EMBA ECON 611 Managerial Econonomics Page 1 EMBA COURSE SYLLABUS ECON 611 Course Title Managerial Economics: Competitive Analysis in a Global Economic Environment Instructor Professor Ingo BÖBEL, Dr.rer.pol., Dr.rer.pol.habil. Contact Information +377 97986986 Office Room 215 ibobel@monaco.edu Course (and Personal) Website at: http://ibobel.pbwiki.com (for detailled readings and supplementary information click on « EMBA Information» in the « Sidebar » on my personal website) ECON 611 3 For exact details see course outline below January 4-6, 2010 TBA Course Number Credits Course Schedule Course Length Location Course Description Professor Dr. Ingo Böbel Sound economic analysis has never been more important - regardless whether the decision-making unit is an individual, household, firm, non-profit organization, or government. We use a modern treatment of economic theory to help students both understand and improve the managerial decision-making process whereby we concentrate on microeconomic and macroeconomic topics of particular importance. The integrative approach used in this course demonstrates that important managerial decisions are interdisciplinary as effective management is seen to involve an integration of the accounting, finance, marketing, personnel and production functions. Therefore, the business firm is treated as a unified whole, rather than a series of discrete, unrelated parts. We start out to cover basic microeconomic theories, i.e., the underlying economic behaviour of actors participating in individual markets (theory of markets, especially the theories of supply and demand), firms (production, cost and pricing), and industries under different forms of IUM – EMBA Program Jan. 2010 EMBA ECON 611 Managerial Econonomics Page 2 market structure (competition vs. monopoly). Then we look at a practical case study-example (Intel case). Intel's internet strategy can be used to introduce basic ideas on corporate strategy and industry analysis and transformation, competitive strategy, and competitive dynamics. Finally, we shall broaden our knowledge of economics by expanding the scope of inquiry to cover the economics of the nation in a global economy. The case study used (Finland and Nokia) will illustrate the success of a nation, a cluster within a nation, and an individual firm using the concepts of industry analysis (Porter’s Five Forces), Strategy and global strategy, the Diamond model and the Cluster model. Objective Provide a solid foundation of economic understanding and the “economic way of thinking” for use in strategy and managerial decision making. It is our ultimate objective to help you develop a framework for analyzing both opportunities and risks in a global economic environment. In the end you should be able to respond to economic developments at local, national and international levels. Teaching Philosophy The course is taught through a combination of readings (including online reading preparation starting in November 2009), lectures, case discussions and exercises. The participation grade is based on each student's class preparation prior to class, active class participation during class (added value contribution), and class attendance. Attendance is compulsory. One percentage point may, at the discretion of the professor, be deducted from the student's final grade for each absence. It is ultimately the student's responsibility to make sure all of the work for each course is completed. Attendance Grading Professor Dr. Ingo Böbel Class Participation (attendance, punctuality, added value, online preparation) (50%) INDIVIDUAL Take-Home Exam (50%) (The individual take-home examination is due by email/fax/mail. Details will be given in class. There will be no credit for work submitted after this deadline). IUM – EMBA Program Jan. 2010 EMBA ECON 611 Managerial Econonomics Page 3 Grading Scale Grades Grades are reported at the end of each term. Grade points are assigned to letter grades for each unit of course credit: . Letter Percentage Grade Quality of work Grade Points Points 95-100% 4.0 Outstanding performance, A works shows superior command of the subject. 90-94% 3.7 Very good work showing Aunderstanding and mastery of all concepts. 