Business Economics and Finance

Description

I. Course introduction II. Corporate finance a. Intro, basic concepts, and definitions b. Valuation c. Fundamentals of capital budgeting d. Risk and return III. Structure, conduct, performance a. Basic Market Structure (Demand and Supply, elasticities, and consumer and producer surpluses) b. How to measure market structure: concentration measures, product heterogeneity, entry/exit barriers, information c. Understanding firm conduct: pricing-output decisions with market power (more detail in game theory), R&D, advertising, collusion (cartels: OPEC) d. How to measure firm and market performance: profit, different performance measures, efficiency, welfare IV. Step into other players’ shoes (strategic interactions) a. Simultaneous move (Normal form) games: Dominant strategy, iterated elimination of dominated strategies, Nash equilibrium (brief intro to best response functions) Examples: prisoner’s dilemma (PD), pollution abatement, coordination, technology adoption, game of chicken, strict competition. b. Sequential move (Extensive form) games: Backward induction, subgame perfect equilibrium, strategies to deal with empty threats and promises (Examples: Chain- store, centipede, bargaining) c. Repeated games (finite and infinite): discounting, tit-for-tat, and grim trigger strategies (Examples: repeated PD, can collaboration be saved?) d. Equilibrium in mixed strategies: randomization to prevent exploitation or as a means of coordination (Examples: matching pennies, Battle of the Sexes, PD) e. Evolutionary games: evolutionarily stable strategies, replicator dynamics (Examples: Hawk-Dove VI. Markets and pricing strategies a. Perfect Competition: a benchmark market structure b. Monopoly: highest market power, natural gas, oil, and electricity as natural monopolies c. Monopolistic Competition: product differentiation creates monopoly power d. Price Discrimination i. 1st degree (perfect) discrimination ii. 2nd degree (quantity) discrimination: à la carte vs buffet iii. 3rd degree (group) discrimination: student/senior discounts V. Oligopolistic games (Ramazan Sari) 2 weeks a. Cournot: duopoly, N-player, symmetric, asymmetric, welfare (Example: Airbus vs Boeing) b. Bertrand: pricing in homogeneous/heterogeneous product markets, welfare (Example: Pizza Hut & Dominos) c. Stackelberg: symmetric/asymmetric costs, welfare (Example: Coke vs Pepsi) d. Spatial and attribute space location choice: Hotelling’s linear city, Salop’s circle (Examples: gas stations, ice cream flavors)