Managerial Economics and Business Strategy, 10th Edition PDF by Michael R. Baye and Jeffrey T. Prince

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Managerial Economics and Business Strategy, Tenth Edition

By Michael R. Baye and Jeffrey T. Prince

Managerial Economics and Business Strategy, Tenth Edition

Content

CHAPTER 1

The Fundamentals of Managerial Economics 1

HEADLINE: Amcott Loses $3.5 Million; Manager Fired 1

INTRODUCTION 2

The Manager 2

Economics 3

Managerial Economics Defined 3

THE ECONOMICS OF EFFECTIVE MANAGEMENT 4

Identify Goals and Constraints 4

Recognize the Nature and Importance of Profits 4

Economic versus Accounting Profits 4

The Role of Profits 5

The Five Forces Framework and Industry

Profitability 6

Understand Incentives 10

Understand Markets 11

Consumer–Producer Rivalry 11

Consumer–Consumer Rivalry 11

Producer–Producer Rivalry 11

Government and the Market 11

Recognize the Time Value of Money 12

Present Value Analysis 12

Present Value of Indefinitely Lived Assets 14

Use Marginal Analysis 16

Discrete Decisions 17

Continuous Decisions 19

Incremental Decisions 20

Make Data-Driven Decisions 21

Obtaining Estimates Using Regression 22

Evaluating the Statistical Significance of Estimated

Coefficients 24

Regression for Nonlinear Functions and Multiple

Regression 26

A Caveat 29

LEARNING MANAGERIAL ECONOMICS 29

ANSWERING THE HEADLINE 30

KEY TERMS AND CONCEPTS 30 / CONCEPTUAL AND

COMPUTATIONAL QUESTIONS 30 / PROBLEMS AND

APPLICATIONS 32 / SELECTED READINGS 37 /

APPENDIX A: THE CALCULUS OF MAXIMIZING NET

BENEFITS 37 / APPENDIX B: EVALUATING THE

OVERALL FIT OF THE REGRESSION LINE 38

INSIDE BUSINESS 1–1: The Goals of Firms in Our Global Economy 6

INSIDE BUSINESS 1–2: Profits and the Evolution of the Computer Industry 9

INSIDE BUSINESS 1–3: Joining the Jet Set 16

CHAPTER 2

Market Forces: Demand and Supply 40

HEADLINE: Samsung and Hynix Semiconductor to Cut Chip Production 40

INTRODUCTION 41

DEMAND 41

Demand Shifters 42

Income 43

Prices of Related Goods 44

Advertising and Consumer Tastes 45

Population 45

Consumer Expectations 46

Other Factors 46

The Demand Function 46

Consumer Surplus 48

SUPPLY 49

Supply Shifters 50

Input Prices 50

Technology or Government Regulations 50

Number of Firms 50

Substitutes in Production 51

Taxes 51

Producer Expectations 53

The Supply Function 53

Producer Surplus 54

MARKET EQUILIBRIUM 55

PRICE RESTRICTIONS AND MARKET EQUILIBRIUM 57

Price Ceilings 57

Price Floors 61

COMPARATIVE STATICS 62

Changes in Demand 63

Changes in Supply 64

Simultaneous Shifts in Supply and Demand 65

ANSWERING THE HEADLINE 67

SUMMARY 68 / KEY TERMS AND CONCEPTS 68 /

CONCEPTUAL AND COMPUTATIONAL QUESTIONS 68 /

PROBLEMS AND APPLICATIONS 70 / SELECTED READINGS 73

INSIDE BUSINESS 2–1: Asahi Breweries Ltd. and the Asian Recession 44

INSIDE BUSINESS 2–2: International Trade Agreements and the Supply Curve 52

INSIDE BUSINESS 2–3: Unpopular Equilibrium Prices 56

INSIDE BUSINESS 2–4: Price Ceilings and Price Floors around the Globe 60

INSIDE BUSINESS 2–5: Globalization and the Supply of Automobiles 64

INSIDE BUSINESS 2–6: Using a Spreadsheet to Calculate Equilibrium in the Supply and Demand Model 65

