentiated Products.
          1. Q&A 11.2
            1. Answer
      4. Mergers
    4. 11.3 Bertrand Oligopoly
      1. Identical Products
        1. Best-Response Curves.
        2. Bertrand Versus Cournot.
      2. Differentiated Products
    5. 11.4 Monopolistic Competition
      1. Equilibrium
        1. Q&A 11.3
          1. Answer
      2. Profitable Monopolistically Competitive Firms
    6. Summary
    7. Questions
      1. 1. Cartels  Cartels  
      2. 2. Cournot Oligopoly  Cournot Oligopoly  
      3. 3. Bertrand Oligopoly  Bertrand Oligopoly  
      4. 4. Monopolistic Competition  Monopolistic Competition  
      5. 5. Managerial Problem  Managerial Problem  
      6. 6. MyEconLab Spreadsheet Exercises 16 MyEconLab Spreadsheet Exercises 16 
    8. Appendix 11A Cournot Oligopoly with Many Firms Cournot Oligopoly with Many Firms
    9. Appendix 11B Nash-Bertrand Equilibrium Nash-Bertrand Equilibrium
  19. 12 Game Theory and Business Strategy
    1. Learning Objectives
    2. 12.1 Oligopoly Games
      1. Dominant Strategies
      2. Best Responses
      3. Failure to Maximize Joint Profits
        1. Q&A 12.1
          1. Answer
    3. 12.2 Types of Nash Equilibria
      1. Multiple Equilibria
        1. Cheap Talk.
        2. The Pareto Criterion.
      2. Mixed-Strategy Equilibria
        1. Mixed-Strategy Only Nash Equilibria.
        2. Both Pure and Mixed-Strategy Equilibria.
          1. Q&A 12.2
            1. Answer
    4. 12.3 Information and Rationality
      1. Incomplete Information
      2. Rationality
        1. Bounded Rationality.
        2. Maximin Strategies.
    5. 12.4 Bargaining
      1. Bargaining Games
      2. The Nash Bargaining Solution
        1. Q&A 12.3
          1. Answer
      3. Inefficiency in Bargaining
    6. 12.5 Auctions
      1. Elements of Auctions
        1. Number of Units.
        2. Format of Bidding.
        3. Value.
      2. Bidding Strategies in Private-Value Auctions
        1. Second-Price Auction Strategies.
        2. English Auction Strategy.
        3. Equivalence of Auction Outcomes.
      3. The Winner’s Curse
    7. Summary
    8. Questions
      1. 1. Oligopoly Games  Oligopoly Games  
      2. 2. Types of Nash Equilibria  Types of Nash Equilibria  
      3. 3. Information and Rationality  Information and Rationality  
      4. 4. Bargaining  Bargaining  
      5. 5. Auctions  Auctions  
      6. 6. Managerial Problem  Managerial Problem  
      7. 7. MyEconLab Spreadsheet Exercises 21 MyEconLab Spreadsheet Exercises 21 
  20. 13 Strategies over Time
    1. Learning Objectives
    2. 13.1 Repeated Games
      1. Strategies and Actions in Dynamic Games
      2. Cooperation in a Repeated Prisoner’s Dilemma Game
      3. Implicit Versus Explicit Collusion
      4. Finitely Repeated Games
    3. 13.2 Sequential Games
      1. Stackelberg Oligopoly
      2. Credible Threats
        1. Q&A 13.1
          1. Answer
    4. 13.3 Deterring Entry
      1. Exclusion Contracts
      2. Limit Pricing
        1. Q&A 13.2
          1. Answer
      3. Entry Deterrence in a Repeated Game
    5. 13.4 Cost and Innovation Strategies
      1. Investing to Lower Marginal Cost
      2. Learning by Doing
      3. Raising Rivals’ Costs
        1. Q&A 13.3
          1. Answer
    6. 13.5 Disadvantages of Moving First
      1. The Holdup Problem
      2. Too-Early Product Innovation
    7. 13.6 Behavioral Game Theory
      1. Ultimatum Games
        1. An Experiment.
        2. Reciprocity.
      2. Levels of Reasoning
    8. Summary
    9. Questions
      1. 1. Repeated Games  Repeated Games  
      2. 2. Sequential Games  Sequential Games  
      3. 3. Deterring Entry  Deterring Entry  
      4. 4. Cost and Innovation Strategies  Cost and Innovation Strategies  
      5. 5. Disadvantages of Moving First  Disadvantages of Moving First  
      6. 6. Behavioral Game Theory  Behavioral Game Theory  
