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ECON 611 Managerial Economics

EMBA COURSE SYLLABUS

ECON 611

Course Title Managerial Economics: Microeconomic Foundations of Competitiveness

Instructor Ingo BÖBEL, Dr. rer. pol., Dr. rer. pol. habil.Professor of Economics at IUM, Monaco Member of the MOC Network at Harvard Business School (ISC, Professor Michael E. Porter)

Contact Information +377 97986987

[email protected] detailed readings and supplementary information see the « Sidebar » on my personal website at http://ibobel.pbwiki.com

Course Number ECON 611

Credits 3

Course Length May 1-3, 2009

Location Taipei, IUM On-Site Campus, Taiwan

Course Description 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

Professor Dr. Ingo Böbel IUM – EMBA Program May 2009

http://ibobel.pbwiki.com/

mailto:[email protected]


in individual markets (theory of markets, especially the theories of supply and demand), firms (production, cost and pricing), and industries under different forms of 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.1

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, lectures, case discussions and exercises.

Attendance 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.

Grading Class Participation (attendance, punctuality, added value, online preparation) (50%) INDIVIDUAL Take-Home Exam – Case study (50%) (The individual take-home examination is due by email/fax/mail. The due-date will be announced in class. There will be no credit for work submitted after this deadline).

1 See my 2008 paper in the readings list.Professor Dr. Ingo Böbel IUM – EMBA Program May 2009


Grades Grading Scale

Grades are reported at the end of each term.Grade points are assigned to letter grades for each unit of course credit:. LetterGrade

PercentagePoints

GradePoints

Quality of work

A 95-100% 4.0 Outstanding performance, works shows superior command of the subject.

A- 90-94% 3.7 Very good work showing understanding and mastery of all concepts.

B+ 87-89% 3.3 Good work showing understanding and mastery of most concepts.

B 83-86% 3.0 Fairly good work that shows an understanding of the main concepts.

B- 80-82% 2.7 Fairly good work showing understanding of several important concepts.

C+ 77-79% 2.3 Uneven understanding of the concepts with occasional lack of clarity

C 73-77% 2.0 Work that barely meets modest expectations for the class

C- 70-72% 1.7 Work that is below modest expectations for the class

D+ 67-69% 1.3 Poor performance with lack of understanding of several important concepts

D 63-66% 1.0 Work that is marginally above the minimum expectations for the class

D- 60-62% 0.7 Work that barely meets the minimum expectations for the class

F < 60% 0.0 Work does not meet the minimum expectations for the class



Course Material Textbook:

1. Ivan Png and Dale Lehman, Managerial Economics, 3rded, Malden, MA: Blackwell Publ., 2007 (= PL)2

Additional Reading:2. Ingo Bobel, Global Economic Strategy and

Competitive Analysis, (draft – work in progress) Monaco 2009 (pdf file in English language) (additional copies are available from the author)

Recommended Reading:3. You find an excellent collection of articles in:

“Competitive Strategy”, Harvard Business Fundamentals Series, HBS Publ. 2002 (available from IUM library) Highly recommended!

Course Outline Day 1

Read in PL: ch. 1

Basic Revision:The Nature and Scope of Economics Relevance of the subject for executives; the added value of economic concepts; more specifically: the role of market power. Fundamental economic principles. The nature and scope of Managerial Economics: the economic approach to business decisions and business strategy.The Decision Process: how to make the right choices?; Cost, value and price as the major determinants for creating economic profit. Remarks on costs, opportunity cost, hidden costs, sunk costs. The application of cost-value-price logic: The role of trade offs, efficiency, inefficiency.

Demand and Supply Analysis Read: [(PL) ch. 2 and 4]Law of demand; Demand Curve; Shifts in the Demand

2 IMPORTANT HINT : There is an Asian-Pacific edition of the second edition of the textbook available – see http://www.comp.nus.edu.sg/~ipng/ap.htm. For further information contact Pearson Education Asia.


http://www.comp.nus.edu.sg/~ipng/ap.htm


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 equilibriumComparative static analysis

The concept of elasticityRead: [(PL) ch. 3]Price Elasticity of demand and supply, measurement of elasticities; revenue and elasticity.Cost, Value, and Price: The concepts of Consumer Surplus and Producer Surplus.

Class activity (depending on the time constraint): Discussion of cases (contained in the textbook chapters), end-chapter textbook questions and problems handed out in class

Day 2

Read: [(PL) ch 4, ch 5, ch. 8, ch 10]

Output and Costs Read: [(PL) ch. 4]Costs in the short-run vs. costs in the long-run: Total cost, average cost, variable cost, fixed cost, sunk cost, opportunity cost; Marginal costsShort-run technology constraint: Total, marginal and average product; Product curves

Monopoly Monopoly, dominant firms, market (monopoly) power revisited, market structure and the degree of competition, characteristics of monopoly

Perfect CompetitionThe Basic Competitive Model: the firm’s decisions in perfect competition; output, price and profit: entry and exit in a competitive market

Class activity: Discussion of cases (contained in the textbook chapters), end-chapter textbook questions and problems handed out in class.

Prepare (in class activity): Read “Intel”-case and work through the following assignment questions:



1. Why was Intel initially successful in DRAMs?

2. How did Japanese companies come to be the international leaders in this business? Why couldn’t Intel (or other American companies) recover?

3. How did Intel build a competitive advantage in microprocessors? How has the company managed to sustain the advantage over time?

4. Why did U.S. companies dominate the microprocessor business from the beginning, with Japan unable to gain a major position?

5. What explains the different outcomes in the DRAM and microprocessor industries? What are the lessons for government economic policy?

Day 3:

Introduction to the Intel Case: Remarks on the historical development of the computer industry.

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, competitivestrategy, and competitive dynamics.

Class activity: Discussion of assignment questions

Prepare (in class activity): Read “Nokia”-case and



work through the following assignment questions:

1. How was Finland as a nation able to move from a sleepy economy to one of the most competitive nations in the world by the end of the 1990s?

2. Why was Finland able to become a world-leading nation in the mobile communications cluster? Why did this cluster develop in Finland rather than others?

3. How did the Finnish firm Nokia become the world leader in mobile handsets? How did its home base in Finland influence its success?

4. What are the most important challenges for Finland in 2001? For participants in the Finnish mobile communications cluster? For Nokia?

5. Given the telecom downturn, what economic policy priorities should the government set? What steps should the private sector take?

Suggested additional reading: M. E. Porter, “Competing Across Locations: Enhancing Competitive Advantage through a Global Strategy”, in: M. E. Porter, On Competition, Boston: Harvard University Publ. 1998

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.3

In addition to the assignment questions that you find above, it might help to ponder the following set of questions:

What were the primary characteristics of Finland that allowed Nokia to build a global leadership position in mobile phones?

3 See my 2009 booklet in the readings list above.Professor Dr. Ingo Böbel IUM – EMBA Program May 2009


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 “home-base” 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 project)

Additional Readings I recommend to consult a number of reference books which might be of valuable help:

Microeconomics: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

M. E. Porter, On Competition, Boston: Harvard University Publ. 1998

Revision Date February 2009

Disclaimer: This outline is a guideline and subject to change at the professor’s discretion.


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