Course Overview
This is an advanced course in the economics of pricing, strategy and (both private and public) policy of pricing by firms. It is intended to provide a keener analytical basis for managers to understand and make pricing decisions than is possible from the tools provided in other economics and business classes. The course draws heavily, though not exclusively, from the economics discipline. Accordingly, students should enter the course with a comfort level provided by the core microeconomics class.
As an advanced course, this class will expect that students contribute to their peers’ learning experience by participating in several ways. First, classes will be based on highly interactive lectures in which students and the professor jointly explore topic areas.
Second, classes will often include a “caselet” discussion of 5-15 minutes in which students discuss a “real” pricing case/issue. Third, students will participate in teams to develop a substantive research paper that provides insight into a pricing issue in a specific industry. Oral presentations of these research papers will be given during the last class period.
Course Chronology & Topics
The pace of the presentations will vary depending on the extent of in-class discussion.
July 2 Intro to Course: Why Study Pricing?
The Basic and Advanced Theory of Pricing (Costs)
July 3 The Basic and Advanced Theory of Pricing (Industrial Organization)
Empirical Regularities of Pricing: An Overview
July 4 Meet with Professor, Pricing project defined
Public Policy of Pricing
July 5 Nonuniform Pricing
July 6 Pricing in Vertical Settings
July 11 The Psychology of Price
July 12 Pricing in an International Context (* if time permits)
July 13 Student Presentations
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Grading
Grading will be determined by students’ performance in three areas:
Research project (Oral presentation and written paper) 40%
Final exam 40 %
Class participation 20%
Articles are of three types :
(1) Practitioner (*) - These readings are easily accessible and touch lightly on the broad
subject at hand;
(2) Core (**) - These readings require substantive consideration and diligence to absorb and deal with the broad subject at hand in some detail; and
(3) Advanced (***) - These readings require considerable substantive consideration and diligence to absorb and provide advanced insights into a particular aspect of the subject at hand.
Detailed Course Outline
Meeting 1 - Intro to Course; Why Study Pricing?
Readings:
[1] (**) Stigler, George The Theory of Price, Fourth Edition, Macmillan Publishing
Company, 1987, Chapters 1 and 2.
[2] (*)Taylor, Alex III “The Black Art of Auto Pricing” Fortune
December 3, 2007. http://money.cnn.com/2007/11/30/magazines/fortune/taylor_pricing.fortune/index.h
tm
[3] (*) “Higher Prices Make Box-Office Debut –Tickets Get Costlier as Movie
Chains Seek to Cash in on Consumers Willingness to Pay More for 3-D,” Wall
Street Journal, March 25, 2010. http://online.wsj.com/article/SB20001424052748703312504575142143922186532.
html
Meeting 2 - The Basic and Advanced Theory of Pricing (Costs)
Readings:
[1] (*) Froeb, Luke M. and Brian T. McCann Managerial Economics: A Problem
Solving Approach, “More Realistic and Complex Pricing” Chapter 10, pp.
135-144.
[2] (*) T. T.Nagle and R.K. Holden, The Strategy and Tactics of Pricing, 2002.
Chapter 2.
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[3] (***) Bulow, Jeremy “A Note on the Effect of Cost Changes on Prices,”
Journal of Political Economy, Vol. 91, 1983, pp. 182-185.
Caselet: “ A Pint-Sized Problem,” Wall Street Journal, June 7-8, 2008, p. W-3.
Meeting 3 - The Basic and Advanced Theory of Pricing (Industrial Organization)
Readings:
[1] (**) Pindyck, Robert and Daniel Rubinfeld Microeconomics, Chapter 12, pp. 443-478.
[2] (**) Besanko, David, Dranove, David and Mark Shanley “The Dynamics of
Pricing Rivalry,” Chapter 9, Economics of Strategy, 2000, pp. 289-322.
Caselet: Wal-Mart Strafes Amazon in Book War, Wall Street Journal, October 16,
2009. Available at: http://online.wsj.com/article/SB125565024634288895.html
Meeting 4 - Meet with Professor, Pricing project defined
Meeting 5 - Empirical Regularities of Pricing: An Overview
Readings:
[1] (**) Blinder, Alan “Why are Prices Sticky? Preliminary Results from an
Interview Study,” American Economic Review, May 1991, pp. 89-96.
(Explains various theories of the observed stickiness of prices)
[2] (***) Daniel Hosken and David Reiffen “Patterns of Retail Price
Variation,” RAND Journal of Economics, Spring 2004, pp. 128-146.
[3] (**) Chevalier, Judith, Anil K. Kashyap and Peter E. Rossi “ Why Don’t
Prices Rise During Periods of Peak Demand? Evidence from Scanner
Data,” American Economic Review, Vol. 93, March 2003, pp. 15-37.