CHAPTER 3

Quantitative Demand Analysis 74

HEADLINE: Walmart Hoping for Another Big Holiday Showing 74

INTRODUCTION 75

THE ELASTICITY CONCEPT 75

OWN PRICE ELASTICITY OF DEMAND 76

Elasticity and Total Revenue 77

Factors Affecting the Own Price Elasticity 80

Available Substitutes 81

Time 81

Expenditure Share 82

Marginal Revenue and the Own Price Elasticity of Demand 82

CROSS-PRICE ELASTICITY 84

INCOME ELASTICITY 87

OTHER ELASTICITIES 88

OBTAINING ELASTICITIES FROM DEMAND FUNCTIONS 89

Elasticities for Linear Demand Functions 89

Elasticities for Nonlinear Demand Functions 90

DATA-DRIVEN DEMAND CURVES 93

ANSWERING THE HEADLINE 96

SUMMARY 96 / KEY TERMS AND CONCEPTS 96 /

CONCEPTUAL AND COMPUTATIONAL QUESTIONS 97 /

PROBLEMS AND APPLICATIONS 99 / SELECTED READINGS 102

INSIDE BUSINESS 3–1: Calculating and Using the Arc Elasticity: An Application to the Housing Market 80

INSIDE BUSINESS 3–2: Inelastic Demand for Prescription Drugs 83

INSIDE BUSINESS 3–3: Using Cross-Price Elasticities to Guide Strategies in Digital Markets 86

