December 16, 2015

Project Management - Subject Update

The Basics of Good Project Management
Presenter: Greta Blash
She is a certified project manager whose extensive experience enables her to concurrently manage multiple high-risk, high-tech projects. She also holds an agile certification and business analysis certification from Project Management Institute (PMI), the world’s leading professional association for the project, program and portfolio management profession.

Greta has taught project management certification courses worldwide for the last five years.

Uploaded March 2015

Best Practices in Project Management: Coping with Conflict

Presenters: Greta Blash and Steve Blash
Presented on 11 September 2015


Uploaded 18 Sep 2015

Economics of Information Technology - Hal Varian et al. - Book and Paper Information

Economics of Information Technology
Paper by Hal Varian

This is a revised version of the Raffaele Mattioli Lecture, delivered at Bocconi University, Milano, Italy, on November 15-16, 2001 and the Sorbonne on March 6, 2003. It is based, in part, on the paper I delivered at the Federal Reserve Bank of Kansas City Jackson Hole Symposium, August 2001.

The Economics of Information Technology: An Introduction

Hal R. Varian, Joseph Farrell, Carl Shapiro
Cambridge University Press, Dec 23, 2004 - 102 pages

The Economics of Information Technology is a concise and accessible review of important economic factors affecting information technology industries. These industries are characterized by high fixed costs and low marginal costs of production, large switching costs for users, and strong network effects. These factors combine to produce some unique behavior. Professor Varian outlines the basic economics of these industries; Professors Farrell and Shapiro describe the impact of these factors on competition policy. An ideal introduction for undergraduate and graduate students in economics, business strategy, law and related areas.

Information Rules
A Strategic Guide to the Network Economy
Carl Shapiro and Hal R. Varian

December 10, 2015

Chief Marketing Officers Subject Update


15 mindblowing stats about Search Engine Marketing
SEM provides 300% traffic over Social Media Marketing. But remember social media presence improves search ranking. So you have to build a foundation of SMM and encash it through search.

Reinventing the Chief Marketing Officer: An Interview with Unilever CMO Keith Weed

Today's CMO: More Renaissance Man

25 June 2014
Jack Trout - Five important steps for a CMO

24 June 2014
The Business KPIs of Marketing ROI

23 June 2014
Takeaways for CMOs from the Cannes Lions Festival


Keynote Address: Future Practice of Marketing in Big Data World - Interaction between Marketing and Information Technology
2013 CMO = CIO Forum - IBM Japan Channel



Strategic Marketing Leadership: The Role of a Chief Marketing Officer
Yale School of Management Video


Marketing Technologist: Neo of the Marketing Matrix

The Role of The Chief Marketing Officer
Chris Williams, CMO, Cap Gemini

Uploaded by BigThink - 9,330 videos

Jack Trout  - You must differentiate or Lose it All

MBA Knowledge Revision Schedule

January  - February  - March  - April  - May   -   June

July       - August     - September  - October - November  - December

Financial Management - Subject Update Articles

March 2014

Is Your Budget Stuck on Last Year's Numbers?
McKinsey Article

Lean - Highly Efficient - Manufacturing - Design - Supply Chain - Subject Update Articles

August 2014

Chinese are using agile design approaches in Engineering Design and Innovation. Also they are using small decentralized and dispersed groups in the design process.

June 2014

“Go back to what Henry Ford did 100 years ago,”  "He got single-piece flow on the assembly line. Now how do you extend that all the way up the supply stream?"  That’s the progress of lean manufacturing concept.

What to Expect from a Corporate Lean Program
Sloan Management Review

April 2014

Implementing Lean Production in China
BCG Report

Operations Management - Subject Update

May 2015
IndustryWeek Best Plants Conference & Expo to be held in Charlotte, N.C., May 4 to May 6,2015

Gain business-critical insights from top executives of world-leading companies, including
Paul Gallagher, President of Supply for North America, Diageo
Bill Muir, Chief Operating Officer, Jabil
Avi Reichental, President & CEO, 3D Systems
Todd Rytting, Chief Technology Officer, Panasonic Corporation of North America

Plant Tours Give Behind-the-Scenes Looks

Plant tours include a behind-the-scenes look at each facility’s continuous improvement initiatives. Tours include BMW Manufacturing Co.; Bosch Rexroth Charlotte Plant; Flextronics – Charlotte; Jacobsen, A Textron Company; National Gypsum Mt. Holly, NC Plant; Siemens Charlotte Energy Hub; Snyder's-Lance Inc.; State Farm Multi Regional Service Facility (MRSF) – East; and TE Connectivity - Rock Hill Facility.

Six Tracks Mirror Mission-Critical Priorities

Tailor your learning experience by choosing from among 36 sessions across six tracks, including

Continuous Improvement Fundamentals
Advanced Continuous Improvement
Leadership & Innovation
Workforce Development
Manufacturing Technology Strategies
Manufacturing Meets IT

March 2015

What is Operational Excellence in Manufacturing and Supply Chain?

Top Management Subject Update - Articles in Business and Management Magazines

Top 10 Downloaded HBR Articles in 2014 by CIO Forum Members

Getting Value From Your Data Scientists
MIT Sloan Management Review: Fall 2014

MIT Sloan Management Review -  Winter 2014

Raising the Bar With Analytics

More than half of managers surveyed strongly agree that their organizations need to step up analytics use, according to a 2013 global survey by MIT SMR and SAS Institute. In addition, survey data suggests that in companies where analytics has improved the ability to innovate, managers are more likely to share data with partners and suppliers.

Thriving in a Big Data World

Words have become data; the physical states of our machinery have become data; our physical locations have become data; and even our interactions with each other have become data. Three recent books offer expert perspectives on the increasing power and importance of analytics.

Should You Outsource Analytics?

Outsourcing analytics activities can offer benefits, but it requires a carefully constructed relationship between the company and the business process organization (BPO). Customers must be careful not to lose their expertise or their core intellectual property. Research suggests that companies with superior analytics capabilities will approach outsourcing differently than companies that are analytically challenged.

Overheard at MIT

“Big Data in Manufacturing” was the theme of a daylong conference held in Cambridge, Massachusetts, in November 2013 and sponsored by the MIT Forum for Supply Chain Innovation and the Accenture and MIT Alliance in Business Analytics. But the speakers’ insights weren’t restricted to manufacturing.

What’s Your Information Footprint?

Wealth once was measured by the amount of land, employees or equipment you had. Today we are on the cusp of a period in which another factor is an indicator of potential wealth: how much information you have. Information has the potential to be a valuable asset, and a new framework, dubbed “the information footprint,” presents a way for companies to assess their information assets and the opportunities it gives them for new value creation.

The Problem With Online Ratings

Studies show that online ratings are one of the most trusted sources in e-commerce decisions. But research suggests that these ratings are systematically biased and easily manipulated. The heart of the problem lies with herd instincts — natural human impulses characterized by a lack of individual decision making — that cause us to think and act in the same way as other people around us.

Stories That Deliver Business Insights

Companies are gaining value from ethnography, the in-person study of how people actually use a product or service. Through its attention to the details of people’s lives, ethnography can be a powerful tool to help executives gain insights into their markets. Ethnographic stories can also be indispensable in helping executives rethink their assumptions about what customers care about and about overall strategic direction.

