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Managerial Economics: Applications, Strategies and Tactics 13th Edition by James R. McGuigan (Author), R. Charles Moyer (Author), Frederick H.deB. Harris (Author) EBOOK PDF Instant Download

Table of Content

Preface xix

About the Authors xxiii

PART I INTRODUCTION

1 Introduction and Goals of the Firm 2 (26)

Chapter Preview 2 (1)

Managerial Challenge: How to Achieve 2 (2)

Sustainability: Southern Company Electric

Power Generation

What Is Managerial Economics? 4 (1)

The Decision-Making Model 5 (1)

The Responsibilities of Management 5 (1)

What Went Right/What Went Wrong: Saturn 6 (1)

Corporation

Moral Hazard in Teams 6 (2)

The Role of Profits 8 (1)

Risk-Bearing Theory of Profit 8 (1)

Temporary Disequilibrium Theory of Profit 9 (1)

Monopoly Theory of Profit 9 (1)

Innovation Theory of Profit 9 (1)

Managerial Efficiency Theory of Profit 9 (1)

Objective of the Firm 9 (1)

The Shareholder Wealth-Maximization Model 10 (1)

of the Firm

Separation of Ownership and Control: The 11 (1)

Principal-Agent Problem

Divergent Objectives and Agency Conflict 11 (2)

Agency Problem 13 (2)

Implications of Shareholder Wealth 15 (1)

Maximization

What Went Right/What Went Wrong: Eli 15 (2)

Lilly Depressed by Loss of Prozac Patent

Caveats to Maximizing Shareholder Value 17 (2)

Residual Claimants 19 (1)

Goals in the Public Sector and 19 (1)

Not-for-Profit Enterprises

Not-for-Profit Objectives 20 (1)

The Efficiency Objective in 20 (1)

Not-for-Profit Organizations

Summary 21 (1)

Exercises 22 (1)

Case Exercise: Designing a Managerial 23 (1)

Incentives Contract

Case Exercise: Shareholder Value of 24 (4)

Renewable Energy from Wind Power at Hydro

Co.: Is RE < C?

2 Fundamental Economic Concepts 28 (35)

Chapter Preview 28 (1)

Managerial Challenge: Why Charge $25 per 28 (1)

Bag on Airline Flights?

Demand and Supply: A Review 29 (2)

The Diamond-Water Paradox and the 31 (1)

Marginal Revolution

Marginal Utility and Incremental Cost 32 (1)

Simultaneously Determine Equilibrium

Market Price

Individual and Market Demand Curves 33 (1)

The Demand Function 34 (2)

Import-Export Traded Goods 36 (1)

Individual and Market Supply Curves 37 (1)

Equilibrium Market Price of Gasoline 38 (5)

Marginal Analysis 43 (1)

Total, Marginal, and Average Relationships 44 (4)

The Net Present Value Concept 48 (1)

Determining the Net Present Value of an 48 (2)

Investment

Sources of Positive Net Present Value 50 (1)

Projects

Risk and the NPV Rule 51 (1)

Meaning and Measurement of Risk 52 (1)

Probability Distributions 52 (1)

Expected Values 53 (1)

Standard Deviation: An Absolute Measure 54 (1)

of Risk

Normal Probability Distribution 54 (2)

Coefficient of Variation: A Relative 56 (1)

Measure of Risk

What Went Right/What Went Wrong: 56 (1)

Long-Term Capital Management (LTCM)

Risk and Required Return 57 (2)

Summary 59 (1)

Exercises 59 (2)

Case Exercise: Revenue Management at 61 (2)

American Airlines

PART II DEMAND AND FORECASTING 63 (170)

3 Demand Analysis 64 (35)

Chapter Preview 64 (1)

Managerial Challenge: Health Care Reform 64 (2)

and Cigarette Taxes

Demand Relationships 66 (1)

The Demand Schedule Defined 66 (1)

Constrained Utility Maximization and 67 (4)

Consumer Behavior

What Went Right/What Went Wrong: Chevy 71 (1)

Volt

The Price Elasticity of Demand 72 (1)

Price Elasticity Defined 73 (3)

Interpreting the Price Elasticity: The 76 (6)

Relationship between the Price Elasticity

and Sales Revenue

The Importance of Elasticity-Revenue 82 (2)

Relationships

Factors Affecting the Price Elasticity of 84 (2)