INSIDE BUSINESS 3–4: Using Big Data to Estimate

Demand Elasticities for Millions of Gamers 95

CHAPTER 4

The Theory of Individual Behavior 103

HEADLINE: Packaging Firm Uses Overtime Pay to

Overcome Labor Shortage 103

INTRODUCTION 104

CONSUMER BEHAVIOR 104

CONSTRAINTS 108

The Budget Constraint 108

Changes in Income 110

Changes in Prices 112

CONSUMER EQUILIBRIUM 113

COMPARATIVE STATICS 114

Price Changes and Consumer Behavior 114

Income Changes and Consumer Behavior 116

Substitution and Income Effects 118

APPLICATIONS OF INDIFFERENCE CURVE

ANALYSIS 119

Choices by Consumers 119

Buy One, Get One Free 119

Cash Gifts, In-Kind Gifts, and Gift Cards 120

Choices by Workers and Managers 123

A Simplified Model of Income–Leisure Choice 123

The Decisions of Managers 124

THE RELATIONSHIP BETWEEN INDIFFERENCE CURVE

ANALYSIS AND DEMAND CURVES 126

Individual Demand 126

Market Demand 127

ANSWERING THE HEADLINE 128

SUMMARY 129 / KEY TERMS AND CONCEPTS 129 /

CONCEPTUAL AND COMPUTATIONAL QUESTIONS 130

/ PROBLEMS AND APPLICATIONS 132 / SELECTED

READINGS 135 / APPENDIX: A CALCULUS APPROACH

TO INDIVIDUAL BEHAVIOR 135

INSIDE BUSINESS 4–1: Indifference Curves and Risk

Preferences 107

INSIDE BUSINESS 4–2: The Budget Constraint and Credit Cards 111

INSIDE BUSINESS 4–3: Price Changes and Inventory

Management for Multiproduct Firms 115

INSIDE BUSINESS 4–4: Income Effects and the Business Cycle 117

INSIDE BUSINESS 4–5: The “Deadweight Loss” of In-Kind Gifts 124

INSIDE BUSINESS 4–6: Public Health Centers and

Output-Oriented Incentives 128

CHAPTER 5

The Production Process and Costs 137

HEADLINE: Boeing Loses the Battle but Wins the War 137

INTRODUCTION 138

THE PRODUCTION FUNCTION 138

Short-Run versus Long-Run Decisions 139

Measures of Productivity 140

Total Product 140

Average Product 140

Marginal Product 140

The Role of the Manager in the Production Process 142

Produce on the Production Function 142

Use the Right Level of Inputs 142

Algebraic Forms of Production Functions 145

Algebraic Measures of Productivity 146

Isoquants 148

Isocosts 150

Cost Minimization 151

Optimal Input Substitution 153

Data-Driven Production Functions 155

THE COST FUNCTION 156

Short-Run Costs 157

Average and Marginal Costs 158

Relations among Costs 160

Fixed and Sunk Costs 162

Algebraic Forms of Cost Functions 163

Long-Run Costs 164

Economies of Scale 165

Data-Driven Cost Functions 165

A Reminder: Economic Costs versus Accounting Costs 166

MULTIPLE-OUTPUT COST FUNCTIONS 167

Economies of Scope 167

Cost Complementarity 167

ANSWERING THE HEADLINE 169

SUMMARY 170 / KEY TERMS AND CONCEPTS 170 /

CONCEPTUAL AND COMPUTATIONAL QUESTIONS 171 /

PROBLEMS AND APPLICATIONS 173 / SELECTED

READINGS 177 / APPENDIX: THE CALCULUS OF

PRODUCTION AND COSTS 177

INSIDE BUSINESS 5–1: Where Does Technology Come From? 144

INSIDE BUSINESS 5–2: Artificial Intelligence and Cost-Minimizing Inputs 154

INSIDE BUSINESS 5–3: The Affordable Care Act,

Employer Mandate, and Input Substitution 157

INSIDE BUSINESS 5–4: International Companies Exploit Economies of Scale 166

CHAPTER 6

The Organization of the Firm 179

HEADLINE: AT&T Finalizes Acquisition of Time Warner Inc. 179

INTRODUCTION 180

METHODS OF PROCURING INPUTS 181

Purchase the Inputs Using Spot Exchange 181

Acquire Inputs under a Contract 181

Produce the Inputs Internally 182

TRANSACTION COSTS 182

Types of Specialized Investments 183

Site Specificity 183

Physical-Asset Specificity 183

Dedicated Assets 184

Human Capital 184

Implications of Specialized Investments 184

Costly Bargaining 184

Underinvestment 184

Opportunism and the “Hold-Up Problem” 185

OPTIMAL INPUT PROCUREMENT 186

Spot Exchange 186

Contracts 187