Rewriting the Playbook for Corporate Partnerships

In fast-changing markets, some companies are developing flexible, adaptive strategic partnerships to leverage the resources of both customers and suppliers. Incentive arrangements focus partners on joint value creation, and companies are sharing information extensively to solve problems together. These partnerships make the most sense when the product or service is of strategic importance to the customer, when the vendor has superior expertise and when there is uncertainty in the relationship.

Strategic Decisions for Multisided Platforms

Some of the fastest growing businesses in recent years — companies such as Facebook, eBay and LinkedIn — are “multisided platforms” that enable interactions between two or more sets of participants. The spectacular success of some of these MSPs has caught the attention of many entrepreneurs and investors. But building a multisided platform business requires savvy decisions on everything from design to governance to pricing.

Why Customer Participation Matters

These days, many businesses are focused on increasing customers’ positive word of mouth. But emphasizing customer participation — such as providing feedback or suggestions — may be a more important vehicle for generating valuable repeat business. As one COO said, “Levels of feedback is a way we identify our most profitable customers. Those that bother to write to us do care. And they do spend money with us.”

The Real Savings From IT Outsourcing

Research suggests that outsourcing IT can help reduce sales expenses and general and administrative costs, which are often four to five times IT costs. Managers need to take a balanced approach to their investments in internal systems and outsourcing to reap greater benefits in terms of cost savings. Analyzing the impact of outsourcing on non-IT costs and formulating strategies for maximizing the savings on these expenses can help companies get the most out of outsourcing spending.

How to Position Your Innovation in the Marketplace

Should a new product or service launch at the high end of the market and move downward or at the low end and move up? In truth, there’s no one-size-fits-all approach for entering the market, but a new research-based framework helps identify the best strategy for a particular product or service. The two key questions to ask: Is the basic functionality of the new offering better or worse than that of existing competitive products? And how groundbreaking are the novel attributes of the new product?

The Art of Strategic Renewal

What does it take to transform an organization before a crisis hits? How can leaders initiate major transformations proactively? The key often lies in strategic renewal — a set of practices that can guide leaders into a new era of innovation by building strategy, experimentation and execution into the day-to-day fabric of the organization. It’s not easy: leaders find it much easier to resist change than to embrace it.

The Discipline of Creativity

Managers can’t afford to rely on haphazard, hit-or-miss approaches to idea generation. Ideas must fit with an organization’s strategy or take it in a new, purposeful direction, and they must solve real problems for stakeholders. A new seven-step process for idea generation is designed to help managers understand their problems deeply, generate tangible ideas for solutions and translate those ideas into action.

Acquisitions That Make Your Company Smarter

It’s challenging to successfully integrate any acquired company. It’s even more complicated when you purchase a business for its knowledge. From Pfizer Inc.’s acquisition of Icagen Inc. to Walt Disney’s acquisition of Pixar, knowledge-based acquisitions are focused on acquiring new knowledge — related to product features, customer needs, processes or technologies — and depend on assimilating the two companies’ expertise. Included: a sidebar on “Six Steps for Smoother Knowledge Transfer.”

The Power of a Good Logo

The authors’ research found that corporate logos that express a brand’s symbolic, functional or sensory benefits, have a significant positive effect on customer commitment to a brand — and thereby a significant impact on company performance in terms of revenues and profits. The research also indicated that separate visual symbols used as logos tend to be more effective than brand names at creating a sense of emotional connection with consumers.

Harvard Business Review,

Jan-Feb 2014

IDEO's Culture of Helping
Teresa Amabile, Colin M. Fisher, and Julianna Pillemer |   page 54

Leaders can do few things more important than encouraging helping behavior within their organizations. In the highest-performing companies, it is a norm that colleagues support one another's efforts to do the best work they can. That has always been true for efficiency reasons. Collaborative helping becomes even more vital in an era of knowledge work, when positive business outcomes depend on high creativity in often very complex projects.

A help-friendly organization has to be actively nurtured, however, because helpfulness among colleagues does not arise automatically: Competition, pride, or distrust may get in the way. The trickiness of this management challenge -- to increase a discretionary behavior that by definition must be inspired -- makes all the more impressive what the design firm IDEO has already achieved. Its help-seeking and help-giving culture is behind the firm's success. But how has IDEO managed to make helping the norm? To answer this question, the authors spent two years observing, interviewing people, and conducting surveys at one office of the firm.

Are there principles that leaders of other organizations could learn and apply to similar effect? The authors posed this question and came out with four principles.

Leadership Conviction
Leaders at IDEO prove their conviction by giving and seeking help themselves

The Two Sides of the Helping Coin
IDEO's leaders know that the relationships between help givers and help receivers -- and levels of accessibility and trust -- can be heavily influenced by features of the organization

Processes and Roles
How pervasive is helping at IDEO? Our network mapping revealed an extraordinary fact: In the office we studied, nearly every person was named as a helper by at least one other person. Even more amazing, an overwhelming majority of employees (about 89%) showed up on at least one other employee's list of top five helpers.
Help is embedded in the entire design process, from IDEO's famous brainstorming sessions, through formal design reviews, to the many forms of support and encouragement for project teams seeking feedback on ideas

Slack in the Organization
Part of the case for building a help-friendly organization is that it produces greater efficiency. It may seem paradoxical, then, that one of the keys to collaborative help at IDEO is allowing slack in the organization.

Building a Game-Changing Talent Strategy
Douglas A. Ready, Linda A. Hill, and Robert J. Thomas | page 62
When most of the world's financial services giants were stumbling and retrenching in the aftermath of the 2008 recession, the asset management firm BlackRock was busy charting a course for growth. Its revenues, profits, and stock price all performed consistently through this tumultuous period. The authors looked at BlackRock and other game-changing companies -- the Mumbai-based global conglomerate Tata Group, and Envision, an entrepreneurial alternative energy company based in China -- and found significant commonalities. These three companies demonstrate the essential attributes of a game-changing organization: They are driven by purpose, oriented toward performance, and guided by principles.
In the process of conducting interviews with these companies, the authors discovered a fourth thread that weaves them even more tightly together: Each is supported by a game-changing talent strategy. But, they write, the path to such a strategy seems rife with complexity and ambiguity. How can both strategy and execution be consistently superior? How can they support a collective culture yet enable high potentials to thrive as individuals? How can the strategy be global and local at the same time? And how can its policies endure yet be agile and constantly open to revitalization? BlackRock's approach provides the answers.

