ECON/MKTG 497 Special Topics: How to Price? Pricing Strategies College of Business and Economics Course Syllabus Fall 2015 Instructor: Dr. Kelly Chen Office Hour: M&W 4-5p.m. or by Appointment Course Time: T&R 12-1:15 p.m. Office Location: MBEB 3205 Course Location: MBEB 1210 Email: kellychen@boisestate.edu Course Website: Blackboard Phone: (208) 426-3346 Course Description Why does Barnes and Noble sell books for different prices online than through its outlets? How should Uber set prices? Is Apple charging too much for its Apple Watch? In this course, we study how to apply economics principles to formulating profitable pricing strategies. We will split our time in half between understanding the "nuts and bolts" of economic analysis behind price-setting and learning the techniques that practicing managers use these economic methods to solve real pricing problems. We draw materials from a combination of economic theory, operations research, statistics and marketing strategies, so the course is multidisciplinary and may be technical to some of you. The course is organized into three units. In the first unit, we introduce the basic profitmaximization problem of the firm. We take a close look at the behavioral foundations of pricing including consumer choice, production, cost, and show how the firm determines optimal outputs and prices assuming demand and costs are known. The second unit applies demand analysis to the firm's optimal pricing problem. We discuss data collection and quantitative methods such as linear and nonlinear programming, sensitivity analysis, demand estimation and forecasting. In the third unit, we switch focus to the market environment the firm inhabits and its implications on pricing behavior. Topics to be covered include competitive strategies in cases of monopoly, monopolistic competition and oligopoly. Special attention will also be paid to the use of game theory to illuminate the firm's strategic choices. In addition to the standard modelling approaches in economics such as equations and graphs, we dedicate a fraction of our time to the hands-on training using Microsoft Excel 2013. In recent years, spreadsheets have become one of the most important quantitative tools in business decision-making. In this course we will learn how to use spreadsheets to build mathematical models, solve pricing problems, find, and explore profit-maximizing solutions. Microsoft Excel's optimization tool, Solver, can be found under Excel's Data menu (Windows) or Tools menu (Mac). If it is not already installed, you can load it through File-Options-Add-Ins (Windows) or Tools (Mac). 1
Prerequisites This course has Principles of Microeconomics (ECON 202) and the first semester of Business Statistics (BUSSTAT 207) as prerequisites. However, knowledge of introductory level calculus and more statistics will help. You are also encouraged to attend the boot camp sessions offered by Professor Samia Islam at the Department of Economics that reviews a number of important concepts to the course such as demand, supply, equilibrium conditions and elasticity covered in Principles of Microeconomics as well as Calculus. Attendance to the boot camp is optional. All sessions will take place in the MBEB, Room 4001 (4th floor MBA room) from 11 a.m. to 12:30 p.m. on the following dates: Friday, August 28, 2015 Tuesday, September 1, 2015 Friday, September 4, 2015 Tuesday, September 8, 2015 Friday, September 11, 2015 Please see the PowerPoint slides posted on Blackboard under Syllabus & Slides for Boot Camp. In addition, I recommend you to check out the following link in Khan Academy that covers these concepts in short videos: https://www.khanacademy.org/economics-financedomain/microeconomics/supply-demand-equilibrium. Course Materials One half of our lectures will follow the textbook Managerial Economics and Strategy by Jeffrey Perloff and James Brander, Pearson Prentice Hall (P&B), and another half will be supplemented by handouts. Though purchase of the textbook is optional, access to MyEconLab is required. There are two different ways to purchase the textbook and/or MyEconLab: 1. You can either purchase a hardcopy of the book