KAIST

Graduate School of Innovation & Technology Management

Managerial Economics (ITM503), Fall 2018

Professor Duk Hee Lee

COURSE OUTLINE

  • Class Time: Sat 09:00-12:00
  • Classroom: Alumni Building (동문창업관, N22) #102
  • Lecture Hours & Credits: 3 hrs & 3 credits
  • Office: Alumni Building (동문창업관, N22) #405
  • Office Phone: 042-350-6306
  • E-mail: dhlnexys@kaist.ac.kr
  • Course Homepage: http://klms.kaist.ac.kr,
  • TA

Sangmin Lim(임상민, davidlim@kaist.ac.kr)

Ohsung Kwon(권오성, ohsung00@kaist.ac.kr)

  • Alumni Building 4th Floor, 042-866-6360

COURSE DESCRIPTION AND LEARNING OBJECTIVES


This course is designed to study the application of microeconomic theory in market and industries. Students learn basic microeconomics and how to analyze market and industries in the framework of market structure-conduct-performance. They also study regulatory issues that need to be dealt with on the path to efficient and optimal market performance. Detail topics are (natural) monopoly, contestable market, entry barrier, economies of scale and scope, firm integration (M&A), price discrimination, restraints on transactions, and so on. This course also introduces contemporary issues such as principles of network economy, information good, network competition, digital economy, and so on. Through this course students will be able to understand what management and economics are and how they are different. They can also identify the valuable issues in management and economics context and bridge management value to socio-economic value and compromise two different worlds.

EXPECTED LEARNING OURCOMES


At the completion of this course students will be able to

  • understand the basic economic principles: utility, profit, social welfare, and so on.
  • identify management and economic issues and problems including social and ethical ones
  • span the economic theories to real business and industrial (technological) dynamics
  • find solutions to remedy the problems: business strategies, regulatory policies
  • address business and economic issues in cooperative way
  • practice how to solve business and economic problems
  • practice how to communicate with colleague and find a collective wisdom in efficient way
  • capture a limitation of contemporary economics and look for the alternatives

GRADING


Midterm 30%, Final 30%, Term Paper and Presentation 30%, Attendance 10%

COURSE MATERIALS

• Petersen, H, C. (1993), Business and Government, 4th ed. Harpercollins College Publishers

• Pepall, L., D. J. Richards, and G. Norman (2005), Industrial Organization: Contemporary Theory and Practice, 3rd ed., Thomson South-Western

• Viscusi, W. K., J. M. Vernon, and J. E. Harrington Jr. (2005), Economics of Regulation and Antitrust, 4th ed. The MIT Press

• Shapiro, C and H. R. Varian (1999). Information Rules, Harvard Business School Press.

• Berheim, B. D. and M. D. Whinston (2008), Microeconomics, McGraw-Hill

• Allen, D. (1988), “New Telecommunications Service: Network Externalities and Critical Mass”, Telecommunications Policy 13, 255-264.

• Angwin, J. (1997). McAfee Sweeps Away Viruses. San Francisco Chronicle, 14.

• Arrow, K. J. (1972). Economic welfare and the allocation of resources for invention. In Readings in Industrial Economics (pp. 219-236). Macmillan Education UK.

• Arthur, W. B. (1994), Increasing Returns and Path Dependence in the Economy. University of Michigan Press, 1994.

• Arthur, W. B. (1989), "Competing Technologies, Increasing Returns, and Lock-in by Historical Event", Economic Journal 99, 116-131.

• Arthur, W. B. (1990), “Positive Feedbacks in the Economy”, Scientific American, February

• Arthur, W. B. (1996), “Increasing Returns and the Two World of Business”, Harvard Business review, July-Aug.

• Arthur, W. B. (1986), "Industry Location Patterns and Importance of History", Center for Economic Policy Research Paper 84. Stanford University.

• Arthur, W. B. (1988), "Urban Systems and Historical Path Dependence", in the “Cities and their Vital Systems”, edited by Ausubel, J. H. and Herman, R., Washington D. C.: National Academy Press. 85-97.

• Arthur, W. B. and Y. M. Ermoliev and Y. M. Kaniovski (1984), "Strong Law for a Class of Path-Dependent Stochastic Processes", Arkin and Shiryayev and Wets ed. (1984), Proceedings International Conference on Stochastic Optimization: Lecture Notes in Control and Information Sciences 81.