87-89% 3.3 Good work showing B+ understanding and mastery of most concepts. 83-86% 3.0 Fairly good work that B shows an understanding of the main concepts. 80-82% 2.7 Fairly good work showing Bunderstanding of several important concepts. 77-79% 2.3 Uneven understanding of C+ the concepts with occasional lack of clarity 73-77% 2.0 Work that barely meets C modest expectations for the class 70-72% 1.7 Work that is below Cmodest expectations for the class 67-69% 1.3 Poor performance with D+ lack of understanding of several important concepts 63-66% 1.0 Work that is marginally D above the minimum expectations for the class 60-62% 0.7 Work that barely meets Dthe minimum expectations for the class < 60% 0.0 Work does not meet the F minimum expectations for the class Professor Dr. Ingo Böbel IUM – EMBA Program Jan. 2010 EMBA Course Material ECON 611 Managerial Econonomics Page 4 Textbook: Paul G. Farnham, Economics for Managers, 2nd. Ed., Pearson International Edition, Boston 2010 (F) Mandatory Reading: Ingo Böbel, Global Strategy and Competitive Analysis, (draft – work in progress) Monaco 2009 (to be sent to students as pdf-file) (B) Cases: "Pricing for Profit: The U.K. Credit Card Industry in the Late 1980s (A)." (HBS Case No. 9-897-168) “A Note on Microeconomics for Strategists” (HBS case 9-799-128) “Intel Corporation 1968-1997” (HBS Case 9-797-137) “Finland and Nokia” (HBS Case 9-702-427) Recommended Reading: Ghemawat, P. "Building Strategy on the Experience Curve." Harvard Business Review 63 (March-April 1985): 143-49. “Competitive Strategy”, Harvard Business Fundamentals Series, HBS Publ. 2002 (the publication is available in the IUM library) M. Porter, On Competition, HBS Press 2008 (P) Course Outline Part I: Pre-Study: 18 course hours; Complete Reading and Pre-Course Assignments (for detailed information see the course page on the sidebar at Professor Dr. Ingo Böbel IUM – EMBA Program Jan. 2010 EMBA ECON 611 Managerial Econonomics Page 5 http://ibobel.pbwiki.com) Part II: On-campus session Day 1 (Jan 4, 2010): Foundations of Microeconomic Analysis In order to prepare for class sessions read (see also “Sidebar” on my Course Website at http://ibobel.pbwiki.com – click on EMBA-link) 1. (F): ch. 1 2. (B) 3. HBS case “A Note….” General Principles of “How to capture the relations between the firm and its market environment” The structure-conduct-performance paradigm Four classes of market structure: Perfect competitionmonopolistic competition-oligopoly-monopoly Causes of Market Structure: The “Basic Conditions” of Demand and Supply Revisited Read: [(F) ch. 2] Market Definition, Use of Supply and Demand Curves: Law of demand; Demand Curve; Shifts in the Demand Curve; Market Demand. The Firm and the Supply Decision Law of supply; Supply in the Short-Run; Supply in the Long-Run: Entry and Exit; Market Supply. Market equilibrium Comparative static analysis The concept of elasticity Read: [(F) ch. 3 up to p. 99] Review of Own- and Cross-price Elasticities Price Elasticity of demand and supply, measurement of elasticities; revenue and elasticity. Defining the Market Discussion of Market Definition and Market Strategy Professor Dr. Ingo Böbel IUM – EMBA Program Jan. 2010 EMBA ECON 611 Managerial Econonomics Page 6 Class activity: (depending on the time constraint): Discussion of Case Study: The U.K. Credit Card Industry in the late 1980s (9-897-168) On-campus session Day 2 (Jan 5) (Morning session): Output, Production and Costs Read: [(F) ch. 5] Review of the Economics of Production and Cost Production theory; Short-run technology constraint: Total, marginal and average product. Costs in the short-run vs. costs in the long-run: Total cost, average cost, variable cost, fixed cost, sunk cost, opportunity cost; marginal costs. The Learning Curve and Cost Reduction over Time The Economics of Competition and Monopoly The Model of Perfect Competition Read: ((F) Ch. 7, up to p. 203): Necessary Conditions (Homogeneous Product; Many Buyers and Sellers; Free Entry and Exit; Equal Information) Monopoly and Monopoly Pricing ((F) ch. 8) Review of Market Power (Monopoly): Competition and Entry Monopoly Pricing: Revenue; Costs; ProfitMaximization; Demand