at the bookstore (and/or access to MyEconLab), or 2. You can purchase a web copy of the book through MyEconLab. Please register at myeconlab.com using course ID chen76836 during the first two weeks of classes in order to avoid missing assignments. A detailed instruction on how to register and enroll in the course can be found at the end of the syllabus and also on Blackboard under MyEconLab Registration Instructions. Before each class, I will also post a set of lecture notes on Blackboard. These lecture notes, however, will be incomplete. They contain verbal descriptions and numerical exercises, but not graphs or solutions. You can print the notes out, and bring them to class so that you can draw the diagrams/do the arithmetic directly on them. Useful Readings For those who are interested in pursuing a career that will be involved in pricing such as business management, marketing and consulting, the following books provide a more practical guide to pricing analysis and strategy development and may be of interest: 2
The Strategy and Tactics of Pricing: A Guide to Grow More Profitably (5 th edition), Thomas Nagle, John Hogan and Joseph Zale, Pearson Prentice Hall. Pricing and Revenue Optimization, Robert Phillips, Stanford University Press. The Art of Pricing: How to Find the Hidden Profits to Grow Your Business, Rafi Mohammed, Crown Publishing Group. Grading The evaluation will be based on both individual and group work: 1. 10 Weekly Assignments: 15% (1.5% each) 2. 10 Group Exercises: 15% (1.5% each) 3. Two Midterm Exams: 30% (15% each) 4. Course Project: 20% (10% for the report and 10% for the presentation) 5. Final Exam: 20% Assignments: Throughout the course, 11 weekly assignments will be made available on either MyEconLab or Blackboard depending on the topic. A short tutorial is provided under Assignments on MyEconLab (i.e. Getting Started - How to use MyEconLab) to get you familiarized with its web interface if you never used the site before. You are encouraged to discuss your assignment problems with others, but you must turn in your own individual work. The best 10 out of 11 will account for 15% of your final grade (i.e. 1.5% each). Each assignment must be submitted before the beginning of the class on the due date (for details see course outline below). Group Exercises: Weekly exercises will be given at the beginning of a class (see course outline) and can be completed in groups of maximum three. The best 10 out of 12 exercises accounts for 15% of your final grade. You can select your own group members, but once a group is formed you should collaborate with the same group member(s) on the remaining exercises and the course project (more details later). All members of the group will receive the same score. Each exercise will be about 10-15 minutes in length and will not be very hard. These exercises are designed to reward those who regularly attend class and do their work. Therefore, no makeup exercises will be given under any circumstance. Any missed exercise will be given a mark of zero unless a note from a doctor is provided explaining the absence and acknowledging the missed exercise. Exams: There will be two non-cumulative midterm exams and a cumulative final exam. You are required to take at least one midterms and the final exam. If you miss a midterm, the weight of the midterm will be added to the final exam. If you perform better on the final exam than on the midterm(s), then the weight of the midterm(s) will be added to the final exam. In other words, your performance on the final exam can count as much as 50% of your final grade. The two midterm exams will take place in-class on: Thursday, September 24, 2015 Thursday, November 19, 2015 3
