Midterm #1 Review Guide

The midterm will consist of two parts, short-answer “identifications” (choosing 6 from a list of ten) and an essay. You will have 2 hours total, and may either handwrite or type (but if you type, attach a sheet with your handwritten graphs and equations – don’t waste time trying to cut-and-paste).

Here are the major topics we have covered. I will make sure that class notes are posted for the past couple classes.

  1. Hotelling Model. Generic challenges of the economics of strategy.
  2. Nature of demand curve, elasticities and MC / MR.
  3. Basic monpoly model, in comparison to perfect competition. What are the downsides of monopoly?
  4. Regulation, utilities.
  5. Entry barriers and disruption.
  6. Two firm models: price competition.
  7. Two firm models: quantity competition.
  8. Formal models: reaction curves and games, in several flavors.
  9. Fixed costs and their impact on competition.
  10. Mergers and oligopoly.

You should also read through the book for examples of oligopoly and market power. (Chapter 5 is the general discussion for many more)

  1. You should of course read the introduction to the book, Chapter 1.
  2. In Chapter 2 we covered
    1. §2.1,
    2. §2.2.1, §2.2.2
    3. §2.3
  3. In Chapter 2 we did not cover §2.4 experimental economics. You should read §2.5 on evidence from “natural” markets.
  4. In Chapter 3 we covered:
    1. §3.1,
    2. §3.2. Read §3.2.4 for what happens, NOT for model details. We did not look at §3.2.5 (a generalization of the Cournot approach) but did look at §3.2.6.
    3. §3.3, §3.4.
  5. In Chapter 3 we did not cover models with search §3.5 and switching costs §3.6, or §3.7 network externalities and §3.8 platform markets. We’ll touch on the later two when we look at the economics of strategy for “high tech” businesses.
  6. In Chapter 4 we covered §4.2.1. It is entertaining to read the “Whoops” conclusion to §4.2.2 but do not try to go through the calculations of the formal model that generated the “whoops” error!
  7. Chapter 5 (especially the long §5.3) is helpful for the link between models and the real world. How do we actually measure economies of scale?
  8. See §9.3.3 on the number of firms. For class I simplified the textbook model.
  9. For mergers read Chapter 11, §11.3.1 is an unduly complicated version of the model in class. §11.3.2 is good for thinking about real-world mergers.