How Netflix Reinvented HR
Patty McCord | page 70

When Netflix executives wrote a PowerPoint deck about the organization's talent management strategies, the document went viral -- it's been viewed more than 5 million times on the web. Now one of those executives, the company's longtime chief talent officer, goes beyond the bullet points to paint a detailed picture of how Netflix attracts, retains, and manages stellar employees. The firm draws on five key tenets:
Hire, reward, and tolerate only fully formed adults. Ask workers to rely on logic and common sense instead of formal policies, whether the issue is communication, time off, or expenses.
Tell the truth about performance. Scrap formal reviews in favor of informal conversations. Offer generous severance rather than holding on to workers whose skills no longer fit your needs.
Managers must build great teams. This is their most important task. Don't rate them on whether they are good mentors or fill out paperwork on time.
Leaders own the job of creating the company culture. You've got to actually model and encourage the behavior you talk up.
Talent managers should think like businesspeople and innovators first, and like HR people last. Forget throwing parties and handing out T-shirts; make sure every employee understands what the company needs most and exactly what's meant by "high performance."
HBR Reprint R1401E

Focusing Capital on the Long Term
Dominic Barton and Mark
Wiseman | page 44
Since the financial crisis of 2008, there has been widespread agreement on the need for public companies to build value for the long term. Nonetheless, because of pressure from financial markets, a detrimental focus on short-term performance persists. Reversing this trend, the authors say, depends on the leadership of major asset owners such as pension funds, insurance firms, and mutual funds. They should act by taking four practical, proven steps:
Define long-term objectives and risk appetite, and invest accordingly. Major asset owners should set a multiyear time frame for creating value, decide how much underperformance they can tolerate in the short term, and then align their investments with this agenda.
Practice engagement and active ownership. Big investors should cultivate ongoing relationships with the companies they invest in, collaborating with management to optimize corporate strategy and governance.
Demand long-term metrics from companies to improve investment decision making. Rather than focusing on quarterly financial statements, investors should seek to obtain and analyze data that indicate a company's long-term health.
Structure institutional governance to support a long-term approach. Big investors must have competent board members committed to investing for the long term, as well as policies and mechanisms to translate this philosophy into action.

The Big Lie of Strategic Planning
Roger L. Martin | page 78
Managers must learn to keep strategy outside the comfort zone.
Strategy making forces executives to confront a future they can only guess at. It's not surprising, then, that they try to make the task less daunting by preparing a comprehensive plan for how the company will achieve its goal. But good strategy is not the product of endless research and modeling; it's the result of a simple process of thinking through how to hit a target and whether it's realistic to try. Discomfort is part of the process. If you are entirely comfortable, you're probably stuck in one or more of the following traps.
Strategic planning. Planning arguably makes for more thorough budgets, but it must not be confused with strategy.
Cost-based thinking. Costs lend themselves wonderfully to planning, because the company controls them. But for revenue, customers are in charge. Planning can't make revenue magically appear.
Self-referential strategy frameworks. Even managers who avoid the first two traps may end up using a framework that leads them to design a strategy entirely around what the company controls.
A company can avoid those traps by focusing on customers, recognizing that strategy is about making bets, and articulating the logic behind strategic choices.

The New Patterns of Innovation
Rashik Parmar, Ian Mackenzie, David Cohn, and David Gann page 86
The search for new business ideas -- and models -- is hit-or-miss at most firms. Tackling the problem systematically, of course, will improve your odds of success. Traditional ways of framing this search examine competencies, customer needs, and shifts in the landscape. This article proposes adding a new IT-based framework. It involves asking, How can data and analytic tools be used to create new value?
The authors have explored that question with many clients. In their work, they've seen IT create new value in five patterns: using data from sensors in objects to improve offerings (think smart energy meters); digitizing physical assets (such as health records); combining data within and across industries (to, say, coordinate supply chains); trading data (as mobile providers do with information on users' whereabouts); and codifying best-in-class capabilities (such as online expense management) as services.
Drawing on examples from their own experience and their clients', the authors walk readers through each of the five patterns and how to apply them. They also provide advice and questions that will help executives get started on their own searches.

From Superstorms to Factory Fires: Managing Unpredictable
Supply-Chain Disruptions
David Simchi-Levi, William Schmidt, and Yehua Wei | page 96
Traditional methods of managing supply chain risk require estimations of how likely a disruption is to occur. For fairly common risks -- poor supplier performance, forecast errors, transportation breakdowns -- the traditional methods work quite well. But it's a different story for rare, high-impact events such as megadisasters, pandemics, and political upheavals. These risks are hard to quantify using traditional models, and as a result, many companies do not adequately prepare for them, which can have calamitous consequences when catastrophes do strike.
A new model allows managers to quantify the impact of a supply chain disruption on a company's operational and financial performance, rather than focusing on the cause or likelihood of the disruption. This type of analysis obviates the need to determine the probability of any specific risk's occurring -- a valid approach since the mitigation strategies are equally effective regardless of what caused the disruption.
In this article, the authors describe how companies can use the model to reduce their exposure to all types of supply chain risk.
HBR Reprint R1401H

How I Did It
SodaStream's CEO on Turning a Banned Super Bowl Ad into
Marketing Gold
Daniel Birnbaum | page 39
When Birnbaum joined SodaStream, in 2007, it was a sleepy company whose managers liked to boast that they had an 85% share of the "home carbonation business." He and his all-new management team brought enthusiasm and vision -- and shortly began talking about a new cola war to grow SodaStream's share of the $260 billion global soda business.
The ad they created for the 2013 Super Bowl reached more than 100 million viewers -- but in an unexpected twist, an ad that never even got on the air garnered more attention. The original spot (called "Game Changer"), which took a direct shot at Coke and Pepsi, was rejected by CBS. The legal wrangling that followed generated headlines around the globe -- and the controversial ad has been viewed more than 5 million times on YouTube. Newspapers in countries that don't even air the Super Bowl began doing stories on it. From a marketing standpoint, it was a great investment.
HBR Reprint R1401A

Managing Yourself
Find the Coaching in Criticism
Sheila Heen and Douglas Stone | page 108
Feedback is crucial -- but almost everyone, from new hires to C-suite executives, struggles with receiving it. The authors, who have spent 20 years working with managers on difficult conversations, outline six steps that can help you turn feedback into an important, and unthreatening, tool.
Know your tendencies. Look for patterns in how you respond. (Do you defend yourself? Do you lash out?) Once you understand your standard operating procedure, you can make better choices about where to go from there.
Separate the "what" from the "who." Your feelings about the messenger might be short-circuiting your ability to learn from the message.
Sort toward coaching. Work to hear feedback as well-meant advice, not as an indictment.
Unpack the feedback. Resist snap judgments; explore where suggestions are coming from and where they're going.
Request and direct feedback. Don't wait for a formal review; ask for bite-size pieces of coaching.
Experiment. Try following a piece of advice and seeing what happens.
Criticism is never easy to take -- but learning to pull value from it is essential to your development and success.

The New Rules of Globalization
Ian Bremmer | page 103
Until 2008 going global seemed to make sense for just about every company in the world. Since then, we've entered a different phase, one of guarded globalization. Governments of developing nations have become wary of opening more industries to multinational companies. They are defining national security more broadly and perceiving more and more sectors to be of strategic importance, taking active steps to deter foreign companies from entering them and promoting domestic, often state-owned enterprises. Indeed, the rise of state capitalism in some of the world's most important emerging markets has altered the playing field.
To factor globalization's new risks into strategy, executives must consider their industry's strategic importance to the host government and their home government. They can then choose among various approaches: strike alliances with local players, look for new ways to add value abroad, enter multiple sectors, or stay home.

December 8, 2015

Productivity and Industrial Engineering - Subject Update Articles

April 2014
To increase driver productivity, UPS watches drivers moves

February 2014

Strategies to improve driver productivity

Pepsico's Productivity Plan will extended for five year from 2015 to 2019

Industrial Engineering Knowledge Revision Plan - One Year Plan

January - February - March - April - May - June

December 7, 2015

Give and Take: A Revolutionary Approach to Success Book by Wharton Professor Adam Grant - Book Information

Our world is filled with these givers, takers, matchers and fakers. Amazingly, those who succeed  don't take or match. They give.