The final exam will be held in the classroom on Tuesday, December 15, 2015 from 12p.m. to 2p.m. Please note calculators are only recommended, and not required for these exams. If you wish to use one on the exams, the only type that will be permitted is the one with standard function such as the Sharp EL-233SB model: Group Project: You are also expected to complete a project with your group that accounts for 20% of your final grade. The project will give you an opportunity to demonstrate the use of empirical tools learned in class in a real-world setting and to communicate your findings to a large audience. A broad guideline for the project is attached (and available on Blackboard). More details will be discussed in the first class of the course. Grading Scale A+ 96.5 and above C 72.5-76.49 A 92.5-96.49 C- 69.5-72.49 A- 89.5-92.49 D+ 66.5-69.49 B+ 86.5-89.49 D 62.5-66.49 B 82.5-86.49 D- 59.5-62.49 B- 79.5-82.49 F 59.49 or less C+ 76.5-79.49 Academic Dishonesty Cheating, plagiarism and other forms of misconduct will not be tolerated. As mentioned before, you can work together on homework assignments, but each of you must submit your own work. Submitting someone else s work as your own, or letting someone else submit your work as theirs constitutes cheating. If you are unsure what constitutes academic dishonesty, take a look at page 13 on the following web link: http://registrar.boisestate.edu/catalogs/03-04undergradcatalog/chapter2.pdf Disabilities If you have a disability that requires special accommodation in class, for assignments, exams or any other task please come and see me by the second week of class. For information regarding disabilities and accommodations that the University can make for you see http://drc.boisestate.edu/faq/index.cfm?subsection_id=46 4
Course Outline Note: The coverage might change as it depends on the progress of the class. Date Topics and Readings Deliverable Week 1: Aug. 25 and 27 Introduction to the Course; Supplyand-Demand Model (P& B Chapter 2) Aug. 27: EX #1 Decisions within the Firms Week 2: Sept. 1 and 3 Consumer Choice (P & B Chapter 4) Sept. 3: EX #2 Sept. 3: HW #1 (P & B Chapter 2) Week 3: Sept. 8 and 10 Week 4: Sept. 15 and 17 Week 5: Sept. 22 and 24 Production (P & B Chapter 5) Cost (P & B Chapter 6) Review: Practice Exam Questions Midterm #1 Quantitative Methods and Pricing Optimization Week 6: Sept. 29 and Oct. 1 Linear Programming Week 7: Oct. 6 and 8 Linear Programming Sensitivity Analysis Week 8: Oct. 13 and 15 Week 9: Oct. 20 and 22 Competing within Markets and Pricing Strategies Week 10: Oct. 27 and 29 Week 11: Nov. 3 and 5 Nonlinear Optimization Models; Estimating and Forecasting Demand Estimating and Forecasting Demand Perfect Competition; Monopoly (P & B Chapter 8 and 9) Pricing with Market Power (P & B Chapter 10) Sept. 10: EX #3 Sept. 10: HW #2 (P & B Chapter 4) Sept. 17: EX #4 Sept. 17: HW #3 (P& B Chapter 5) Sept. 24: HW #4 (P& B Chapter 6) Sept. 24: Midterm #1 Oct. 1: EX #5 Oct. 8: EX #6 Oct. 8: HW #5 (Linear Programming) Oct. 15: EX #7 Oct. 15: HW #6 (Linear Programming; Sensitivity Analysis) Oct.22: EX #8 Oct.22: HW #7 (Nonlinear Optimization Models; Estimating and Forecasting Demand) Oct. 22: Proposal Due Oct. 29: EX #9 Oct. 29: HW #8 (Estimating and Forecasting Demand) Nov. 5: EX #10 Nov. 5: HW #9 (P& B Chapter 8 and 9) 5
Week 12: Nov. 10 and 12 Oligopoly and Monopolistic Competition (P & B Chapter 11) Nov. 12: EX #11 Nov. 12: HW #10 (P & B Chapter 10) Week 13: Nov. 17 and 19 Review: Practice Exam Questions Midterm #2 Nov. 19: HW #11 (P & B Chapter 11) Nov. 19: Midterm #2 Week 14: Nov. 24 and 26 NO CLASS THANKSGIVING Week 15: Dec. 1 and 3 Game Theory and Business Strategy Dec. 3: EX #12 Week 16: Dec 8 and 10 Review: Practice Exam Questions Student Presentation Tuesday, December 15, 2015 Final Exam 12p.m. to 2p.m. Dec. 10: Course Project Write-up Due Dec. 10: Presentation Boise State University Learning Outcomes Students in this class will learn or practice the following COBE Core Curriculum concepts, methods, and skills: 1. Understand and apply analytical and disciplinary concepts and methods related to business and economics: 1.3. Economics 2.1. Communicate effectively: Write messages and documents that are clear, concise, and compelling 2.2. Communicate effectively: Give oral presentations that use effective content, organization, and delivery 3. Solve problems, including unstructured problems, related to business and economics 4. Use effective teamwork and collaboration skills 5. Demonstrate appropriate principles of responsible business practices 6
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