Firms &
Markets (Fall 2004) Syllabus,
Outline, and Calendar Block 4
B01.1303.02, Firms and Markets Prof.
Lawrence J. White
Fall 2004, Block 4 Office:
KMEC 7-80
Class sessions: Mon, Wed 10:30-11:50pm,
KMEC 3-65 212-998-0880
Office hours: Tues, Thurs 4:00-6:00pm lwhite@stern.nyu.edu
http://www.stern.nyu.edu/~lwhite
SYLLABUS
Course description:
This
course will employ the marginal analysis and the consumers-firms-markets
perspectives provided by economics principles to enhance your understanding of
the business environments in which you will be working and the important
strategic issues that arise in those environments. Issues of when and how markets work, when and how market failures
can arise, and the consequences and opportunities for enterprises in those
environments will be prominent.
The course structure assumes that
you have had some economics and calculus background. You should be comfortable with quantitative concepts and
approaches and with graphical/geometric ways of presenting quantitative
information, as well as with basic algebra and calculus concepts, including systems
of equations, logarithms, NPV calculations, and simple derivatives.
There are a number of important
themes/concepts that will pervade the course:
-- Marginal analysis, incentives,
and opportunity cost (all as related to the maximizing process), and
elasticities as a measuring device
-- Strategic thinking (e.g., look
forward and reason back; search for dominant and dominated strategies)
-- The concept of equilibrium
-- The presence or absence of market
power, and its consequences
-- The presence or absence of
information, and its consequences.
Class sessions will often begin with
brief discussions of recent articles in The Wall Street Journal, The
New York Times, and/or other publications that illuminate or are
illuminated by the topics covered in the course. You are encouraged (though not required) to read one or more of
these publications and to contribute to the discussions.
All class sessions will be
videotaped and will be available digitally on a Stern server. The URLs for each class session will be
posted within a day or two of the class session. The videos are not a substitute for class attendance and
participation but can be used for review and for instances where missing a class
is unavoidable.
Teaching
assistant:
The teaching assistant for this
course will be Mr. Jin Xu (e-mail: jx227).
The specific times and places for his office hours will be announced and
posted.
Course
requirements/grading information:
Final grades for the course will be
determined on the basis of the following components and weights:
Two mid-term exams (2 x
25%) 50%
Three group projects (3
x 10%) 30
One group presentation 10
Class participation 10
The two mid-term exams will be
closed-book exams, but you can bring a single 8-1/2" x 11" sheet of
notes and a hand-held calculator to the exams.
Copies of former exams (and former answer keys) are part of the course
materials, and review sessions will be held prior to the mid-term exams.
The three group projects are the
responsibility of each study group, and the grade for each group project
applies to each group member. Although
some specialty of effort is inevitable, all group members are responsible for
their group’s final draft submitted, and you should (at a minimum) participate
in reading and editing drafts of each of your group’s project reports. Similarly, group presentations are the
responsibility of all members of each study group, and your participation is
expected in gathering and assessing material, designing and checking the
presentation, and participating in the presentation. A separate document
discusses the group presentations in more detail.
Your participation in classroom
discussions is important and will be graded.
Thoughtful comments/questions count favorably; quality is more important
than quantity. Advance review of class
materials and readings is likely to help.
Seven individual homework
problem sets will be assigned and are required to be submitted on the
dates indicated. They will be graded on
the basis of a check, check-plus, or check-minus. Detailed answers will be distributed with the returned homeworks. Performance on the homeworks will serve as a
"tie-breaker" for the final grade if you are otherwise on a
borderline. You may consult with other
students with respect to solving homework problems, but your homework
submission should be your own submission, typed by yourself (but
hand-drawn diagrams may be submitted).
Submission of a hard copy in class is strongly preferred; but an
e-mail attachment sent before class (in the event that you cannot attend
class and cannot ask a classmate to bring the hard copy) is acceptable.
Final grades will follow Stern's
guideline for core courses: no more than 35% of the class will receive grades
of A or A-.
Texts and other
materials:
The recommended text for this course
will be: Managerial Economics and Business Strategy, 4th edn., by Michael
R. Baye (McGraw-Hill, 2003). The
text should be very useful for enhancing your understanding of the course. There is also a Study Guide for the
text, which is sold separately. The
text and the study guide are on sale at the NYU professional bookstore.
Course
materials (including this syllabus, plus class notes, handouts, homework
problem sets, group assignments, former exams, etc.; but not the text or the
study guide) are available in the course binder and on Blackboard, Stern's
course management system:
You can log in using
your Stern ID and password and look in "My Courses" for "Firms
and Markets".
As
additional materials (e.g., answers to homework assignments, to group projects,
to mid-term exams) become available, they will be distributed in class and
posted on the Blackboard website.