GIVE AND TAKE presents the fascinating secrets to givers' success. The results are unequivocal: givers gain big. Jack Welch, Richard Branson, Jon Huntsman Sr. - all of them are givers. In a world in which so many takers such as Bernard Madoff and Raj Rajaratnam have ruined lives and reputations, this book will reassure readers that the real power lies in becoming a giver. Since the vast majority of people aren't born givers, Grant not only presents the case for why givers win, he also offers their hidden strategies for winning.

Do Winners Give—or Take—All?

Adam Grant - Profile

November 26, 2015

Management Quotations - 2015 Collection

MBA Core Management Knowledge - One Year Revision Schedule

What is Management? - Management is getting things done along with people. - Narayana Rao

4 Ps of Management - Providing Value to Customers - Purchasing or Procuring Input Resources - Processing the Inputs into Outputs - People Relations - Narayana Rao

Interactive Marketing becoming more and more prominent in marketing as it is capable of two way communications in product conceptualization, communication regarding final product, order taking, communicating order delivery and even payment (and payment confirmation) and post purchase communication.

Business teams want leaders who are going to support them and make the team better and not leaders who sit in the corner office and demand answers without any personal involvement - John Rice, Vice Chairman of GE and CEO of GE Global Growth and Operations

Be with someone who brings out some good in you, not with the one who generates stress in you. - Modified quote (Nrao)

November 24, 2015

Organizing for Innovation

Innovation is first planned in organizations. An organization plan  is developed next. Resources are are acquired next as per the organization plan. Innovation culture is a part of the organization plan but it is exhibited during the directing process. The authors say, the innovation organization, can be inhibited or it can be supported. One of the critical support elements that is responsible  is infrastructure, which consists primarily of the processes people use to do their work, and a work place that itself helps people to work effectively to meet the challenges of rapid learning and high
creativity that’s required for innovation to thrive. Work place is a part of the organization plan.

Work Process, Collaboration and Work Design

The concept of a “work process” is that to accomplish the tasks at hand in any activity that involves creative thinking, collaboration, or what is often referred to as “knowledge work,” people have to choose how to get the work done. Is this an individual task or a group task? Is it a meeting, a
brainstorming session, a workshop, or a conference? While many time  these decisions are easily made, but some require deeper thought.

Productivity of capital is achieved by productive operations. Making and selling of products and services create customer experiences, and internal functions like marketing strongly affect differentiation. Can your company provide a superior experience for your customers?

And what supports productive operations? Given rapid change as well as structural shifts across the economy, organizational effectiveness is supported by the constant application of creativity and the development of innovations that make a difference.

The key capabilities that enable creativity and innovation are learning and leadership. Through learning we recognize when and why new information and knowledge are important to the present and future of the organization. And as we have discussed, support for knowledge-creation,
learning, creativity, and innovation are very much a function of an organization’s leadership.

At the base of this productivity tree there is a single quality which supports everything else that distinguishes outstanding companies from the mediocre ones, and that is the ability of the people inside the organization to work well together with others inside and outside, to learn together, to create together. Thus, collaboration is in a fundamental way the very foundation of business success. It is also a key foundation of innovation, because success at innovation requires massive amounts of effective collaboration.
Collaboration means that there is a spirit of openness that leads people to ask probing questions, to
come up with innovative solutions by sharing knowledge between departmental, to look deeply even though it might be easier to look only superficially. There are teams working effectively, problems grasped and solved quickly, and pervasive networks through which many problems are dissolved before they ever manifest. In other words, the prevailing work process in the company favors collaboration, and the means are at hand to ensure that such collaboration is effective.

Could it really be true that companies in which people collaborate more effectively generate better returns on capital?

Toyota is  renowned for its innovation system and for its collaborative culture, is now one of the most admired companies in the world

The Work Place: Social Design and the Innovation Milieu

While it’s quite possible to create and enhance the conditions that support creativity by supporting effective collaboration, the actual arrival of creative ideas is entirely unpredictable. Innovation, on the other hand, is a social and managerial process because it requires that people with complementary expertise and viewpoints work together. Hence, most people working as innovation professionals,
particularly those in R&D, firmly believe that successful social interaction is critical to the success of the innovation process.

Innovation is undoubtedly a social art, and although it can occasionally be the province of a unique
or exceptionally talented individual, it’s more commonly a group effort. In modern organizations it is commonly the fruit of people who work together effectively, applying their diverse talents and experiences to complement one another and provide the depth of experience and capability that
enables them to transform ideas into useful products, services, and business models.

All of these issues come together in a compelling way in the physical setting that is designed specifically to support the work of innovation, namely the research laboratory. A few years ago I had the opportunity to
study nine new R&D labs built by pharmaceutical and high companies, and this process illuminated a number of principles that, taken together, describe many key aspects of the ideal physical infrastructure for innovation. Each of these companies had invested heavily in facilities that encouraged and even forced researchers to interact with one another, and this led me to
understand that these facilities represent a new dimension of architecture that I now refer to as “social design,” the application of architectural principles to promote social interaction and effective innovation.

Social Design Theory in Practice: The Design of R&D Labs

The term “social design” refers to that aspect of architecture which takes as a priority the creation of environments for effective and positive human interaction.

Since the design of both facilities and organizations are entirely complementary to one another, these two aspects of design can literally define and reinforce collaboration in this age of “intellectual capital.”

One of the underlying reasons has to do with the nature of creativity. As Mihaly Csikszentmihalyi points out, “An idea or product that deserves the label ‘creative’ arises from the synergy of many sources and not only from the mind of a single person. It is easier to enhance creativity by changing
conditions in the environment than by trying to make people think more creatively.”

In a typical laboratory, scientists, engineers, and technicians design and conduct experiments whose purpose is to create useful new knowledge that may pertain to the uncharted physical world of chemistry or biology, to the behavior of man-made products, or to how people interact with each other and with physical artifacts.

For example, Glaxo Wellcome chemist Dan Sternbach had this to say about collaboration in the corridor that runs through his building. “The ‘people corridor’ that connects all the offices actually forces everyone to walk by every office. That's good for communication. You know when people are in and you can stop by their offices. The whole argument about proximity means a lot when you're collaborating with people.”

MacArthur Fellow J. Kirk Varnedoe, former Director of Painting and Sculpture at New York’s Museum of Modern Art puts it this way: “Creativity is not solely a brain function, but a social function as well.”

Genentech believes that informal communication improves the possibility of doing something new and innovative, and this belief has significant influence on the design of Genentech's facilities. For example, the location of offices, toilets, mail rooms, copiers, coffee machines, and stairways within individual buildings is intended to force interactions by bringing people to these shared spaces and functions. In addition, special “interaction spaces” have been included in many facilities, with varying degrees of success. Subsequent observations at Genentech (and confirmed at Sun Microsystems) revealed that the psychology of these spaces can be complex.


1. Organize for Interaction
It’s universally accepted that organizational hierarchies suppress important and desirable qualities such as innovativeness, creativity, adaptiveness, etc.Many companies are attempting to reduce the influence of the hierarchy and shift to network based organizations, as we discussed in the
last chapter.

2. Design for Interaction
Facilities are designed to increase the frequency and quality of interactions, to support meaningful dialog, not just bumping shoulders in the hallway or the elevator.