Demand

International Perspectives: Free Trade 86 (1)

and the Price Elasticity of Demand:

Nestle Yogurt

The Income Elasticity of Demand 87 (1)

Income Elasticity Defined 87 (3)

Cross Elasticity of Demand 90 (1)

Cross Price Elasticity Defined 90 (1)

Interpreting the Cross Price Elasticity 90 (1)

Antitrust and Cross Price Elasticities 90 (2)

An Empirical Illustration of Price, 92 (1)

Income, and Cross Elasticities

The Combined Effect of Demand Elasticities 92 (1)

Summary 93 (1)

Exercises 94 (3)

Case Exercise: Polo Golf Shirt Pricing 97 (2)

4 Estimating Demand 99 (40)

Chapter Preview 99 (1)

Managerial Challenge: Demand for 99 (1)

Whitman’s Chocolate Samplers

Statistical Estimation of the Demand 100 (1)

Function

Specification of the Model 101 (2)

A Simple Linear Regression Model 103 (1)

Assumptions Underlying the Simple Linear 104 (1)

Regression Model

Estimating the Population Regression 105 (3)

Coefficients

Using the Regression Equation to Make 108 (2)

Predictions

Inferences about the Population 110 (3)

Regression Coefficients

Correlation Coefficient 113 (1)

The Analysis of Variance 114 (2)

Multiple Linear Regression Model 116 (1)

Use of Computer Programs 116 (1)

Estimating the Population Regression 116 (1)

Coefficients

Using the Regression Model to Make 116 (1)

Forecasts

Inferences about the Population 117 (2)

Regression Coefficients

The Analysis of Variance 119 (1)

Summary 120 (1)

Exercises 120 (4)

Case Exercise: Soft Drink Demand 124 (3)

Estimation

4A Problems in Applying the Linear 127 (1)

Regression Model

Introduction 127 (1)

Autocorrelation 127 (2)

Heteroscedasticity 129 (1)

Specification and Measurement Errors 130 (1)

Multicollinearity 131 (1)

Simultaneous Equation Relationships and 131 (3)

the Identification Problem

Nonlinear Regression Models 134 (1)

Semilogarithmic Transformation 134 (1)

Double-Log Transformation 134 (1)

Reciprocal Transformation 135 (1)

Polynomial Transformation 135 (1)

Summary 136 (1)

Exercises 136 (3)

5 Business and Economic Forecasting 139 (37)

Chapter Preview 139 (1)

Managerial Challenge: Excess Fiber Optic 139 (2)

Capacity at Global Crossing Inc.

The Significance of Forecasting 141 (1)

Selecting a Forecasting Technique 141 (1)

Hierarchy of Forecasts 141 (1)

Criteria Used to Select a Forecasting 142 (1)

Technique

Evaluating the Accuracy of Forecasting 142 (1)

Models

What Went Right/What Went Wrong: Crocs 142 (1)

Shoes

Alternative Forecasting Techniques 143 (1)

Deterministic Trend Analysis 143 (1)

Components of a Time Series 143 (1)

Some Elementary Time-Series Models 144 (1)

Secular Trends 145 (3)

Seasonal Variations 148 (2)

Smoothing Techniques 150 (1)

Moving Averages 151 (2)

First-Order Exponential Smoothing 153 (3)

Barometric Techniques 156 (1)

Leading, Lagging, and Coincident 156 (1)

Indicators

Survey and Opinion-Polling Techniques 157 (1)

Forecasting Macroeconomic Activity 158 (1)

Sales Forecasting 159 (1)

Econometric Models 159 (1)

Advantages of Econometric Forecasting 159 (1)

Techniques

Single-Equation Models 159 (2)

Multi-Equation Models 161 (1)

Consensus Forecasts: Livingston and Blue 162 (1)

Chip Forecaster Surveys

Stochastic Time-Series Analysis 163 (3)

Forecasting with Input-Output Tables 166 (1)

International Perspectives: Long-Term 166 (1)

Sales Forecasting by General Motors in

Overseas Markets

Summary 167 (1)

Exercises 167 (4)

Case Exercise: Cruise Ship Arrivals in 171 (1)

Alaska

Case Exercise: Lumber Price Forecast 172 (1)

Case Exercise: Forecasting in the Global 173 (3)

Financial Crisis

6 Managing in the Global Economy 176 (57)

Chapter Preview 176 (1)

Managerial Challenge: Financial Crisis 176 (3)

Slows U.S. Household Consumption and

Crushes Business Investment: Can Exports

to China Provide a Recovery?

