About Me

Joshua Foster, Ph.D.

• Feel free to call me Josh.
• I do research in Psychology and Economics.
• I specialize in firm competition.

I am always happy to help!

• Email me at jfoster@ivey.ca.
• Office Hours are Thursday, 2:00-3:00 PM.
• Also available by appointment.

This is a managerial economics course infused with behavioural insights. Topic areas include:

1. Price discovery, pricing strategy, and consumer preferences.
2. Market creation, failures and the role of government.
3. Market design through the lens of behavioural economics.

Our goal is to develop an essential library of economic heuristics.

1. Insert economic thinking at the center of each decision node within an organization.
2. Identify the key incentive primitives of a given environment.
3. Predict market dynamics and optimize relevant decision making.

Course Implementation

1. Everything you need will be on Learn.
2. Interactive resources will be provided by MobLab.

Evaluations & Assessments

Questions?

Simulation instructions.

• The situation: there is a market for oranges in which this class will act as Buyers and Sellers.
• What you do: make trades by negotiating on prices.
• Your objective: make trades in a way that maximizes your personal return.

How it works.

• Everyone is randomly placed in groups of 10.
• Within each grouping, each person is randomly assigned the role of either a Buyer or a Seller.
• The Buyers will make open bids, representing the prices at which they are willing to buy an orange.
• The Sellers will make open asks, representing the prices at which they are willing to sell an orange.
• Whenever the simulation finds a bid$\geq$ask in the market, it will execute the trade.

How do I decide my prices?

• The Buyers will have induced values for the oranges. That is, Buyers will be told the maximum they are willing to spend on a given orange.
• Likewise, the Sellers will have induced costs for the oranges. That is, Sellers will be told the least they are willing to accept for a given orange.

How you "win".

• The Buyers are seeking to maximize their consumer surplus (cs). That is, $\text{cs}=\text{value of orange}-\text{price paid}\;$ for each transaction.
• The Sellers are seeking to maximize their producer surplus (ps). That is, $\text{ps}=\text{price received}-\text{cost of orange}\;$ for each transaction.

Questions?

What was your pricing strategy?

Market equilibrium.

The price that ensures buyers and sellers want to buy/sell the same quantity (i.e. their market incentives are aligned).

Absent an externality, this is the socially optimal outcome.

Quick summary of the case...

What non-price factors are influencing Demand? Supply?

Should gas prices be allowed to adjust to equilibrium?

What non-market (i.e. non-price-based) mechanisms might we consider?

What process would you use to determine prioritization (if any)?

Key takeaways.

1. When shortages arise, it is because the market price is operating below its equilibrium.
2. Deliberately setting a binding price ceiling does not necessarily promote equity across various societal groups - it is a task that requires care and economic insight.
3. If the objective is to protect vulnerable members of a population, it will often be worthwhile to operate through an extra-market mechanism, rather than interfering with the market directly.