• Bank, D. (1997). Microsoft’s Profit Tops Analysts’ Expectations. Wall Street Journal, 21.

• Bass, F. M. (1969), “A New Product Growth for Model Consumer Durables”, Management Science 15, 215-227.

• Beggs, A. and P. Klemperer (1922). "Multi-Period Competition with Switching Costs.“, Econometrica 60(3): 651-666.

• Blumenthal, K. (1992). How Barney the Dinosaur Beat Extinction, Is Now Rich. Wall Street Journal, 28.

• Bulkeley, W. (1995). Finding Targets on CD-ROM Phone Lists. Wall Street Journal, 22.

• David, P. (1985), "Clio and the Economics of Qwerty", AEA Papers and Proceedings 75. 332-337.

• Economides, N and Himmelberg, C. P. (1995), "Critical mass and network size with application to the US fax market", working paper

• Farrell, J. and C. Shapiro (1988). "Dynamic Competition with Switching Costs." Rand Journal of Economics 19(1), 123-137.

• Farrell, J, and C. Shapiro (1989). "Optimal Contracts with Lock-In." American Economic Review 79(1). 51-68.

• Farrell, J., & G. Saloner (1986). Standardization and variety. Economics Letters, 20(1), 71-74.

• Katz, M. L. and C. Shapiro (1985), "Network Externalities, Competition, and Compatibility" American Economic Review 75, 424-440.

• Katz, M. L. and C. Shapiro (1985), "Network Externalities, Competition, and Compatibility" American Economic Review 75, 424-440.

• Katz, M. L., & Shapiro, C. (1994). Systems competition and network effects. The Journal of Economic Perspectives, 8(2), 93-115.

• Klemperer, P. (1987). "Markets with Consumer Switching Costs“, Quarterly Journal of Economics 102(2): 375-394.

• Klemperer, P. (1989). "Price Wars Caused by Switching Costs“, Review of Economic Studies 56(3): 405-420.

• Klemperer, P. (1995), "Competition When Consumers Have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade“, Review of Economic Studies 62(4): 515-539.

• Liebowitz, Stan J., and Stephen E. Margolis (1995). "Path dependence, lock-in, and history." JL Econ. & Org. 11 : 205.

• Liebowitz, S. J. and S. E. Margolis (1996), "Should Technology Choice Be a Concern of Antitrust Policy", Harvard Journal of Law & Technology 9, 284-318.

• Melcher, R. A. (1997). Dusting off the Britannica, Business Week, 20 Oct 97.

• Rogers, E. M. (1995), Diffusion of Innovations. 4th ed. New York: Free Press.

• Schoder, D. (2000), "Forecasting the Success of Telecommunication Services in the Presence of Network Effects", Information Economics and Policy 12, 181-200.

• Shy, O. (2001), The Economics of Network Industries, Cambridge University Press

• Tirole, J. (1988), The Theory of Industrial Organization, The MIT Press.

• Varian, H. R. (1980). A model of sales. The American Economic Review, 70(4), 651-659.

• Varian, H. R. (1985). Price discrimination and social welfare. The American Economic Review, 75(4), 870-875.

• Varian, H. R. (1995). Pricing information goods.

• Williams, F. and E. Rice and E. M. Rogers (1988), Research Methods and the New Media, New York: Free Press.