Introduction 179 (1)

What Went Right/What Went Wrong: Export 180 (1)

Market Pricing at Toyota

Import-Export Sales and Exchange Rates 180 (1)

Foreign Exchange Risk 180 (2)

International Perspectives: Collapse of 182 (2)

Export and Domestic Sales at Cummins

Engine

Outsourcing 184 (2)

China Trade Blossoms 186 (2)

China Today 188 (2)

The Market for U.S. Dollars as Foreign 190 (1)

Exchange

Import-Export Flows and Transaction 190 (2)

Demand for a Currency

The Equilibrium Price of the U.S. Dollar 192 (1)

Speculative Demand, Government Transfers, 192 (1)

and Coordinated Intervention

Short-Term Exchange Rate Fluctuations 193 (1)

Determinants of Long-Run Trends in 193 (1)

Exchange Rates

The Role of Real Growth Rates 194 (2)

The Role of Real Interest Rates 196 (1)

The Role of Expected Inflation 197 (1)

Purchasing Power Parity 198 (1)

PPP Offers a Better Yardstick of 199 (1)

Comparative Size of Business Activity

What Went Right/What Went Wrong: Big Box 200 (1)

U.S. Retailers in China

Relative Purchasing Power Parity 201 (1)

Qualifications of PPP 202 (1)

The Appropriate Use of PPP: An Overview 202 (1)

What Went Right/What Went Wrong: GM, 203 (1)

Toyota, and the Celica GT-S Coupe

Trade-Weighted Exchange Rate Index 204 (3)

International Trade: A Managerial 207 (1)

Perspective

Shares of World Trade and Regional 207 (3)

Trading Blocs

Comparative Advantage and Free Trade 210 (2)

Import Controls and Protective Tariffs 212 (2)

The Case for Strategic Trade Policy 214 (2)

Increasing Returns 216 (1)

Network Externalities 216 (1)

Free Trade Areas: The European Union and 217 (1)

NAFTA

Optimal Currency Areas 218 (1)

Intraregional Trade 219 (1)

Mobility of Labor 219 (1)

Correlated Macroeconomic Shocks 219 (1)

Largest U.S. Trading Partners: The Role 220 (2)

of NAFTA

A Comparison of the EU and NAFTA 222 (1)

Gray Markets, Knockoffs, and Parallel 223 (1)

Importing

What Went Right/What Went Wrong: Ford 224 (1)

Motor Co. and Exide Batteries: Are

Country Managers Here to Stay?

Perspectives on the U.S. Trade Deficit 225 (2)

Summary 227 (1)

Exercises 228 (1)

Case Exercise: Predicting the Long-Term 229 (1)

Trends in Value of the U.S. Dollar and

the Euro

Case Exercise: Elaborate the Debate on 229 (2)

NAFTA

6A Foreign Exchange Risk Management 230 (1)

International Perspectives: Toyota and 231 (2)

Honda Buy U.S. Assembly Capacity

PART III PRODUCTION AND COST 233 (98)

7 Production Economics 234 (46)

Chapter Preview 234 (1)

Managerial Challenge: Green Power 234 (2)

Initiatives Examined: What Went Wrong in

California’s Deregulation of Electricity?

The Production Function 236 (1)

Fixed and Variable Inputs 237 (2)

Production Functions with One Variable 239 (1)

Input

Marginal and Average Product Functions 239 (1)

The Law of Diminishing Marginal Returns 240 (1)

What Went Right/What Went Wrong: Factory 241 (1)

Bottlenecks at a Boeing Assembly Plant

Increasing Returns with Network Effects 241 (2)

Producing Information Services under 243 (1)

Increasing Returns

The Relationship between Total, Marginal, 244 (2)

and Average Product

Determining the Optimal Use of the 246 (1)

Variable Input

Marginal Revenue Product 247 (1)

Marginal Factor Cost 247 (1)

Optimal Input Level 247 (1)

Production with Multiple Variable Inputs 248 (1)

Production (Output Constant) Isoquants 248 (2)

The Marginal Rate of Technical 250 (2)

Substitution

Determining the Optimal Combination of 252 (1)

Inputs

Isocost Lines 253 (1)

Minimizing Cost Subject to an Output 254 (1)