Vertical Integration 190

The Economic Trade-Off 191

MANAGERIAL COMPENSATION AND THE

PRINCIPAL–AGENT PROBLEM 193

FORCES THAT DISCIPLINE MANAGERS 195

Incentive Contracts 195

External Incentives 196

Reputation 196

Takeovers 196

THE MANAGER–WORKER PRINCIPAL–AGENT PROBLEM 196

Solutions to the Manager–Worker Principal–Agent Problem 196

Profit Sharing 196

Revenue Sharing 196

Piece Rates 197

Time Clocks and Spot Checks 198

ANSWERING THE HEADLINE 199

SUMMARY 199 / KEY TERMS AND CONCEPTS 199 /

CONCEPTUAL AND COMPUTATIONAL QUESTIONS 200

/ PROBLEMS AND APPLICATIONS 201 / SELECTED

READINGS 204 / APPENDIX: AN INDIFFERENCE CURVE

APPROACH TO MANAGERIAL INCENTIVES 204

INSIDE BUSINESS 6–1: The Cost of Using an Inefficient

Method of Procuring Inputs 186

INSIDE BUSINESS 6–2: What Determines Contract Length in Franchising? 190

INSIDE BUSINESS 6–3: The Role and Growth of Outsourcing 191

INSIDE BUSINESS 6–4: Incentives Matter for Performance 198

CHAPTER 7

The Nature of Industry 206

HEADLINE: T-Mobile and Sprint Finalize Merger 206

INTRODUCTION 207

MARKET STRUCTURE 207

Firm Size 207

Industry Concentration 208

Measures of Industry Concentration 209

The Concentration of U.S. Industry 210

Limitations of Concentration Measures 211

Technology 212

Demand and Market Conditions 213

Potential for Entry 215

CONDUCT 216

Pricing Behavior 216

Integration and Merger Activity 217

Vertical Integration 218

Horizontal Integration 218

Conglomerate Mergers 219

Research and Development 219

Advertising 220

PERFORMANCE 220

Profits 220

Social Welfare 220

THE STRUCTURE–CONDUCT–

PERFORMANCE PARADIGM 221

The Causal View 221

The Feedback Critique 221

Relation to the Five Forces Framework 222

OVERVIEW OF THE REMAINDER OF THE BOOK 223

Perfect Competition 223

Monopoly 223

Monopolistic Competition 223

Oligopoly 224

ANSWERING THE HEADLINE 225

SUMMARY 225 / KEY TERMS AND CONCEPTS 226 /

CONCEPTUAL AND COMPUTATIONAL QUESTIONS 226

/ PROBLEMS AND APPLICATIONS 227 / SELECTED READINGS 230

INSIDE BUSINESS 7–1: The 2017 North American Industry Classification System (NAICS) 213

INSIDE BUSINESS 7–2: The Elasticity of Demand at the Firm and Market Levels 215

INSIDE BUSINESS 7–3: The Evolution of Market Structure in the Computer Industry 224

CHAPTER 8

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets 231

HEADLINE: McDonald’s New Buzz: Specialty Coffee 231

INTRODUCTION 232

PERFECT COMPETITION 232

Demand at the Market and Firm Levels 233

Short-Run Output Decisions 234

Maximizing Profits 234

Minimizing Losses 237

The Short-Run Firm and Industry Supply Curves 240

Long-Run Decisions 242

MONOPOLY 243

Monopoly Power 243

Sources of Monopoly Power 245

Economies of Scale 245

Economies of Scope 246

Cost Complementarity 246

Patents and Other Legal Barriers 246

Maximizing Profits 247

Marginal Revenue 247

The Output Decision 251

The Absence of a Supply Curve 253

Multiplant Decisions 254

Implications of Entry Barriers 255

MONOPOLISTIC COMPETITION 257

Conditions for Monopolistic Competition 257

Profit Maximization 258

Long-Run Equilibrium 260

Implications of Product Differentiation 262

OPTIMAL ADVERTISING DECISIONS 263

ANSWERING THE HEADLINE 265

SUMMARY 265 / KEY TERMS AND CONCEPTS 266 /

CONCEPTUAL AND COMPUTATIONAL QUESTIONS 266

/ PROBLEMS AND APPLICATIONS 268 / SELECTED

READINGS 272 / APPENDIX: THE CALCULUS OF PROFIT

MAXIMIZATION 272 / APPENDIX: THE ALGEBRA OF

PERFECTLY COMPETITIVE SUPPLY FUNCTIONS 273

INSIDE BUSINESS 8–1: Peugeot-Citroen of France: A

Price-Taker in China’s Auto Market 238

INSIDE BUSINESS 8–2: Patent, Trademark, and Copyright Protection 248

INSIDE BUSINESS 8–3: Product Differentiation, Cannibalization, and Colgate’s Smile 258