[5] (*)Baye, Michael, et al “A Dashboard for Online Pricing,” California
Management Review, Vol. 50, Fall 2007, pp. 202-216.
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Caselet: Cespedes, Frank V. Elliot B. Ross and Benson Shapiro
“Raise Your Prices,”
Wall Street Journal, May 24, 2010. Available at http://online.wsj.com/article/NA_WSJ_PUB:SB100014240527487042400045750855137
17202880.html#printMode
Caselet: Sarah Rubenstein “Merck Takes Middle Road on AIDS Drug Price”
Wall Street Journal, October 15, 2007 http://blogs.wsj.com/health/2007/10/15/merck-takes-middle-road-on-aidsdrug-price/
Meeting 6 – Public Policies Toward Pricing
Caselet: Joseph Treaster “Hurricane Charlie: The Economics” New York Times,
August 18, 2004.
Caselet : Christopher Elliot “Spirit Airlines to charge for carry-on bags,”
Consumer Traveler, April 6, 2010. Available online at: http://www.consumertraveler.com/today/spirit-airlines-to-charge-for-carry-onbags/
Christopher Elliot “By Unbundling, Airlines Make a Bundle,” Washington Post,
April 4, 2010. Available online at: http://www.washingtonpost.com/wpdyn/content/article/2010/04/01/AR2010040103315.html
Meeting 7 & 8 - Nonuniform Pricing
Readings:
[1] (**) Pindyck , Daniel and Robert Rubinfeld Microeconomics, Seventh
Edition, 2005, Chapter 11, “Pricing with Market Power.”
[2] (*) Levy, Steven “Pay per Gig,” Washington Post, January 30, 2008, p.
D1, D3
[3] (***) Borenstein, Severin “Price Discrimination in Free-Entry Markets,”
RAND Journal of Economics, Vol. 16, 1985, pp. 380-397]
[4] (***) Leslie, Phillip “Price Discrimination in Broadway Theater,” RAND
Journal of Economics, Vol. 35, Autumn 2004, pp. 520-541.
Caselet: Pricing Electricity “Off-Peak Laundry? Pricing Power by the
Hour,” Washington Post December 12, 2007, A01. Available at:
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http://www.washingtonpost.com/wpdyn/content/article/2007/12/11/AR2007121102502_pf.html
Caselet: “Commission finds against Topps for Barring Imports of Pokémon
Stickers from Low Price to High Price Countries” See European
Commission website at: http://europa.eu/rapid/pressReleasesAction.do?reference=IP/04/682&format
=HTML&aged=0&language=EN&guiLanguage=en
Caselet: Caps Look To SF Giants For 'Dynamic Ticketing' Model http://wamu.org/news/morning_edition/11/12/05/caps_look_to_sf_giants_fo r_dynamic_ticketing_model
Meeting 9&10 - Pricing in Vertical Settings
Readings:
[2] (***) Pindyck , Daniel and Robert Rubinfeld Microeconomics, Seventh
Edition, 2009, “Transfer Pricing in the Integrated Firm,” Appendix to
Chapter 11, pp. 433 – 441.
[1] (**) Cabral, Chapter 11
Meeting 11 - The Psychology of Price
Readings:
[1] (**) H. Leibenstein, “Bandwagon, Snob, and Veblen Effects in the Theory of Consumers’ Demand,” The Quarterly Journal of Economics
(May 1950), pp. 183-207.
[2] (***) Ku, Gillian, Galinsky Adam D. and J. Keith Murnighan “Starting
Low but Ending High: A Reversal of the Anchoring Effect in Auctions,”
Journal of Personality and Social Psychology, June 2006, pp. 975-986.
[3] Shiv, Baba, Ziv Carmon and Dan Ariely “Placebo Effects of Marketing
Actions: Consumers May Get What They Pay For,” Journal of Marketing
Research, November 2005, pp. 383-393.
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Bonus meeting 12 (time available) - Pricing in an International Context
Readings:
[1] (**) Fullerton, Thomas M. and Roberto Coronado “Restaurant Prices and the Mexican Peso” Southern Economic Journal, Vol. 68, July 2001, pp. 145-
155.
[2] (**) Goldberg, P.K. and M. Knetter “Goods Prices and Exchange Rates:
What Have We Learned?” Journal of Economic Literature, September
1997, pp. 1243-1272.
[3] (**) David L. Kaserman and John W. Mayo “International Dumping of
Products,” in Government and Business: The Economics of Antitrust and
Regulation, 1995, pp. 391-393.
Meeting 13 - Student Presentations
Meeting 14 – Student Presentations
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