Constraint

A Fixed Proportions Optimal Production 255 (1)

Process

Production Processes and Process Rays 256 (1)

Measuring the Efficiency of a Production 257 (1)

Process

Returns to Scale 258 (1)

Measuring Returns to Scale 259 (1)

Increasing and Decreasing Returns to Scale 260 (1)

The Cobb-Douglas Production Function 260 (1)

Empirical Studies of the Cobb-Douglas 261 (1)

Production Function in Manufacturing

A Cross-Sectional Analysis of U.S. 261 (3)

Manufacturing Industries

Summary 264 (1)

Exercises 265 (3)

Case Exercise: The Production Function 268 (2)

for Wilson Company

7A Production Economics of Renewable 270 (1)

and Exhaustible Natural Resources,

Advanced Material

Renewable Resources 270 (4)

Exhaustible Natural Resources 274 (5)

Exercises 279 (1)

8 Cost Analysis 280 (25)

Chapter Preview 280 (1)

Managerial Challenge: Can a Leaner 280 (1)

General Motors Compete Effectively?

The Meaning and Measurement of Cost 281 (1)

Accounting versus Economic Costs 281 (1)

Three Contrasts between Accounting and 282 (4)

Economic Costs

Short-Run Cost and Product Functions 286 (1)

Average and Marginal Cost Functions 286 (5)

Long-Run Cost Functions 291 (1)

Optimal Capacity Utilization: Three 291 (1)

Concepts

Economies and Diseconomies of Scale 292 (1)

The Percentage of Learning 293 (3)

Diseconomies of Scale 296 (1)

The Overall Effects of Scale Economies 296 (1)

and Diseconomies

International Perspectives: How Japanese 297 (2)

Companies Deal with the Problems of Size

Summary 299 (1)

Exercises 300 (2)

Case Exercise: Cost Analysis of Patio 302 (2)

Furniture

Case Exercise: Profit Margins on the 304 (1)

Amazon Kindle

9 Applications of Cost Theory 305 (26)

Chapter Preview 305 (1)

Managerial Challenge: How Exactly Have 305 (1)

Computerization and Information

Technology Lowered Costs at Chevron,

Timken, and Merck?

Estimating Cost Functions 306 (1)

Issues in Cost Definition and Measurement 307 (1)

Controlling for Other Variables 307 (1)

The Form of the Empirical Cost-Output 308 (1)

Relationship

What Went Right/What Went Wrong: Boeing: 309 (1)

The Rising Marginal Cost of Wide-Bodies

Statistical Estimation of Short-Run Cost 310 (1)

Functions

Statistical Estimation of Long-Run Cost 311 (1)

Functions

Determining the Optimal Scale of an 311 (3)

Operation

Economies of Scale versus Economies of 314 (1)

Scope

Engineering Cost Techniques 314 (2)

The Survivor Technique 316 (1)

A Cautionary Tale 317 (1)

Break-Even Analysis 317 (1)

Graphical Method 318 (1)

Algebraic Method 318 (3)

Some Limitations of Break-Even Analysis 321 (1)

Doing a Break-Even versus a Contribution 321 (2)

Analysis

A Limitation of Contribution Analysis 323 (1)

Operating Leverage 323 (2)

Inherent Business Risk 325 (1)

Summary 325 (1)

Exercises 326 (1)

Case Exercise: Cost Functions 327 (1)

Case Exercise: Charter Airline Operating 328 (3)

Decisions

PART IV PRICING AND OUTPUT DECISIONS: 331 (216)

STRATEGY AND TACTICS

10 Prices, Output, and Strategy: Pure and 332 (50)

Monopolistic Competition

Chapter Preview 332 (1)

Managerial Challenge: Resurrecting Apple 332 (1)

in the Tablet World

Introduction 333 (1)

Competitive Strategy 334 (1)

What Went Right/What Went Wrong: Xerox 335 (1)

Generic Types of Strategies 336 (1)

Product Differentiation Strategy 336 (1)

Cost-Based Strategy 336 (1)

Information Technology Strategy 337 (2)

The Relevant Market Concept 339 (1)

Porter’s Five Forces Strategic Framework 339 (1)

The Threat of Substitutes 340 (1)

The Threat of Entry 341 (3)

The Power of Buyers and Suppliers 344 (1)

The Intensity of Rivalrous Tactics 345 (4)