CHAPTER 9

Basic Oligopoly Models 274

HEADLINE: Crude Oil Prices Fall, but Consumers in

Some Areas See No Relief at the Pump 274

INTRODUCTION 275

CONDITIONS FOR OLIGOPOLY 275

THE ROLE OF BELIEFS AND STRATEGIC INTERACTION 275

PROFIT MAXIMIZATION IN FOUR OLIGOPOLY SETTINGS 277

Sweezy Oligopoly 277

Cournot Oligopoly 278

Reaction Functions and Equilibrium 279

Isoprofit Curves 283

Changes in Marginal Costs 285

Collusion 287

Stackelberg Oligopoly 289

Bertrand Oligopoly 292

COMPARING OLIGOPOLY MODELS 294

Cournot 294

Stackelberg 295

Bertrand 295

Collusion 295

CONTESTABLE MARKETS 296

ANSWERING THE HEADLINE 297

SUMMARY 298 / KEY TERMS AND CONCEPTS 299 /

CONCEPTUAL AND COMPUTATIONAL QUESTIONS 299 /

PROBLEMS AND APPLICATIONS 301 / SELECTED

READINGS 304 / APPENDIX: DIFFERENTIATEDPRODUCT

BERTRAND OLIGOPOLY 305

INSIDE BUSINESS 9–1: OPEC Members Can’t Help but Cheat 288

INSIDE BUSINESS 9–2: Commitment in Stackelberg Oligopoly 290

INSIDE BUSINESS 9–3: Price Competition and the

Number of Sellers: Evidence from Online and Laboratory Markets 293

INSIDE BUSINESS 9–4: Using a Spreadsheet to Calculate

Cournot, Stackelberg, and Collusive Outcomes 296

CHAPTER 10

Game Theory: Inside Oligopoly 306

HEADLINE: Bring Back Complimentary Drinks! 306

INTRODUCTION 307

OVERVIEW OF GAMES AND STRATEGIC THINKING 307

SIMULTANEOUS-MOVE, ONE-SHOT GAMES 308

Theory 308

Applications of One-Shot Games 312

Pricing Decisions 312

Advertising and Quality Decisions 313

Coordination Decisions 314

Monitoring Employees 315

Nash Bargaining 316

INFINITELY REPEATED GAMES 318

Theory 318

Review of Present Value 318

Supporting Collusion with Trigger Strategies 318

Factors Affecting Collusion in Pricing Games 321

Number of Firms 321

Firm Size 321

History of the Market 321

Punishment Mechanisms 322

An Application of Infinitely Repeated Games to

Product Quality 323

FINITELY REPEATED GAMES 324

Games with an Uncertain Final Period 324

Repeated Games with a Known Final Period:

The End-of-Period Problem 327

Applications of the End-of-Period Problem 328

Resignations and Quits 328

The “Snake-Oil” Salesman 329

MULTISTAGE GAMES 329

Theory 329

Applications of Multistage Games 332

The Entry Game 332

Innovation 333

Sequential Bargaining 334

ANSWERING THE HEADLINE 336

SUMMARY 336 / KEY TERMS AND CONCEPTS 337 /

CONCEPTUAL AND COMPUTATIONAL QUESTIONS 337

/ PROBLEMS AND APPLICATIONS 340 / SELECTED

READINGS 344

INSIDE BUSINESS 10–1: Hollywood’s (not so) Beautiful

Mind: Nash or “Opie” Equilibrium? 311

INSIDE BUSINESS 10–2: Cola Wars in India 313

INSIDE BUSINESS 10–3: Collusion in Canadian Gasoline

Markets 322

INSIDE BUSINESS 10–4: Multimarket Contact and Price

Competition 324

INSIDE BUSINESS 10–5: Entry Strategies in International

Markets: Sprinkler or Waterfall? 331

CHAPTER 11

Pricing Strategies for Firms with Market

Power 345

HEADLINE: Mickey Mouse Lets You Ride “for Free” at

Disney World 345

INTRODUCTION 346

BASIC PRICING STRATEGIES 346

Review of the Basic Rule of Profit Maximization 346

A Simple Pricing Rule for Monopoly and Monopolistic

Competition 347

A Simple Pricing Rule for Cournot Oligopoly 350

STRATEGIES THAT YIELD EVEN GREATER

PROFITS 352

Extracting Surplus from Consumers 352

Price Discrimination 352

Two-Part Pricing 356

Block Pricing 359

Commodity Bundling 361

Pricing Strategies for Special Cost

and Demand Structures 363

Peak-Load Pricing 363

Cross-Subsidies 364

Transfer Pricing 365

Pricing Strategies in Markets with Intense

Price Competition 367

Price Matching 367

Inducing Brand Loyalty 368

Randomized Pricing 369

ANSWERING THE HEADLINE 370

SUMMARY 371 / KEY TERMS AND CONCEPTS 371 /

CONCEPTUAL AND COMPUTATIONAL QUESTIONS 372

/ PROBLEMS AND APPLICATIONS 374 / SELECTED

READINGS 377

INSIDE BUSINESS 11–1: Pricing Markups as Rules of

Thumb 348

INSIDE BUSINESS 11–2: Is Price Discrimination Bad for

Consumers? 357

INSIDE BUSINESS 11–3: Bundling to Reduce Churn in

Telecommunications 362

INSIDE BUSINESS 11–4: The Prevalence of

Price-Matching Policies and Other Low-Price

Guarantees 368

INSIDE BUSINESS 11–5: Kroger Combines Pricing

Strategies 369

INSIDE BUSINESS 11–6: Randomized Pricing in the

Airline Industry 370

CHAPTER 12

The Economics of Information 378

HEADLINE: Firm Chickens Out in the FCC Spectrum

Auction 378

INTRODUCTION 379

THE MEAN AND THE VARIANCE 379

UNCERTAINTY AND CONSUMER BEHAVIOR 381

Risk Aversion 381

Managerial Decisions with Risk-Averse

Consumers 382

Consumer Search 384

UNCERTAINTY AND THE FIRM 386

Risk Aversion 387

Producer Search 389

Profit Maximization 389

UNCERTAINTY AND THE MARKET 390

Asymmetric Information 390

Adverse Selection 392

Moral Hazard 393

Signaling and Screening 394

AUCTIONS 396

Types of Auctions 397

English Auction 397

First-Price, Sealed-Bid Auction 397

Second-Price, Sealed-Bid Auction 398

Dutch Auction 398

Information Structures 399

Independent Private Values 399

Correlated Value Estimates 400

Optimal Bidding Strategies for Risk-Neutral Bidders 400

Strategies for Independent Private Values Auctions 400

Strategies for Correlated Values Auctions 402

Expected Revenues in Alternative Types of

Auctions 403

ANSWERING THE HEADLINE 405

SUMMARY 406 / KEY TERMS AND CONCEPTS 406 /

CONCEPTUAL AND COMPUTATIONAL QUESTIONS 406

/ PROBLEMS AND APPLICATIONS 408 / SELECTED READINGS 411

INSIDE BUSINESS 12–1: Risk Aversion and the Value of Selling the Firm: The St. Petersburg Paradox 382