3. Design for Flexibility
Many of the features that are intended to increase interaction also serve
to reduce cost by increasing the flexibility of the work environment while
simultaneously reducing square footage requirements.

4. Design for Aesthetics
Features that address aesthetics are difficult to value, but managers at
many facilities cited competition for talented individuals as one reason for
the continuing effort to bring beauty to the workplace.

Collaboration Centers

In addition to facilities that support spontaneous collaboration and small gatherings, there is also a need for larger spaces to accommodate larger groups. We call these facilities Collaboration Centers, and over the years we’ve seen many great examples.

How can we assess the effectiveness of interaction? Here are four critical dimensions.

1. Cycle time: Great infrastructure enables firms to reduce the cycle time from initial insight to application in new ideas and new products. High-performance facilities contribute significantly to the productivity of knowledge.
2. Quantity: Great collaboration centers result in an increased quantity of raw ideas and products, and of refined ideas and products.
3. Quality: They also support an increase in the quality of raw ideas and products, as well as refined ones.
4. Staff retention and recruiting: Staff retention and an increase in the ability to recruit top level staff is often a consequence of great facilities, where people can interact easily and effectively with one another.

First draft. To be revised

From Permanent Innovation - Langdon Morris

Permanent Innovation
The Definitive Guide to the Principles, Strategies, and Methods of
Successful Innovators
Langdon Morris

Langdon Morris is a co-founder and principal of InnovationLabs LLC and Senior Practice Scholar at the Ackoff Center of the University of Pennsylvania and Senior Fellow of the Economic Opportunities Program of the Aspen Institute.

Space 10 - Ikea funding an Independent Innovation Lab

MBA Core Management Knowledge - One Year Revision Schedule

Updated 24 Nov  2015, 27 Nov 2014

November 16, 2015

Ch. 22: COST CURVES - Summary - Intermediate Microeconomics - Varian


Topics in the chapter

22.1 Average Costs
22.2 Marginal Costs
22.3 Marginal Costs and Variable Costs
22.4 Cost Curves for Online Auctions

22.5 Long-Run Costs
22.6 Discrete Levels of Plant Size
22.7 Long-Run Marginal Costs

The cost curve is an important geometric construction in economics.  Cost curves can be used to depict graphically the cost function of a firm and  to study the determination of optimal output choices.

Different types of cost curves

(1) Total cost: c(y) = cv(y) + F

cv(y)= variable costs

F= Fixed costs

(2) Average costs: c(y)/y

 =                 +

AC        AVC AFC

Average Average Average

costs variabel fixed

costs costs

Example: c(y) = y3- y2 + 4y + 12

(3) Marginal costs: the derivative of the cost curve

dc(y)/dy = dcv(y)/dy


MC is the change in cost due to change in output

MC equals AVC at zero output

MC goes through minimum point of AC and AVC

(4) Area under MC-curve gives the total Variable Costs


example: MC=y2

Intuitively: MC-curve measures the cost of each

additional unit,

so adding up MCs gives the variable costs.

Long run and short run

(1) Average costs

(2) Marginal costs

Important Points

22.1 Average Costs

1. Average costs are composed of average variable costs plus average fixed
costs. Average fixed costs always decline with output, while average variable
costs tend to increase. The net result is a U-shaped average cost

22.2 Marginal Costs

2. The marginal cost curve lies below the average cost curve when average
costs are decreasing, and above when they are increasing. Thus marginal
costs must equal average costs at the point of minimum average costs.

3. The area under the marginal cost curve measures the variable costs.

4. The long-run average cost curve is the lower envelope of the short-run
average cost curves

November 15, 2015

Ch. 1. The Market - Summary - Intermediate Microeconomics - Varian

The Market

1.1 Constructing a Model

Example of an economic model — The market for rented apartments is discussed in this book.

1. Models are simplifications of reality. From the real situation many complicated issues are ignored and only few important issues are considered for analysis using models.
2. For example, we assume all apartments are identical (In reality they are not)
3. Some are close to the university, others are far away
4. Rental price of outer-ring apartments is exogenous — determined outside the model (we are not analyzing)
5. price of inner-ring apartments is endogenous — determined within the model (We want to analyze and find out.)

1.2 Optimization and Equilibrium

 Two principles of economics

1. Optimization principle — people choose actions that are in their interest. They want to buy a specific quantity of goods at various prices to increase benefit to them
2. Equilibrium principle — Market prices adjust so that people who want to buy can buy and people who want to sell can sell the quantities of their choice. Thus the intentions of buyers and sellers become consistent with each other with varying prices and quantities.

1.3 The Demand Curve
Constructing the demand curve

1. Find the rent each person is willing to pay and draw a graph in descending order with rent on the y axis.

2. If there are large numbers of people, this curve can become a smooth curve. Otherwise it will be a step curve.

Reserve Price: Economists call a person’s maximum willingness to pay for something that person’s reservation price. The reservation price is the highest price that a given person will accept and still purchase the good.

1.4 The Supply Curve

Supply curve

1. depends on time frame
2. but we’ll look at the short run—when supply of apartments
is fixed.

1.5 Market Equilibrium
1. when demand equals supply
2. price that clears the market

1.6 Comparative Statics
Comparative statics
1. how does equilibrium adjust when economic conditions change?
2. “comparative” — compare two equilibria
3. “statics” — only look at equilibria, not at adjustment
4. example — increase in supply lowers price;
5. Complicated example — convert somee rental apartments into  condos which can be  purchased by renters; no effect on price;

1.7 Other Ways to Allocate Apartments
 Other ways to allocate apartments
1. discriminating monopolist
2. ordinary monopolist
3. rent control

1.8 Which Way Is Best?
Comparing different institutions

1. need a criterion to compare how efficient these different
allocation methods are.

1.9 Pareto Efficiency

an allocation is Pareto efficient if there is no way to make
some group of people better off without making someone else
worse off.
if something is not Pareto efficient, then there is some way
to make some people better off without making someone else
worse off.
if something is not Pareto efficient, then there is some kind
of “waste” in the system.

1.10 Comparing Ways to Allocate Apartments

Checking Pareto efficiency of different methods
1. free market — efficient
2. discriminating monopolist — efficient
3. ordinary monopolist — not efficient
4. rent control — not efficient

1.11 Equilibrium in the Long Run
In long run supply will change
We have to  examine efficiency in this context as well.

Important Points

1. Economics proceeds by making models of phenomena of interest. Models are simplified representations of reality and using these models our questions of interest can be answered.

2. Economists are guided by  two important principles. The optimization principle, which
states that people typically try to choose what’s best for them, and by the equilibrium principle, which says that prices will adjust until demand (quantity demanded at the price) and supply (quantity sellers are willing to sell at that price) are equal.

3. The demand curve measures how much people wish to demand at each price, and the supply curve measures how much people wish to supply at each price.

4. An equilibrium price is one where the amount demanded equals the amount supplied.

5. The study of how the equilibrium price and quantity change when the underlying conditions (conditions that change demand curves and supply curves) change is known as comparative statics.

6. Markets  and plans are analyzed on the basis of Pareto efficiency. An economic situation is Pareto efficient if there is no way to make some group of people better off without making some other group of people worse off. The concept of Pareto efficiency can be used to evaluate different ways of allocating resources either based on markets or central planning.