The Myth of Market Share 349 (1)

A Continuum of Market Structures 349 (1)

Pure Competition 350 (1)

Monopoly 351 (1)

Monopolistic Competition 352 (1)

Oligopoly 352 (1)

Price-Output Determination under Pure 353 (1)

Competition

Short Run 353 (3)

Profit Maximization under Pure 356 (1)

Competition (Short Run): Adobe Corporation

Long Run 357 (3)

Price-Output Determination under 360 (1)

Monopolistic Competition

What Went Right/What Went Wrong: The 361 (1)

Dynamics of Competition at Amazon.com

Short Run 361 (1)

Long Run 361 (2)

Selling and Promotional Expenses 363 (1)

Determining the Optimal Level of Selling 364 (1)

and Promotional Outlays

Optimal Advertising Intensity 365 (1)

The Net Value of Advertising 366 (1)

Competitive Markets under Asymmetric 367 (1)

Information

Incomplete versus Asymmetric Information 367 (1)

Search Goods versus Experience Goods 368 (1)

Adverse Selection and the Notorious Firm 368 (2)

Insuring and Lending under Asymmetric 370 (1)

Information: Another Lemons Market

Solutions to the Adverse Selection Problem 371 (1)

Mutual Reliance: Hostage Mechanisms 371 (1)

Support Asymmetric Information Exchange

Brand-Name Reputations as Hostages 372 (2)

Price Premiums with Non-Redeployable 374 (2)

Assets

Summary 376 (1)

Exercises 377 (2)

Case Exercise: Netflix and Redbox Compete 379 (1)

for Movie Rentals

Case Exercise: Saving Sony Music 380 (2)

11 Price and Output Determination: Monopoly 382 (27)

and Dominant Firms

Chapter Preview 382 (1)

Managerial Challenge: Dominant 382 (1)

Microprocessor Company Intel Adapts to

Next Trend

Monopoly Defined 383 (1)

Sources of Market Power for a Monopolist 383 (1)

Increasing Returns from Network Effects 384 (3)

What Went Right/What Went Wrong: Pilot 387 (1)

Error at Palm

Price and Output Determination for a 388 (1)

Monopolist

Spreadsheet Approach: Profit versus 388 (1)

Revenue Maximization for Polo Golf Shirts

Graphical Approach 389 (1)

Algebraic Approach 390 (1)

The Importance of the Price Elasticity of 391 (2)

Demand

The Optimal Markup, Contribution Margin, 393 (2)

and Contribution Margin Percentage

Gross Profit Margins 395 (1)

Components of the Margin 395 (1)

Monopolists and Capacity Investments 396 (1)

Limit Pricing 397 (1)

Using Limit Pricing to Hamper the Sales 398 (1)

of Generic Drugs

Regulated Monopolies 399 (1)

Electric Power Companies 400 (1)

What Went Right/What Went Wrong: The 400 (1)

Public Service Company of New Mexico

Natural Gas Companies 401 (1)

The Economic Rationale for Regulation 401 (1)

Natural Monopoly Argument 401 (2)

Summary 403 (1)

Exercises 403 (4)

Case Exercise: Differential Pricing of 407 (2)

Pharmaceuticals: The HIV/AIDS Crisis

12 Price and Output Determination: Oligopoly 409 (35)

Chapter Preview 409 (1)

Managerial Challenge: Google’s Android 409 (2)

and Apple’s iPhone Displace Nokia in

Smart phones?

Oligopolistic Market Structures 411 (1)

Oligopoly in the United States: Relative 411 (5)

Market Shares

Interdependencies in Oligopolistic 416 (1)

Industries

The Cournot Model 416 (2)

Cartels and Other Forms of Collusion 418 (2)

Factors Affecting the Likelihood of 420 (1)

Successful Collusion

Cartel Profit Maximization and the 421 (2)

Allocation of Restricted Output

International Perspectives: The OPEC 423 (5)

Cartel

Cartel Analysis: Algebraic Approach 428 (2)

Price Leadership 430 (1)

Barometric Price Leadership 430 (1)

Dominant Firm Price Leadership 431 (3)

The Kinked Demand Curve Model 434 (1)

Avoiding Price Wars 435 (3)

What Went Right/What Went Wrong: 438 (2)

Good-Better-Best Product Strategy at

Marriott Corporation and Kodak

Summary 440 (1)

Exercises 441 (2)