CLASS SCHEDULE

Industrial Economics

1. Overview (Petersen ch1)

1.1 Demand and Supply (Berheim and Whinston ch2)

1.2 Consumption and Production Decision (Berheim and Whinston ch4,5,8,9)

1.3 What is Industrial Organization?

1.4 Market Structure-Market Conduct-Market Performance

1.5 Competitive Market Economy

1.6 Market Failure

1.7 Government Intervention

2. Market Structure

2.1 Theory (Petersen ch2-3)

2.1.1 Perfect Competition

2.1.2 Monopoly

2.1.3 Oligopoly

2.1.3.1 Cournot Model (Pepall ch9)

2.1.3.2 Bertrand Model (Pepall ch10)

2.1.3.3 Stackelberg Model (Pepall ch11)

2.1.4 Workable and Contestable Market

2.1.5 Economies of Scale and Economies of Scope (Pepall ch4, Viscusi ch11)

2.1.6 Entry Barriers

2.1.7 Measuring Market Structure

2.2 Practice (Petersen ch4-5)

2.2.1 Antitrust Law

2.2.2 Rule of Reason vs. Per Se

2.2.3 Cases of Antitrust Application

3. Market Conduct

3.1 Theory

3.1.1 Mergers (Petersen ch6)

3.1.1.1 Defining the Market

3.1.1.2 Horizontal Mergers

3.1.1.3 Vertical Mergers

3.1.1.4 Conglomerate Mergers

3.1.2 Price Discrimination and Vertical Restraint of Trade (Petersen ch8)

3.1.2.1 Price Discrimination

3.1.2.2 Tying Contracts

3.1.2.3 Exclusive Dealings

3.1.2.4 Territorial Limitations

3.1.2.5 Resale Price Maintenance

3.1.2.6 Subcontracting

3.1.2.7 Diversification

3.2 Practice (Petersen ch6)

3.2.1 Horizontal Mergers

3.2.2 Vertical Mergers

3.2.3 Conglomerate Mergers

4. Natural monopoly and its transformation (Viscusi et al. ch11, 15)

4.1 Natural Monopoly

4.2 Transformation of Natural Monopoly

4.3 Regulatory Policies

5. Telecommunications Market

5.1 Transformation of Natural Monopoly (DHL)

5.2 Network Neutrality (DHL)

5.3 Facility-based Competition vs. Service-based Competition (DHL)

; MVNO (DHL)

Network Economics

6. Principles of Network Economy

6.1 Network Externalities (Tirole 1988; Katz and Shapiro 1985)

6.2 Critical Mass (Allen 1988; Bass 1969; Rogers 1995; Schoder 2000; Williams et al. 1988)

6.3 Transformation of Demand Curve (Economides and Himmelberg 1995; Shy 2001 ch5)

6.4 Increasing Returns World (Arthur 1989, 1990, 1996)

6.5 Path Dependent Process: Lock-in Effect (Arthur 1986, 1988; Arthur et al. 1984; David 1985; Liebowitz and Margolis 1995, 1996)

7. Information Good

7.1 Pricing and Cost Structure (Shapiro & Varian 1999 Ch 2; Bank 1997; Bulkeley 1995; Melcher 1997; Varian 1980, 1985, 1995)

7.2 Intellectual Property Right Management (Shapiro & Varian 1999 Ch 4; Angwin 1997; Arrow 1972; Blumenthal 1992)

8. Network Competition

8.1 Lock-in and Switching Cost (Shapiro & Varian 1999 Ch 5; Klemperer 1987, 1989, 1995; Farrell and Shapiro 1988, 1989; Beggs and Klemperer 1992)

8.2 Network and Positive Feedback (Shapiro & Varian 1999 Ch 7; Katz and Shapiro 1985; Farrell and Saloner 1986; Arthur 1989, 1994)

8.3 Necessity Effects and Network Effects (Shy 2001; Katz and Shapiro 1994)

Academic Honor Code of BTM (School of Business and Technology Management)

Academic integrity and honesty are critical values of KAIST community. It is essential to the academic integrity of this community that students do their own work and properly acknowledge the ideas, sources, and assistance upon which that work is based. As a member of KAIST BTM community, all students including those who take BTM courses are expected to adhere to the principles of truth, integrity, and respect. Failure to comply with the Honor Code may result in disciplinary action including failure of the course.

Academic dishonesty includes but is not limited to the following:

• Cheating: Copying from another’s examination paper, solutions, assignments, or allowing another to copy from one’s own.

• Plagiarism: Using another person’s original work without giving appropriate credit to or acknowledging the authors or sources

• Self-plagiarism: Submitting one piece of work in more than one course without the explicit permission of the instructors involved.

• Misrepresentation of authorship: Submitting work as one’s own which has been prepared by or purchased from another.

• Unpermitted collaboration or aid: Giving or receiving unpermitted aid on exams or assignments.

Any member of the BTM community who believes that violation of academic dishonesty has occurred should bring the matter to the attention of the department chair. The department chair will assign members of Academic Review Committee (학사심의회) to conduct a thorough investigation and, if necessary, request a due process to university.