Ch. 26. Monopoly Behavior - Summary - Intermediate Microeconomics - Varian

26. Monopoly Behavior

If a firm has some degree of monopoly power, it can use  complicated pricing and marketing strategies to earn profits higher than that of firms in competitive market. It can try to differentiate its product from the products sold by its competitors to create extra preference for its product in the market thus enhance its market power even further than that allowed by technology alone.
In this chapter the topic of  how firms can enhance and exploit their market power is explained.

26.1 Price Discrimination

Selling different units of output at different prices is called price discrimination. Three kinds of price discrimination are recognized.

First-degree price discrimination means that the monopolist sells different units of output for different prices and these prices may differ from person to person. This is also termed as the case of perfect
price discrimination.

In second-degree price discrimination,  the monopolist sells different units of output for different prices, but every individual who buys the same amount or quantity of the good pays the same price. The prices differ across the units of the good bought, and not across people. A  simple  example
of this is bulk discounts or discount for higher quantity.

In third-degree price discrimination,  the monopolist sells output to different people for different prices, but every unit of output sold to a given person sells for the same price. This means he quotes the same price to a buyer irrespective of the quantity bought. Also this can occur across categories of persons, For example,  senior citizens’ discounts, student discounts come under this type of discrimination. .

26.2 First-Degree Price Discrimination

A producer who is able to perfectly price discriminate will sell each unit of the good at the highest price it will command, that is, at each consumer’s reservation price. Since each unit is sold to each consumer at his or her reservation price for that unit, there is no consumers’ surplus generated in
this market; all the surplus goes to the producer.

26.3 Second-Degree Price Discrimination

Second-degree price discrimination is also known as the case of nonlinear pricing, since it means that the price per unit of output is not constant but depends on how much you buy.

26.4 Third-Degree Price Discrimination

Two different consumer groups or markets are offered different prices.

The market with the lower elasticity of demand will have higher price. This is because, an elastic demand provide more profit as price is decreased.  A firm that price discriminates will therefore set a low price for the price-sensitive group and a high price for the group that is relatively price insensitive. In this way it maximizes its overall profits.

26.5 Bundling
26.6 Two-Part Tariffs
26.7 Monopolistic Competition
26.8 A Location Model of Product Differentiation
26.9 Product Differentiation
26.10 More Vendors

Important Points

1. A monopolist has  an incentive  to engage in price discrimination of some sort.

2. Perfect price discrimination involves charging each customer a different take-it-or-leave-it price. This is a Pareto efficient allocation. (But consumer surplus will be low in this allocation)

3. If a firm can charge different prices in two different markets, it will tend to charge the lower price in the market with the more elastic demand (because elastic demand gives more profit on reducing price).

4. If a firm can set a two-part tariff, and consumers are identical, then it will generally want to set price equal to marginal cost and make all of its profits from the entry fee.

5. The industry structure known as monopolistic competition refers to a situation in which there is product differentiation, so each firm has some degree of monopoly power, but there is also free entry so that profits are driven to zero.

6. Monopolistic competition can result in too much or too little product differentiation in general.


max         p1(y1)y1 + p2(y2)y2 − c(y1 + y2).

The optimal solution must have
MR1(y1) = MC(y1 + y2)
MR2(y2) = MC(y1 + y2).

That is, the marginal cost of producing an extra unit of output must be equal to the marginal revenue in each market.



Ch. 25. Monopoly - Summary - Intermediate Microeconomics - Varian

25. Monopoly

In this chapter we  consider an industry structure when there is only one firm in the industry—a monopoly.

A monopoly would recognize that it can influence the market price by its choice of supply quantity and choose that level of price and output that maximized its overall profits.

The difference

Perfect competition: All firms are price takers

Monopoly: The monopolist decides market output and price

24.1 Maximizing Profits

B. Profit maximization

(1) =TR(y)-TC(y)

max  when =0

MR-MC=0  MR = MC

Marginal revenue Marginal cost

(2) TR(y) = p(y)*y

MR(y)= p(y)*1+ y


Perfect competition: MR=price

For a monopolist: MR  price. Why?

(3) Examples

24.4 Inefficiency of Monopoly

 Ineffiency of monopoly

24.6 Natural Monopoly

Natural monopoly - theory of regulation

(1) Definition: Decreasing AC

MC < AC Why?

(2) Examples of natural monopolies

Railroad tracks

Utilities etc

(3) No regulation: MC=MR


MR  price  MC  price

Efficient ressource use when MC=price.


(4) Regulation regimes

(a) Price=MC

 Price< AC

 Need to subsidise the monopolist

 Note: Efficiency loss by taxation

(b) Price=AC


 Efficiency loss?

24.7 What Causes Monopolies?

Important Points

1. When there is only a single firm in an industry, we say the market is a monopoly market and the firm is a monopolist.

2. A monopolist operates at a point where marginal revenue equals marginal cost to get maximum profit for him.. Hence a monopolist charges a price (average price) that is a markup on marginal
cost.  The price or  the size of the markup depends on the elasticity of demand.

3. The monopoly market will produce an inefficient amount of output. The size of the inefficiency can
be measured by the deadweight loss—the net loss of consumers’ and the producer’s surplus.

4. A natural monopoly occurs when a firm cannot operate at an efficient level of output  as per the with marginal cost analysis without losing money. Hence they are to be allowed to operate in a market that has monopoly features and hence allows it to fix price to get profit.  Many public utilities come under the category of  natural monopolies  and are therefore regulated by the government.

5. Whether an industry is competitive or monopolized depends in part on the nature of technology. If the minimum efficient scale is large relative to demand, then the market is likely to be monopolized because only limited number of firms can be in the market and operate at the efficient scale. But if the minimum efficient scale is small relative to demand, there is room for many firms in
the industry, and  a competitive market structure may emerge.

Ch. 16. Equilibrium - Summary - Intermediate Microeconomics - Varian

16. Equilibrium

In this chapter we will describe how to use these market demand curves to determine the equilibrium market price (Refer 1.5 Market Equilibrium).

We will not study in detail, but give some examples of equilibrium analysis—how the prices adjust
so as to make the demand and supply decisions of economic agents compatible. In order to do so, we need to introduce  briefly the other side of the market—the supply side.

16.1 Supply

A. Supply curves -

Measures amount suppliers want to supply at each price

How do we derive supply curves:


Minimize costs - producing y units

Factor demand

Cost function

Firms supply when marginal cost =price

Aggregate supply fn.: S(p)

Inverse supply fun: Ps(q)

B. Demand curves

Measures amount consumers want to buy at each price

How do we derive demand curves:


Max. utility - budget restriction

Individual demand

Aggregate individuals demand function: D(p)

Inverse demand function: Pd (q)

16.2  Equilibrium

(1) Competitive market - each agent price taker

(a) Many small agents

(b) A few agents who think that the others keep fixed prices

(2) Example:

Demand: q= 5-p Supply: q = -2 + p

Inverse d.: p=5-q Inverse s.: p=2+q

16.3  Two special cases of Market Equilibrium

(1) Vertical supply

Perfectly inelastic supply


Short run supply of apartments

(2) Horizontal supply

Perfectly elastic supply


When a small country imports goods from the

world market, the country won’t influence the market

price. Supply is horizontal.