Case Exercise: Web-Based Satellite Phones 443 (1)

Displace Motorola’s Mobile Phone

13 Best-Practice Tactics: Game Theory 444 (56)

Chapter Preview 444 (1)

Managerial Challenge: Large-Scale Entry 444 (2)

Deterrence of Low-Cost Discounters:

Southwest Airline/AirTran

Oligopolistic Rivalry and Game Theory 446 (1)

What Went Right/What Went Wrong: 446 (1)

Nintendo’s Wii U

A Conceptual Framework for Game Theory 447 (1)

Analysis

Components of a Game 448 (2)

Cooperative and Noncooperative Games 450 (1)

Other Types of Games 450 (1)

Analyzing Simultaneous Games 451 (1)

The Prisoner’s Dilemma 451 (2)

Dominant Strategy and Nash Equilibrium 453 (3)

Strategy Defined

The Escape from Prisoner’s Dilemma 456 (1)

Multiperiod Punishment and Reward Schemes 456 (1)

in Repeated Play Games

Unraveling and the Chain Store Paradox 457 (2)

Mutual Forbearance and Cooperation in 459 (1)

Repeated Prisoner’s Dilemma Games

Bayesian Reputation Effects 460 (1)

Winning Strategies in Evolutionary 460 (2)

Computer Tournaments: Tit for Tat

Price-Matching Guarantees 462 (2)

Industry Standards as Coordination Devices 464 (1)

Analyzing Sequential Games 465 (1)

A Sequential Coordination Game 466 (2)

Subgame Perfect Equilibrium in Sequential 468 (1)

Games

Business Rivalry as a Self-Enforcing 469 (1)

Sequential Game

First-Mover and Fast-Second Advantages 470 (2)

Credible Threats and Commitments 472 (1)

Mechanisms for Establishing Credibility 473 (2)

Replacement Guarantees 475 (1)

Hostages Support the Credibility of 476 (1)

Commitments

Credible Commitments of Durable Goods 477 (1)

Monopolists

Planned Obsolescence 478 (1)

Post-Purchase Discounting Risk 479 (2)

Lease Prices Reflect Anticipated Risks 481 (1)

Summary 481 (1)

Exercises 482 (5)

Case Exercise: International 487 (2)

Perspectives: The Superjumbo Dilemma

13A Entry Deterrence and Accommodation 489 (1)

Games

Excess Capacity as a Credible Threat 489 (1)

Precommitments Using Non-Redeployable 489 (3)

Assets

Customer Sorting Rules 492 (1)

A Role for Sunk Costs in Decision Making 493 (1)

Perfectly Contestable Markets 494 (1)

Brinkmanship and Wars of Attrition 495 (2)

Tactical Insights about Slippery Slopes 497 (1)

Summary 498 (1)

Exercises 499 (1)

14 Pricing Techniques and Analysis 500 (47)

Chapter Preview 500 (1)

Managerial Challenge: Pricing the Chevy 500 (1)

Volt

A Conceptual Framework for Proactive, 501 (3)

Systematic-Analytical, Value-Based Pricing

Optimal Differential Price Levels 504 (1)

Graphical Approach 505 (1)

Algebraic Approach 506 (1)

Multiple-Product Pricing Decision 507 (1)

Differential Pricing and the Price 508 (5)

Elasticity of Demand

Differential Pricing in Target Market 513 (1)

Segments

Direct Segmentation with “Fences” 514 (2)

Optimal Two-Part Tariffs 516 (1)

What Went Right/What Went Wrong: 516 (2)

Unlimited Data at Verizon Wireless

Couponing 518 (1)

What Went Right/What Went Wrong: Two-Part 518 (1)

Pricing at Disney World

What Went Right/What Went Wrong: 519 (1)

Price-Sensitive Customers Redeem

Bundling 519 (3)

Price Discrimination 522 (2)

Pricing in Practice 524 (1)

Product Life Cycle Framework 524 (2)

Full-Cost Pricing versus Incremental 526 (2)

Contribution Analysis

Pricing on the Internet 528 (3)

Summary 531 (1)

Exercises 532 (4)

14A The Practice of Revenue Management 535 (1)

A Cross-Functional Systems Management 536 (2)

Process

Sources of Sustainable Price Premiums 538 (1)

Revenue Management Decisions, Advanced 538 (1)

Material

Proactive Price Discrimination 539 (1)