      7. 7. Managerial Problem  Managerial Problem  
      8. 8. MyEconLab Spreadsheet Exercises 16
    10. Appendix 13A A Mathematical Approach to Stackelberg Oligopoly A Mathematical Approach to Stackelberg Oligopoly
  21. 14 Managerial Decision Making Under Uncertainty
    1. Learning Objectives
    2. 14.1 Assessing Risk
      1. Probability
        1. Frequency.
        2. Subjective Probability.
        3. Probability Distributions.
      2. Expected Value
        1. Q&A 14.1
          1. Answer
      3. Variance and Standard Deviation
    3. 14.2 Attitudes Toward Risk
      1. Expected Utility
      2. Risk Aversion
        1. Unwillingness to Take a Fair Bet.
          1. Q&A 14.2
            1. Answer
        2. The Risk Premium.
      3. Risk Neutrality
      4. Risk Preference
      5. Risk Attitudes of Managers
    4. 14.3 Reducing Risk
      1. Obtaining Information
      2. Diversification
        1. Correlation and Diversification.
        2. Diversification Through Mutual Funds.
      3. Insurance
        1. Determining the Amount of Insurance to Buy.
          1. Q&A 14.3
            1. Answer
        2. Fairness and Insurance.
        3. Insurance and Diversifiable Risks.
    5. 14.4 Investing Under Uncertainty
      1. Risk-Neutral Investing
      2. Risk-Averse Investing
        1. Q&A 14.4
          1. Answer
    6. 14.5 Behavioral Economics and Uncertainty
      1. Biased Assessment of Probabilities
        1. The Gambler’s Fallacy.
        2. Overconfidence.
      2. Violations of Expected Utility Theory
        1. Framing.
        2. The Certainty Effect.
      3. Prospect Theory
        1. Comparing Expected Utility and Prospect Theories.
        2. Properties of Prospect Theory.
    7. Summary
    8. Questions
      1. 1. Assessing Risk  Assessing Risk  
      2. 2. Attitudes Toward Risk  Attitudes Toward Risk  
      3. 3. Reducing Risk  Reducing Risk  
      4. 4. Investing Under Uncertainty  Investing Under Uncertainty  
      5. 5. Behavioral Economics and Uncertainty  Behavioral Economics and Uncertainty  
      6. 6. Managerial Problem  Managerial Problem  
      7. 7. MyEconLab Spreadsheet Exercises 24
  22. 15 Asymmetric Information
    1. Learning Objectives
    2. 15.1 Adverse Selection
      1. Adverse Selection in Insurance Markets
      2. Products of Unknown Quality
        1. Symmetric Information Market Equilibrium.
        2. Asymmetric Information Market Equilibrium.
          1. Q&A 15.1
            1. Answer
        3. Varying Quality Under Asymmetric Information.
          1. Q&A 15.2
            1. Answer
    3. 15.2 Reducing Adverse Selection
      1. Restricting Opportunistic Behavior
        1. Universal Coverage.
        2. Laws to Prevent Opportunism.
      2. Equalizing Information
        1. Screening.
        2. Signaling.
        3. Third-Party Information.
    4. 15.3 Moral Hazard
      1. Moral Hazard in Insurance Markets
      2. Moral Hazard in Principal-Agent Relationships
        1. Reducing Moral Hazard Using Efficient Contracts.
        2. Symmetric Information.
        3. Asymmetric Information.
    5. 15.4 Using Contracts to Reduce Moral Hazard
      1. Fixed-Fee Contracts
      2. Contingent Contracts
        1. State-Contingent Contracts.
        2. Profit-Sharing Contracts.
        3. Bonuses and Options.
        4. Piece Rates and Commissions.
          1. Q&A 15.4
            1. Answer
    6. 15.5 Using Monitoring to Reduce Moral Hazard
      1. Hostages
        1. Bonding.
        2. Deferred Payments.
      2. After-the-Fact Monitoring
    7. Summary
    8. Questions
      1. 1. Adverse Selection  Adverse Selection  
      2. 2. Reducing Adverse Selection  Reducing Adverse Selection  
      3. 3. Moral Hazard  Moral Hazard  
      4. 4. Using Contracts to Reduce Moral Hazard  Using Contracts to Reduce Moral Hazard  
      5. 5. Using Monitoring to Reduce Moral Hazard  Using Monitoring to Reduce Moral Hazard  