INSIDE BUSINESS 12–2: Obfuscation to Counter Low Internet Search Costs 385

INSIDE BUSINESS 12–3: Groucho Marx the Economist? 392

INSIDE BUSINESS 12–4: Second-Price Auctions on eBay 398

INSIDE BUSINESS 12–5: Auctions with Risk-Averse Bidders 405

MODULE GROUP A

Strategies to Change the Business Environment 412

INTRODUCTION 412

MODULE 1: ENTRY PREVENTION 412

Limit Pricing to Prevent Entry 413

Theoretical Basis for Limit Pricing 413

Limit Pricing May Fail to Deter Entry 414

Linking the Preentry Price to Postentry Profits 415

Commitment Mechanisms 415

Learning Curve Effects 416

Incomplete Information 417

Reputation Effects 417

Dynamic Considerations 418

KEY TERMS AND CONCEPTS 420 / PRACTICE PROBLEMS 420

INSIDE BUSINESS M1–1: Limit Pricing and the “Southwest Effect” 419

MODULE 2: LESSENING COMPETITION 421

Predatory Pricing 422

Raising Rivals’ Costs 424

Strategies Involving Marginal Cost 425

Strategies Involving Fixed Costs 426

Strategies for Vertically Integrated Firms 426

KEY TERMS AND CONCEPTS 427 / PRACTICE PROBLEMS 427

INSIDE BUSINESS M2–1: Business Strategy at Microsoft 424

MODULE 3: RESTRUCTURING GAME TIMING 429

First-Mover Advantages 429

Second-Mover Advantages 432

KEY TERMS AND CONCEPTS 432 / PRACTICE PROBLEMS 432

INSIDE BUSINESS M3–1: First to Market, First to Succeed? Or First to Fail? 431

MODULE 4: OVERCOMING NETWORK EFFECTS 434

What Is a Network? 434

Network Externalities 435

First-Mover Advantages Due to Consumer Lock-In 436

Using Penetration Pricing to “Change the Game” 437

KEY TERMS AND CONCEPTS 438 / PRACTICE

PROBLEMS 439 / SELECTED READINGS 439

INSIDE BUSINESS M4–1: Network Externalities and

Penetration Pricing by Yahoo! Auctions 437

MODULE GROUP B

Government in the Marketplace 441

INTRODUCTION 441

MODULE 5: REGULATORY CONSTRAINT ON MARKET POWER 441

Market Power 441

Government Tools to Constrain Market Power 442

Antitrust Policy 443

Price Regulation 446

Rent Seeking 449

KEY TERMS AND CONCEPTS 451 / PRACTICE PROBLEMS 451

INSIDE BUSINESS M5–1: European Commission Moves to Protect Small Businesses 444

INSIDE BUSINESS M5–2: Electricity Deregulation 448

MODULE 6: REGULATION OF MARKETS WITH EXTERNALITIES, PUBLIC GOODS, OR INCOMPLETE INFORMATION 454

Externalities 454

The Clean Air Act 456

Public Goods 458

Incomplete Information 461

Rules against Insider Trading 462

Certification 462

Truth in Lending 463

Truth in Advertising 463

Enforcing Contracts 465

KEY TERMS AND CONCEPTS 465 / PRACTICE PROBLEMS 465

INSIDE BUSINESS M6–1: Canada’s Competition Bureau 464

MODULE 7: GOVERNMENT POLICY AND INTERNATIONAL MARKETS 467

Quotas 467

Tariffs 469

Lump-Sum Tariffs 469

Excise Tariffs 470

KEY TERMS AND CONCEPTS 471 / PRACTICE PROBLEMS 471 / SELECTED READINGS 472

CASE STUDY

Spectrum—the Spawn of Time Warner

Cable and Charter Communications—

Navigates Challenges from Cord Cutting

and Mobile Competition 473

HEADLINE 474

BACKGROUND 475

Time Warner Cable History 475

Cable Television History 475

Broadband Internet 476

BUSINESS AND MARKETS 477

Video Programming 477

Internet Services 479

Telephone 479

COMPETITION 480

Cable Companies 480

Comcast 480

Comcast/Time Warner Cable Proposed

Acquisition 481

Charter Communications 481

Other Cable Players 482

Satellite 482

AT&T DirecTV 482

Dish Network 483

Telephone Providers 483

Verizon 483

AT&T 483

Other Companies 484

Online Video Distributors 484

Netflix 484

Amazon Prime Video 485

Hulu 485

Google/YouTube 485

SUPPLIERS 486

Cable Networks 486

Broadcast Networks 486

Sports Programming 487

Carriage Disputes 487

Over-the-Top Content 488

MARKET TRENDS AND CONSUMER BEHAVIOR 488

Digital Video Recorders (DVRs) 488

Cutting the Cord 489

Going Mobile 489

REGULATION IN THE CABLE INDUSTRY 489

Carriage of Broadcast Television 490

Cable Pricing Regulation 490

Net Neutrality 490

Connect America Fund 490

CHALLENGES 490

CASE-BASED EXERCISES 491

MEMOS 491

SELECTED READINGS AND REFERENCES 498/

APPENDIX: EXHIBITS 499

Glossary 503

Additional Readings and References 511

Name Index 530

General Index 536

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