Honor code:
As is true for all courses at Stern,
you are expected to adhere to the Stern Honor Code.
Course outline and
calendar:
Wed Sept 8: Introduction; key concepts
Baye ch. 1
Class
notes; be prepared to discuss "A CONSULTANT’S TASK"
Mon Sept 13: Review of basic supply and demand;
elasticities; equilibrium
Baye ch. 2
Wed Sept 15: Demand in greater depth; utility
maximization; indifference curves; consumer’s surplus
Baye ch. 3 (skip pp. 92-102), ch. 4
Individual homework
#1 due
Mon Sept 20: Supply in greater depth: production
analysis; economies and diseconomies of scale; demand and supply for inputs
Baye ch. 5 (pp. 150-173 only)
Wed Sept 22: Supply in greater depth: cost analysis; the
importance of marginal cost; horizontal, vertical, and scope
economies/diseconomies; the role of technological change; the learning curve
Baye ch. 5 (pp. 173-188), ch. 6
(skip pp. 214-222)
Individual homework
#2 due
Mon Sept 27: Monopoly: basic concepts
Baye ch. 7, ch. 8 (pp. 273-290 only)
Wed Sept 29:
Monopoly: extensions: the "dominant firm"; monopsony; multi-product
monopoly
Baye ch. 14 (pp. 499-508 only)
Group
project #1 (Cinemex) due
Mon Oct 4: Pricing with market power: market
segmentation, price discrimination
Baye ch. 11
Wed Oct 6: Pricing with market power: extensions
Class
notes; be prepared to discuss “THE GAINS FROM ‘BUNDLING’”
Individual homework
#3 due
Mon Oct 11: Perfect competition: conditions in commodity
markets with lots of producers
Baye ch. 8 (pp. 259-273 only)
Wed Oct 13: Review
Review recent
first mid-term exam and answer key; come with questions
Individual homework
#4 due
Mon Oct 18: First mid-term exam
Wed Oct 20: Monopolistic (imperfect) competition
Baye ch. 8 (pp. 290-299 only)
Mon Oct 25: Game theory and strategic analysis: basic
concepts
Baye ch. 10
Wed Oct 27: Game theory and strategic analysis: extensions
Group
project #2 (California Electricity) due
Mon Nov 1: Oligopoly: basic concepts; the consequences
of mutual interdependence; some “simple” solutions
Baye ch. 9 (pp. 308-313, 331-340;
skim pp. 313-331)
Wed Nov 3: Oligopoly: the prisoner’s dilemma applied;
strategic extensions
Class
notes; be prepared to discuss “THE MONOPOLIST (DOMINANT FIRM?) AND THE
STRATEGIC (POTENTIAL) ENTRANT”
Individual homework
#5 due
Mon Nov 8: Uncertainty and risk; introduction to
asymmetric information: agency, moral hazard, adverse selection, etc.;
Baye ch. 12 (pp. 427-442 only)
Wed Nov 10: Asymmetric information applied: output
markets; insurance markets; input (labor) markets
Baye, ch. 6 (pp. 214-223), ch. 14
(pp. 517-521 only)
Class
notes; be prepared to discuss “AN EXAMPLE OF THE ADVERSE SELECTION PROBLEM
IN INSURANCE”
Individual homework
#6 due
Mon Nov 15: Asymmetric information applied: input
(capital) markets
Class
notes; article, "Financial
Services in the Next Decade"
Wed Nov 17: Auctions; why auctions? types of auctions;
properties of auctions
Baye ch. 12 (pp. 449-459 only)
Class
notes; be prepared to discuss “BIDDERS’ KNOWLEDGE/INFORMATION AND THE
‘WINNER’S CURSE’ IN AUCTIONS”
Group
project #3 (Newspaper wars) due
Mon Nov 22: Externalities and public goods; why they
arise; private and social problems; strategic responses; the importance of
intellectual property.
Baye ch. 14 (pp. 508-517 only)
Group presentations: (1) The GE-Honeywell merger
Wed Nov 24: Externalities applied: Introduction to networks
Baye ch. 13 (pp. 486-492 only)
Class
notes; article "Network
Economics & Public Policy"
Individual homework
#7 due
Mon Nov 29: Networks; their importance for industry
structure and behavior; the importance of externalities; of economies of scale.
Group presentations: (2) DeBeers and the market for diamonds; (3)
The superjumbo game
Wed Dec 1: Review
Review recent
second mid-term exam and answer key; come with questions
Mon Dec 6: Second mid-term exam
Wed Dec 8: Group presentations: (4) Second and
third generation wireless; (5) Microsoft: network effects and innovation
incentives
Mon Dec 13: Group presentations: (6) Online
music: firm strategy and public policy; (7) eBay: strategic behavior and market
efficiency