Capacity Reallocation 540 (3)

Optimal Overbooking 543 (3)

Summary 546 (1)

Exercises 546 (1)

PART V ORGANIZATIONAL ARCHITECTURE AND 547

REGULATION

15 Contracting, Governance, and 548 (63)

Organizational Form

Chapter Preview 548 (1)

Managerial Challenge: Controlling the 548 (1)

Vertical: Ultimate TV versus Google TV

Introduction 549 (1)

The Role of Contracting in Cooperative 549 (2)

Games

Vertical Requirements Contracts 551 (1)

The Function of Commercial Contracts 552 (3)

Incomplete Information, Incomplete 555 (1)

Contracting, and Post-Contractual

Opportunism

Corporate Governance and the Problem of 555 (2)

Moral Hazard

What Went Right/What Went Wrong: 557 (1)

Forecasting the Great Recession with

Workouts and Rollovers

The Need for Governance Mechanisms 558 (1)

What Went Right/What Went Wrong: Moral 559 (1)

Hazard and Holdup at Enron and WorldCom

The Principal-Agent Model 559 (1)

The Efficiency of Alternative Hiring 559 (2)

Arrangements

Creative Ingenuity and the Moral Hazard 561 (2)

Problem in Managerial Contracting

Formalizing the Principal-Agent Problem 563 (1)

Screening and Sorting Managerial Talent 564 (1)

with Optimal Incentives Contracts

What Went Right/What Went Wrong: Why Have 565 (2)

Restricted Stock Grants Replaced

Executive Stock Options at Microsoft?

Choosing the Efficient Organizational Form 567 (3)

What Went Right/What Went Wrong: Cable 570 (1)

Allies Refuse to Adopt Microsoft’s WebTV

as an Industry Standard

International Perspectives: Economies of 571 (1)

Scale and International Joint Ventures in

Chip Making

Prospect Theory Motivates Full-Line 572 (2)

Forcing

Vertical Integration 574 (3)

What Went Right/What Went Wrong: Dell 577 (1)

Replaces Vertical Integration with

Virtual Integration

The Dissolution of Assets in a Partnership 577 (2)

Summary 579 (1)

Exercises 580 (1)

Case Exercise: Borders Books and 581 (1)

Amazon.com Decide to Do Business Together

Case Exercise: Designing a Managerial 582 (1)

Incentive Contract

Case Exercise: The Division of Investment 582 (1)

Banking Fees in a Syndicate

15A Auction Design and Information 583 (1)

Economics

Optimal Mechanism Design 583 (1)

Queue Service Rules 583 (1)

First-Come, First-Served versus 584 (1)

Last-Come, First-Served

Stratified Lotteries for Concerts 585 (1)

Auctions 586 (1)

Types of Auctions 586 (1)

Winner’s Curse in Asymmetric Information 587 (2)

Bidding Games

Information Revelation in Common-Value 589 (1)

Auctions

Bayesian Strategy with Open Bidding Design 590 (2)

Strategic Underbidding in Private-Value 592 (2)

Auctions

Second-Highest Sealed-Bid Auctions: A 594 (2)

Revelation Mechanism

Revenue Equivalence of Alternative 596 (2)

Auction Types

Contractual Approaches to Asymmetric 598 (2)

Information in Online Auctions

Incentive-Compatible Revelation Mechanisms 600 (1)

Cost Revelation in Joint Ventures and 600 (1)

Partnerships

Cost Overruns with Simple Profit-Sharing 601 (2)

Partnerships

Clarke-Groves Incentive-Compatible 603 (1)

Revelation Mechanism

An Optimal Incentives Contract 603 (1)

International Perspectives: Joint Venture 604 (1)

in Memory Chips: IBM, Siemens, and Toshiba

Implementation of IC Contracts 605 (1)

International Perspectives: Whirlpool’s 606 (1)

Joint Venture in Appliances Improves upon

Maytag’s Outright Purchase of Hoover

Summary 607 (1)

Exercises 608 (1)

Case Exercise: Spectrum Auction 609 (1)

Case Exercise: Debugging Computer 610 (1)

Software: Versioning at Intel

16 Government Regulation 611 (37)

Chapter Preview 611 (1)

Managerial Challenge: Cap and Trade, 611 (1)

Deregulation, and the Coase Theorem

The Regulation of Market Structure and 612 (1)

Conduct

Market Performance 613 (1)

