Devlina Chatterjee
Associate Professor
Industrial and Management Engineering
IIT Kanpur, 208016


Economics of Business Policy
Course Syllabus
Semester: 2013 Spring
Timings: M W, 10:00 – 11:30 am
Classroom: New IME Building – Room C3
Instructor: Dr. Devlina Chatterjee, Room 211, IME Building
Ph: 259 6960 (Office)
Email: (Please always write MBA630-2013 in the subject line)
Objective of the course:

The objective of this course is to use tools of economics to understand how firms operate and take strategic decisions in a complex business environment.
Course Description:

Traditional courses in microeconomics or managerial economics introduce concepts such as demand and supply, theory of the firm and theory of consumer behavior. Using principles of marginal analysis and profit maximization, these courses look at how firms operating in different kinds of market structures would make pricing and production decisions.

Though many of these principles are well known, many firms fail to act in ways that enable them to maximize profit.

This course extends the principles of microeconomics and incorporates ideas from game theory, strategy and industrial organization to see how both the external environment as well as the internal structure of a firm affect its success or failure. It introduces the concept of “organizational architecture” which consists of the following:
  1. the organizational structure (assignment of decision making authority and roles and responsibilities within the firm),
  2. the incentive scheme (compensation in salary and perks and non-monetary benefits)
  3. the performance evaluation system.
In addition to organizational architecture, this course will also include topics which are relevant in today’s business environment, such as corporate governance, vertical integration and outsourcing, leadership and ethics.
Text Book:
Managerial Economics and Organizational Architecture – James A. Brickley, Clifford W. Smith and Jerold L. Zimmerman, 5th edition, McGraw-Hill (BSZ)
Evaluation scheme:

This course will require active participation from all students. Readings will be assigned before each class. You are expected to have read the material before coming to class. The classes will consist of discussion of the cases from the book to illustrate different principles. There will be
several surprise quizzes: no make-ups for these quizzes will be given, because the element of surprise will be lost. Make sure you attend classes regularly!

Attendance, class participation, surprise quizzes - 30%
Case studies – assignments - 20%
Mid-term exam - 20%
Final exam - 30%
Topics to be covered:

  1. Introduction (Ch1)
  2. Economist’s view of behavior (Ch 2)
  3. Markets, organizations and role of knowledge (Ch 3)
  4. Demand (Ch 4)
  5. Production and cost (Ch 5)
  6. Market structure (Ch 6)
  7. Pricing with market power (Ch 7)
  8. Economics of strategy: creating and capturing value (Ch 8)
  9. Economics of strategy: Game theory (Ch 9)
  10. Incentive conflicts and contracts (Ch 10)
    Mid-sem exam
  11. Organizational architecture (Ch 11)
  12. Decision rights: level of empowerment (Ch 12)
  13. Decision rights: bundling tasks into jobs and subunits (Ch 13)
  14. Attracting and retaining qualified employees (Ch 14)
  15. Incentive compensation (Ch 15)
  16. Individual performance evaluation (Ch 16)
  17. Divisional performance evaluation (Ch 17)
  18. Corporate governance (Ch 18)
  19. Vertical integration and outsourcing (Ch 19)
    End-sem exam