16.4 Inverse Demand and Supply Curves

16.5. Comparative statics (Refer 1.6 Comparative Statics)

(1) What happens with (q*, p*) when Supply (or Demand) changes?

Shift the Supply curve (or Demand), and get a new

(2) Example: tax per unit: t.

New supply curve: Ps + t

New equilibrium when Pd = Ps+ t

Ch. 15. Market Demand - Summary - Intermediate Microeconomics - Varian

15. Market Demand

Analysis of Elasticity

In this chapter, we see how to add up individual choices to get total market demand.
Once the market demand curve is obtained, we examine some of its properties, such as the relationship between demand and revenue (elasticity).

15.1 From Individual to Market Demand

To get M.D. - add up individual demands

Add horizontally

X1(p1, p2, m1, m2 ... mn) =

Often think of market behaving like a single individual

(1) The "representative consumer model"

(2) Not true in general, but a reasonable assumption for this course

15.5 Elasticity


(1) Measures responsiveness of demand to price

(2)  E =  (the own price elasticity)

(a) E < 0: Normal goods

(b) E> 0: Giffen goods

(c)  > 1 Elastic

(d)  < 1 Inelastic

(c) (d)


(a) (b)

(3) Example: Linear demand

q= a-bp


Note: Elasticity is in the linear case a function of p and q

(4) Demand curve with constant elastisticity

q= Apa (e<0. Why?)

E= a

(5) "Tendency":

Goods with many close substitutes - elastic demand

Goods without close substitutes - inelastic demand

15.7 Elasticity and Revenue

How does revenue change when you change price?

(1) Revenue= quantity x price


dR/dp = q + p(dq/dp)

dR/dp > 0 when  < 1. Why?

Inelastic demand - 1 % price increase leads to less than 1% reduction in quantity sold.

dR/dp < 0 when  > 1.

Monopolist: Maximizes R when

  = 1

(2) Example: q(p) = 30 - 2q

G. Some other elasticities

15.11 Income Elasticity

(1) Income elasticity

Eq,m =

Eq,m > 0 Normal good

Eq,m < 0 Inferior good

(2) Cross price elasticity

E q,p2 =

Good 1 and 2 are substitutes if

E q,p2 > 0

Good 1 and 2 are complementary goods if

E q,p2 < 0

Important Points


1. The market demand curve is simply the sum of the individual demand

2. The reservation price measures the price at which a consumer is just
indifferent between purchasing or not purchasing a good.


3. The demand function measures quantity demanded as a function of
price. The inverse demand function measures price as a function of quantity.
A given demand curve can be described in either way.

15.5 Elasticity

4. The elasticity of demand measures the responsiveness of the quantity
demanded to price. It is formally defined as the percent change in quantity
divided by the percent change in price.


5. If the absolute value of the elasticity of demand is less than 1 at some
point, we say that demand is inelastic at that point. If the absolute value
of elasticity is greater than 1 at some point, we say demand is elastic at
that point. If the absolute value of the elasticity of demand at some point
is exactly 1, we say that the demand has unitary elasticity at that point.


6. If demand is inelastic at some point, then an increase in quantity will
result in a reduction in revenue. If demand is elastic, then an increase in
quantity will result in an increase in revenue.


7. The marginal revenue is the extra revenue one gets from increasing
the quantity sold. The formula relating marginal revenue and elasticity
is MR = p[1 + 1/ ] = p[1 − 1/| |].


8. If the inverse demand curve is a linear function p(q) = a − bq, then the
marginal revenue is given by MR = a − 2bq.

9. Income elasticity measures the responsiveness of the quantity demanded
to income. It is formally defined as the percent change in quantity divided
by the percent change in income.

Top Management Thinkers 50 - 2015 Rankings

1. Michael Porter

2. Clayton Christensen

29. Game Theory - Summary - Intermediate Microeconomics - Varian

29. Game Theory

29.1 The Payoff Matrix of a Game
29.2 Nash Equilibrium
29.3 Mixed Strategies
29.4 The Prisoner’s Dilemma
29.5 Repeated Games
29.6 Enforcing a Cartel
29.7 Sequential Games
29.8 A Game of Entry Deterrence

Game theory is concerned with the general analysis of strategic interaction.

In this chapter we discuss the basics of the subject and explore how it works and how it can be used to study economic behavior in oligopolistic markets.

Game Theory
Game theory studies strategic interaction, developed by von Neu-
mann and Morgenstern around 1950

How to depict payoffs of game from different strategies
1. two players
2. two strategies
3. example

Dominant strategy
Each person has a strategy that is best no matter what the
other person does
Nice when it happens, but doesn’t happen that often

Nash equilibrium
1. what if there is no dominant strategy?
2. in this case, look for strategy that is best if the other player
plays his best strategy
3. note the “circularity” of definition
4. appropriate when you are playing against a “rational” oppo-
5. each person is playing the best given his expectations about
the other person’s play and expectations are actually con-
6. example

7. Nash equilibrium in pure strategies may not exist.

8. but if allow mixed strategies (and people only care about
expected payoff), then Nash equilibrium will always exist

Prisoner’s dilemma
1. 2 prisoners, each may confess (and implicate other) or deny
2. gives payoff matrix

3. note that (confess, confess) is unique dominant strategy
equilibrium, but (deny, deny) is Pareto efficient
4. example: cheating in a cartel
5. example: agreeing to get rid of spies
6. problem — no way to communicate and make binding agree-

Repeated games
1. if game is repeated with same players, then there may be
ways to enforce a better solution to prisoner’s dilemma
2. suppose PD is repeated 10 times and people know it
a) then backward induction says it is a dominant strategy to
cheat every round
3. suppose that PD is repeated an indefinite number of times
a) then may pay to cooperate
4. Axelrod’s experiment: tit-for-tat

Example – enforcing cartel and price wars

Sequential game — time of choices matters

I. Example: entry deterrence
1. stay out and fight
2. excess capacity to prevent entry — change payoffs
3. see Figure 29.7.
4. strategic inefficiency

29.1 The Payoff Matrix of a Game

1. A game can be described by indicating the payoffs to each of the players
for each configuration of strategic choices they make.

2. A dominant strategy equilibrium is a set of choices for which each
player’s choices are optimal regardless of what the other players choose.

29.2 Nash Equilibrium

3. A Nash equilibrium is a set of choices for which each player’s choice is
optimal, given the choices of the other players.

29.4 The Prisoner’s Dilemma

4. The prisoner’s dilemma is a particular game in which the Pareto efficient
outcome is strategically dominated by an inefficient outcome.

5. If a prisoner’s dilemma is repeated an indefinite number of times, then
it is possible that the Pareto efficient outcome may result from rational

6. In a sequential game, the time pattern of choices is important. In these
games, it can often be advantageous to find a way to precommit to a
particular line of play.