Market Conduct 613 (1)

Contestable Markets 614 (1)

Antitrust Statutes and Their Regulatory 615 (1)

Enforcement

The Sherman Act (1890) 615 (1)

The Clayton Act (1914) 615 (1)

The Robinson-Patman Act (1936) 616 (1)

The Hart-Scott-Rodino Antitrust 617 (1)

Improvement Act (1976)

Antitrust Prohibition of Selected 618 (1)

Business Decisions

Collusion: Price Fixing 618 (2)

Mergers That Substantially Lessen 620 (1)

Competition

Merger Guidelines (2010) 621 (1)

Monopolization 621 (2)

Wholesale Price Discrimination 623 (1)

Refusals to Deal 624 (1)

Resale Price Maintenance Agreements 624 (1)

Command and Control Regulatory 625 (2)

Constraints: An Economic Analysis

The Deregulation Movement 627 (1)

What Went Right/What Went Wrong: The Need 627 (1)

for a Regulated Clearinghouse to Control

Counterparty Risk at AIG

Regulation of Externalities 628 (1)

Coasian Bargaining for Reciprocal 629 (1)

Externalities

Qualifications of the Coase Theorem 630 (1)

Impediments to Bargaining 631 (1)

Resolution of Externalities by Regulatory 632 (1)

Directive

Resolution of Externalities by Taxes and 633 (2)

Subsidies

Resolution of Externalities by Sale of 635 (1)

Pollution Rights: Cap and Trade

Governmental Protection of Business 635 (1)

Licensing and Permitting 635 (1)

Patents 636 (1)

The Optimal Deployment Decision: To 636 (1)

License or Not

Pros and Cons of Patent Protection and 637 (1)

Licensure of Trade Secrets

What Went Right/What Went Wrong: Delayed 638 (2)

Release at Aventis

What Went Right/What Went Wrong: 640 (1)

Technology Licenses Cost Palm Its Lead in

PDAs

What Went Right/What Went Wrong: 641 (1)

Motorola: What They Didn’t Know Hurt Them

Conclusion on Licensing 641 (1)

Summary 642 (1)

Exercises 643 (2)

Case Exercise: Do Luxury Good 645 (1)

Manufacturers Have a Legitimate Interest

in Minimum Resale Price Maintenance:

Leegin v. Kay’s Kloset?

Case Exercise: Microsoft Tying 646 (1)

Arrangements

Case Exercise: Music Recording Industry 647 (1)

Blocked from Consolidating

17 Long-Term Investment Analysis 648

Chapter Preview 648 (1)

Managerial Challenge: Industrial 648 (1)

Renaissance in America: Insourcing of GE

Appliances

The Nature of Capital Expenditure 649 (1)

Decisions

A Basic Framework for Capital Budgeting 650 (1)

The Capital Budgeting Process 650 (1)

Generating Capital Investment Projects 651 (1)

Estimating Cash Flows 651 (2)

Evaluating and Choosing the Investment 653 (3)

Projects to Implement

Estimating the Firm’s Cost of Capital 656 (1)

Cost of Debt Capital 657 (1)

Cost of Internal Equity Capital 657 (2)

Cost of External Equity Capital 659 (1)

Weighted Cost of Capital 659 (1)

Cost-Benefit Analysis 660 (1)

Accept-Reject Decisions 661 (1)

Program-Level Analysis 662 (1)

Steps in Cost-Benefit Analysis 662 (2)

Objectives and Constraints in 664 (1)

Cost-Benefit Analysis

Analysis and Valuation of Benefits and 665 (1)

Costs

Direct Benefits 665 (1)

Direct Costs 665 (1)

Indirect Costs or Benefits and Intangibles 665 (1)

The Appropriate Rate of Discount 666 (1)

Cost-Effectiveness Analysis 667 (1)

Least-Cost Studies 667 (1)

Objective-Level Studies 668 (1)

Summary 668 (1)

Exercises 669 (3)

Case Exercise: Industrial Development Tax 672 (1)

Relief and Incentives

Case Exercise: Multigenerational Effects 673

of Ozone Depletion and Greenhouse Gases

Appendices

A The Time Value of Money 1 (1)

B Differential Calculus Techniques in 1 (1)

Management

C Tables 1 (1)

D Check Answers to Selected 1 (1)

End-of-Chapter Exercises

Glossary 1 (1)

Index