An Instructional Exercise in Price Controls: Product Quality, Misallocation, and Public Policy

A price control policy has several potential effects upon market welfare. These include deadweight loss, surplus transfer from producer to consumer, misallocative cost, and quality degradation. The present article provides accessible pedagogical models with which to incorporate the former two issues into a welfare analysis of price control. The analysis allows students to form a more complete understanding of price control policies.

How Do We Get Cobb-Douglas and Leontief Functions from CES Function: A Lecture Note on Discrete and Continuum Differentiated Object Models

Most lectures teach the relationship between the CES, Cobb-Douglas, and Leontief functions using the value of elasticity of substitution, namely, in the discrete object model. This lecture note aims at being a reference for algebraic computations of the Leontief and Cobb-Douglas functions by taking limits of CES functions both in discrete and continuum goods models. The argument on the discrete case uses l'H�pital's rule as usually done. The argument on the continuum case also uses l'H�pital's rule to show the convergence to the Cobb-Douglas function. To guarantee the convergence to the Leontief function, however, we rely on the squeeze principle.

A systematic procedure for finding Perfect Bayesian Equilibria in Incomplete Information Games

This paper provides a non-technical introduction to a procedure to find Perfect Bayesian equilibria (PBEs) in incomplete information games. Despite the rapidly expanding literature on industrial organization that uses PBE as its main solution concept, most undergraduate and graduate textbooks still present a relatively theoretical introduction to PBEs. This paper offers a systematic five-step procedure that helps students find all pure-strategy PBEs in incomplete information games. Furthermore, it illustrates a step-by-step application of this procedure to a signaling game, using a worked-out example.

Using Experiments to Illustrate the Role of Network Externalities in Technology Adoption and Industry Evolution

This experiment helps students to understand the importance of network externalities in technology adoption and the evolution of industries. Students observe the roles of lock-in and critical mass in technology adoption, understand how pricing affects adoption, and see welfare implications of network externalities. Given examples of network effects in firm and government action (e.g., the advanced television systems committee, antitrust litigation for the credit/debit card industry, and private strategy in newer DVD technologies (HD DVD vs. Blue-Ray)), this experiment fits courses that wish to illustrate these ideas and provides a starting point for a more detailed study of network externalities

Dynamics of Competitive Rivalry

This energetic lecture consist of a paper fight and another exercise to provide background, methodology, and findings from research that has empirically examined competitive dynamics. Foundational to this stream of research are several literatures including game theory and the Structure-Conduct-Performance paradigm. Unlike these literatures, however, research in competitive dynamics directly measures and analyzes firm action and rival action using a methodology of examining competitive actions identified through a structured content analysis of newspapers and trade magazines for firms in an industry. This robust methodology has enabled better understanding of competitive dynamics and the outcomes of this rivalry. It also has very practical implications. Thus, students also do an exercise in which they analyze actual competitive data between Coke and Pepsi to illustrate differences in their competitive behavior and the strengths and weaknesses of each of their approaches.

Why Don't You Two Get a Room? A Puzzle and Pricing Model of Extra Services in Hotels

This case study focuses on the following �rational riddle� raised in a recent popular economics book: Hotels in Britain usually charge per guest while hotels in the US typically charge per room. What is the reason for this difference? We propose a pricing model for extra services which points to one possible explanation.

Impact of Asset Specificity on Inter-firm Transaction Structure: A Case Study

This article reports on the results of a case study that examines the characteristics of the transaction between a plastic producer firm and its supplier of steel injection mold in order to explore the possible effects of asset specificity on the firm�s choice of the transaction structure. The main findings indicate that once the dependence of the firm on the supplier and the ensuing vulnerability induced by the high specificity of the inter-firm trade is remedied by trust, the comparative advantages of the existing and well-functioning inter-firm relationship provide a sufficiently strong rationale of preferring it as the most adequate and satisfactory structure for the transaction.

On the Teaching of Price Discrimination in Block Pricing: A Refinement

In many textbooks, an important assumption difference between the standard picture for block pricing and the intuitive discussions on this pricing scheme is often ignored. This practice leads the students to misunderstand this picture as an illustration for price discrimination against heterogeneous buyers. In this article, I analyze how some textbook narratives can lead to this misinterpretation. Then, I provide a simple example that shows how block pricing discriminates buyers with heterogeneous demands. A real life example as applied to the transportation rates of natural gas for block pricing is also provided and discussed.