ECON 120
Wednesday, December 4, 2019
Lecture Notes
Club good is an
artificially scarce good.
- Opposite of common
resource.
- Made excludable but
lacks depletability.
- It is “nonrival in
consumption” or nondepletable.
Strategic Situations and
Decisions:
1st Issue:
Public Good with Private Monopoly or Market Power
Make Excludable:
Microsoft, Apple (positive price)
Or
Make Profit Indirectly:
Facebook, Google (free price = zero)
Determinants:
1. Risk Preference
2. Amount of Cash
3. Market Forecast
(strength of network externalities)
2nd Issue:
Bundled Goods
Bundle: Microsoft Office,
McDonald’s Meal, “all you can eat” buffets”
Unbundle: Air travel, a la
carte meals
Determinants:
1. Consumer preferences
2. Capacity constraints
3. Dissimilarity of
consumer groups
3rd Issue:
Add-Ons
Standard Plus Set (Group)
of specified add-ons: Automobiles
Standard Plus Individual
Add-Ons: Some appliances
Determinants:
1. Cost structure, less
costly to have add on sets rather than individual add-ons?
2. Inventory space (autos)
Strategic Decision-Making:
- The outcome depends not only
what you decide but also what competing firms decide “game theory”
- Basic decision that
impacts on the firm’s long-run outcome.