      6. 6. Managerial Problem  Managerial Problem  
      7. 7. MyEconLab Spreadsheet Exercises 14 MyEconLab Spreadsheet Exercises 14 
  23. 16 Government and Business Government and Business
    1. Learning Objectives
    2. 16.1 Market Failure and Government Policy
      1. The Pareto Principle
      2. Cost-Benefit Analysis
    3. 16.2 Regulation of Imperfectly Competitive Markets
      1. Regulating to Correct a Market Failure
        1. Optimal Price Regulation.
        2. Non-Optimal Price Regulation Due to Poor Information.
          1. Q&A 16.1
            1. Answer
        3. Non-Optimal Price Regulation Due to Inability to Subsidize.
      2. Regulatory Capture
      3. Applying the Cost-Benefit Principle to Regulation
    4. 16.3 Antitrust Law and Competition Policy
      1. Mergers
      2. Predatory Actions
      3. Vertical Relationships
        1. Resale Price Maintenance.
        2. Refusal to Deal.
        3. Exclusive Dealing.
        4. Price Discrimination.
    5. 16.4 Externalities
      1. The Inefficiency of Competition with Externalities
      2. Reducing Externalities
        1. Emissions Standards.
        2. Emission Fees.
          1. Q&A 16.2
            1. Answer
        3. Assigning Property Rights.
        4. Environmental Corporate Social Responsibility.
      3. The Coase Theorem
    6. 16.5 Open-Access, Club, and Public Goods
      1. Open-Access Common Property
        1. Government Regulation of Common Property.
        2. Assigning Property Rights.
      2. Club Goods
      3. Public Goods
        1. Free Riding.
        2. Reducing Free Riding.
    7. 16.6 Intellectual Property
      1. Patents
        1. Advantages and Disadvantages of Patents.
          1. Q&A 16.3
            1. Answer
        2. Alternatives to Patents.
      2. Copyright Protection
    8. Summary
      1. Questions
        1. 1.Market Failure and Government Policy
        2. 2.Regulation of Imperfectly Competitive Markets
        3. 3.Antitrust Law and Competition Policy
        4. 4.Externalities
        5. 5.Open-Access, Club, and Public Goods
        6. 6. Intellectual Property Intellectual Property
        7. 7. Managerial Problem Managerial Problem
        8. 8. MyEconLab Spreadsheet Exercises19 MyEconLab Spreadsheet Exercises19
  24. 17 Global Business
    1. Learning Objectives
    2. 17.1 Reasons for International Trade
      1. Comparative Advantage
        1. Gains from Trade Between Countries.
        2. Gains from Intra-Firm Trade.
          1. Q&A 17.1
            1. Answer
      2. Increasing Returns to Scale
        1. Country Size.
        2. Product Variety.
    3. 17.2 Exchange Rates
      1. Determining the Exchange Rate
      2. Exchange Rates and the Pattern of Trade
      3. Managing Exchange Rate Risk
    4. 17.3 International Trade Policies
      1. Quotas and Tariffs in Competitive Markets
        1. Free Trade Versus a Ban on Imports.
        2. Free Trade Versus a Tariff.
        3. Free Trade Versus a Quota.
          1. Q&A 17.2
            1. Answer
      2. Rent Seeking
      3. Noncompetitive Reasons for Trade Policy
        1. Creating Market Power.
        2. Strategic Trade Policy.11
        3. Contingent Protection.
      4. Trade Liberalization and the World Trading System
      5. Trade Liberalization Problems
    5. 17.4 Multinational Enterprises
      1. Becoming a Multinational
      2. International Transfer Pricing
        1. Profit-Maximizing Transfer Pricing.
          1. Q&A 17.3
            1. Answer
        2. Tax Avoidance.
    6. 17.5 Outsourcing
    7. Summary
    8. Questions
      1. 1. Reasons for International Trade  Reasons for International Trade  
      2. 2. Exchange Rates  Exchange Rates  
      3. 3. International Trade Policies  International Trade Policies  
      4. 4. Multinational Enterprises  Multinational Enterprises  
      5. 5. Outsourcing  Outsourcing  
      6. 6. Managerial Problem  Managerial Problem  
      7. 7. MyEconLab Spreadsheet Exercises 25 MyEconLab Spreadsheet Exercises 25 
  25. Answers to Selected Questions
  26. Definitions
  27. References
  28. Sources for Managerial Problems, Mini-Cases, and Managerial Implications
  29. Index
    1. Number
    2. A
    3. B
    4. C
    5. D
    6. E
    7. F
    8. G
    9. H
    10. I
    11. J
    12. K
    13. L
    14. M
    15. N
    16. O
    17. P
    18. Q
    19. R
    20. S
    21. T
    22. U
    23. V
    24. W
    25. Z
  30. Credits
  31. Featured Mini-Cases in This Book
  32. Featured Managerial Implications in This Book

Product Information

  • Title: Managerial Economics and Strategy, 2/e
  • Author(s): Jeffrey M. Perloff, James A. Brander
  • Release date: February 2016
  • Publisher(s): Pearson
  • ISBN: 9780134472553