Ch. 28. Oligopoly - Summary - Intermediate Microeconomics - Varian

28. Oligopoly

A. Oligopoly is the study of the interaction of a small number of
1. duopoly is simplest case
2. unlikely to have a general solution; depends on market struc-
ture and specific details of how firms interact

28.1 Choosing a Strategy
B. Classification of theories
1. non-collusive
a) sequential moves
1) quantity setting — Stackelberg
2) price setting — price leader
b) simultaneous moves
1) quantity setting — Cournot
2) price setting — Bertrand
2. collusive

28.2 Quantity Leadership

C. Stackelberg behavior
1. asymmetry — one firm, quantity leader, gets to set quantity
2. maximize profits, given the reaction behavior of the other
3. take into response that the other firm will follow my lead
4. analyze in reverse
5. firm 2
a) maxy2 P(y1 + y2)y2 − c(y2)
b) FOC: P(y1 + y2) + P′(y1 + y2)y2 = c′(y2)
c) solution gives reaction function, f2(y1)
6. firm 1
a) maxy1 P(y1 + f2(y1))y1 − c(y1)
b) FOC: P(y1 + f2(y1)) + P′(y1 + f2(y1))y1 = c′(y1)
c) see Figure 26.2.
7. graphical solution in Figure 28.4.
D. Price-setting behavior
1. leader sets price, follower takes it as given
2. given p1, firm 2 supplies S2(p1)
3. if demand is D(p), this leaves D(p1) − S2(p1) for leader
4. hence leader wants to maximize p1y1 − c(y1) such that y1 =
D(p1) − S2(p1)
5. leader faces “residual demand curve”

28.5 Simultaneous Quantity Setting

E. Cournot equilibrium — simultaneous quantity setting
1. each firm makes a choice of output, given its forecast of the
other firm’s output
2. let y1 be the output choice of firm 1 and ye
2 be firm 1’s beliefs
about firm 2’s output choice
3. maximization problem maxy1 p(y1 + ye
2)y1 − c(y1)
4. let Y = y1 + ye
5. first-order condition is
p(Y ) + p′(Y )y1 = c′(y1)
6. this gives firm 1’s reaction curve — how it chooses output
given its beliefs about firm 2’s output
8. look for Cournot equilibrium — where each firm finds its
expectations confirmed in equilibrium
9. so y1 = ye
1 and y2 = ye

28.6. Example of Cournot
1. assume zero costs
2. linear demand function p(Y ) = a − bY
3. profit function: [a − b(y1 + y2)]y1 = ay1 − by2
1 − by1y2
4. derive reaction curve
a) maximize profits
b) a − 2by1 − by2 = 0
c) calculate to get y1 = (a − by2)/2b
d) do same sort of thing to get reaction curve for other firm
5. look for intersection of reaction curves

28.9 . Bertrand – simultaneous price setting
1. consider case with constant identical marginal cost
2. if firm 1 thinks that other firm will set p2, what should it set?
3. if I think p2 is greater than my MC, set p1 slightly smaller
than p2
4. I get all the customers and make positive profits
5. only consistent (equilibrium) beliefs are p1 = p2 = MC

28.10 . Collusion
1. firms get together to maximize joint profits
2. marginal impact on joint profits from selling output of either
firm must be the same
3. max p(y1 + y2)[y1 + y2] − c(y1) − c(y2)
4. P(y1 + y2) + P′(y1 + y2)[y1 + y2] = c′(y1) = c′(y2)
5. note instability — if firm 1 believes firm 2 will keep its output
fixed, it will always pay it to increase its own output
6. problems with OPEC
7. if it doesn’t believe other firm will keep its output fixed, it
will cheat first!

Ch. 24: INDUSTRY SUPPLY - Summary - Intermediate Microeconomics - Varian


In Ch. 23, We have seen how to derive a firm’s supply curve from its marginal cost curve. In a market,  there will typically be many firms. So the supply curve the industry presents to the market will be the sum of the supplies of all the individual firms. In this chapter,  we learn how develop the
industry supply curve and make decisions based on it.

23.1 Short Run Industry Supply

A. Industry supply: Sum of the MC curves

(1) S(p) =

(2) Example:

Firm 1:            Firm 2:

c(y)= 2y2 +3          c(y)= 3y2 +3

MC= 4y                 MC=6y

P=4y                 P=6y

S1(p)= p/4         S2(p)= p/6

Market Supply: S(p) = S1+ S2= p/4 + p/6 = (10/24)p

B. Equilibrium in the short run

(1) Look for point where D(p) = S(p)

(2) can then measure profits ()of firms

C. Short run and long run supply

(1) If profits > 0, entry of new firms in the long run

(2) If any firm have identical cost structure, then

      Price in long run = minimum of AC-curve

D. Economic rent

(1) If no factors are scarce: Long run supply curve: Horisontal

P= minAC

All firms have Zero Profits

(no factors of production are "paid" more than its value,

i.e. the opportunity cost of the factor)

(2) What if some factors (of identical quality) are scarce in the long run? Because:

(a) licences/patents

(b) raw materials, land

(3) Entrants (new firms) will have higher costs

(4) "Old" firms will still have economic rents, because price won’t be as low as their minimum AC.

Ch. 23: FIRM SUPPLY - Summary - Intermediate Microeconomics - Varian


 In this chapter we derive the supply curve of a competitive firm from its cost function using the model of profit maximization.

We first  describe the alternative market environments in which a firm has to operate. But in this chapter we concentrate on pure competitive market only.

23.1 Market Environments

A. Firms face two sorts of constraints

(1) Technological - summarized in cost function

(2) Market constraints - how will

consumers and
other firms
react to a given firm’s choice

B. Assumption: Pure/perfect competition

(1) Price takers - takes market prices as given,

i.e. outside of any particular firms control

Example - if many "relatively" small firms

Demand curve facing a competitive firm

C. Supply decision of competitive firm

(1) maxy py- c(y)

(2) first order condition: Price = MC

p = c’(y)

(3) second order condition: c’’(y)  0

i.e. only upward-sloping part of MC-curve matters

(4) check that it is profitable to operate at all

revenue > Variabel Costs

py > cv(y)

p > cv(y)/y

price > Average Variable Costs

D. Example

c(y) = 2y2 + 3

cv(y) + F

[ Supply: Si(p) = 0.25p ]

E. Producer’s Surplus (PS)

(1) PS is defined to be Revenue - Variabel costs

py - cv(y)

(2) Since cv(y) = area under MC-curve

(3) PS = area above MC-curve

F. Long run supply

(1) L= Long Run

(2) LAVC = LAC Why?

No costs are fixed in the long run

i.e.  All costs are variable in the long run

(3) Long Run Supply more elastic than Short Run Supply

Demand Supply

ED =  ES =

[ES,L > ES,S]

Hal R. Varian - Intermediate Microeconomics A MODERN APPROACH - 9th Edition - Book Information and Chapter Summaries


1. The Market - Summary

2. Budget Constraint

3. Preferences

4. Utility

5. Choice

6. Demand

7. Revealed Preference

8. Slutsky Equation

9. Buying and Selling

10. Intertemporal Choice

11. Asset Markets

12. Uncertainty

13. Risky Assets

14. Consumer’s Surplus

15. Market Demand - Summary

16. Equilibrium

17. Econometrics

18. Auctions

19. Technology - Summary

20. Profit Maximization

21. Cost Minimization

22. Cost Curves

23. Firm Supply

24. Industry Supply

25. Monopoly

26. Monopoly Behavior

27. Factor Markets

28. Oligopoly

29. Game Theory

30. Game Applications

31. Behavioral Economics

32. Exchange

33. Production

34. Welfare

35. Externalities

36. Information Technology

37. Public Goods

38. Asymmetric Information

Mathematical Appendix