L ECTURE O NE : I NTRODUCTION TO M ANAGERIAL E CONOMICS Managerial Economics Lecturer: Jack Wu NCCU

M ANAGERIAL E CONOMICS Managerial economics: Science of directing scarce resources to manage more effectively resources – financial, human, physical management of customers, suppliers, competitors, internal organization organizations – business, nonprofit, household Managerial economics is based on microeconomics.

NEW ECONOMY: INTERNET Managerial Economics also applies to the new economy. Example: In pricing, Airlines use online auctions to segment their market between business and leisure travelers. Example: In competitive strategy, Google competes fiercely with Yahoo.

O LD /N EW E CONOMY Differences between “ New ” and “ Old ” economy: _ role of network effects in demand **network effects – benefit/cost depends on total number of other users example: Internt _ importance of economies of scale and scope example: Information in Yahoo is scalable

O RGANIZATION Vertical boundaries – closer to or further from end user Samsung Electronics – vertical boundaries longer than Intel – specializes in semiconductors (upstream) Motorola – specializes in mobile phones (downstream)

O RGANIZATION Horizontal boundaries – scale and scope of activities Samsung Electronics – horizontal boundaries broader than LG.Philips LCD – specializes in LCD Motorola – specializes in mobile phones

M ARKET Market: Buyers and sellers communicate with one another for voluntary exchange market need not be physical industry -- businesses engaged in the production or delivery of the same or similar items

M ARKET : CONTINUED Competitive Markets Market Power Imperfect Markets

C OMPETITIVE MARKET Benchmark for managerial economics Extremely competitive market many buyers and many sellers no room for managerial strategizing Achieves economic efficiency

C OMPETITIVE MARKET Model: demand supply market equilibrium

M ARKET POWER Definition – ability of a buyer or seller to influence market conditions Seller with market power must manage costs pricing advertising expenditure R&D expenditure strategy toward competitors

I MPERFECT MARKET Definition: where one party directly conveys a benefit or cost to others, or one party has better information than others