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.
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: Internet
O RGANIZATION Vertical boundaries – closer to or further from end user Samsung Electronics – vertical boundaries longer than TSMC – specializes in semiconductors (upstream) HTC – specializes in mobile phones (downstream)
O RGANIZATION Horizontal boundaries – scale and scope of activities Samsung Electronics – horizontal boundaries broader than HTC – 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