and Cost Changes; Planning Horizon; the Inefficiency of monopoly pricing. Market Structure-Effects of Restricted Competition; Price-Cost Margin Class activity: Discussion of cases (contained in the textbook chapters), end-chapter textbook questions and problems handed out in class. On-campus session Day 2 (Jan 5) (Afternoon session): Professor Dr. Ingo Böbel IUM – EMBA Program Jan. 2010 EMBA ECON 611 Managerial Econonomics Page 7 Discussion of the “Intel case” The case describes three stages in Intel's history: the initial success and then collapse in DRAMs and EPROMs, its transition to and dominance in microprocessors, and its move to become the main supplier of the building blocks for the Internet economy. It allows a rich discussion of industry structure and transformation in DRAMs and microprocessors, creation of competitive advantage and value capture, as well as sustainability. Teaching Purpose: Intel's Internet strategy can be used to introduce basic ideas on corporate strategy and industry analysis and transformation, competitive strategy, and competitive dynamics. Prepare: “Intel”-case and work through the assignment questions (handed out in class) Class activity: Discussion of assignment questions On-campus session Day 3 (Jan 6): Discussion of the “Finland and Nokia” case We extend our knowledge of economics by expanding the scope of inquiry to cover the economics of the nation in a global economy. The case study used (Finland and Nokia) will illustrate the success of a nation, a cluster within a nation, and an individual firm using the concepts of industry analysis (Porter’s Five Forces), Strategy and global strategy, the Diamond model and the Cluster model. Prepare: “Finland and Nokia”-case Suggested reading: M. E. Porter, “Competing Across Locations: Enhancing Competitive Advantage through a Global Strategy”, in: (P) In addition to the assignment questions that you find on the course website, also ponder the following set of questions: Professor Dr. Ingo Böbel IUM – EMBA Program Jan. 2010 EMBA ECON 611 Managerial Econonomics Page 8 What were the primary characteristics of Finland that allowed Nokia to build a global leadership position in mobile phones? Which of these were the result of explicit policy choices? To what extent were these advantages unique to Finland, compared to Germany or other countries in Western Europe, the U.S. or Japan? To what extent did Nokia “reach beyond” these “homebase” characteristics in establishing its leading position? Do you think the same cycle of establishing advantage (and the associated business model) in an advanced country and diffusing it to other markets (including emerging markets) is still relevant in this industry? Why or why not? Discussion of individual take-home final project (case study) Part III: Post-Course:: Complete and Hand Up All Post-Course Assignments (individual take-home final project (case study) to be discussed in class) – Due Date: TBD Additional Readings I recommend to consult a number of reference books and articles which might be of valuable help: Michael Porter, The Five Competitive Forces That Shape Strategy, HBR January 2008 (you can access the article through our course website at http://ibobel.pbwiki.com) M. Porter (1996), What is Strategy?, reprinted in: Competitive Strategy, HBS Publ. 2002 Professor Dr. Ingo Böbel IUM – EMBA Program Jan. 2010 EMBA ECON 611 Managerial Econonomics Page 9 M. Porter (1979), How Competitive Forces Shape Strategy, reprinted in: Competitive Strategy, HBS Publ. 2002, pp. 75-86 World Economic Forum (2009), Global Competitiveness Report 2009-2010 L.M.B. Cabral, Industrial Organization, Cambridge, Mass.: MIT Press, 2002 M. Neumann, Competition Policy: History, Theory and Practice, Cheltenham: E. Elgar 2001 M. E. Porter, Competitive Strategy, 2nd. ed., New York: The Free Press 2000 Macroeconomics: J. Bradford DeLong, Macroeconomics, Burr Ridge, IL: McGraw-Hill Higher Education, 2002 Olivier Blanchard, Prentice Hall 2005 Revision Date Macroeconomics,4th.ed., N.Y.: Dec. 26, 2009 Disclaimer: This outline is a guideline and subject to change at the professor’s discretion. Professor Dr. Ingo Böbel IUM – EMBA Program Jan. 2010