This course’s objective is to give you insight into how markets function. The decisions made by individual managers and consumers generate the fundamentals of market supply and demand, governing the prices and quantities sold in all economic transactions. As a manager seeking to maximize firm value, understanding your market(s) is crucial to achieving your goals.
The first part of the course examines how managers make day-to-day decisions about running their businesses when their product is sold in a market that works efficiently. It will also address what types of industries are most likely to be efficient, either by default (commodities such as wheat and copper) or by design (electricity markets).
The second part of the course examines the decision making process when, for various reasons, a firm has market power. This refers to all situations where an individual firm has a direct influence on the market price of the product. We will discuss how managers can use this influence to generate firm value and set out situations in which managers can try to increase their market power.
We will also use the tools developed along the way to understand the implications of market failure and some public policy solutions to economic inefficiency.
Managerial economics is an important component of the MBA program. Its focus on how individuals make optimal decisions in different circumstances underpins much of both the core and elective curriculum. Our experience in prior years is that much of the material is intuitive, but much is not. The generality of the frameworks – combined with practical industry applications – will help you think about all the different kinds of markets you will encounter throughout your careers.
Philip H. Geier Jr. Associate Professor
Matthew Backus is an Assistant Professor at Columbia Business School. He received his Ph.D. from the Economics Department at the University of Michigan at Ann Arbor, where he focused on topics in industrial organization. His research interests include the determinants of firm-level productivity, estimation of consumer demand using data from auction-based marketplaces, and the role of cheap-talk communication...