The Final Take Home Problem set. Please read the instructions carefully. You my work together on problems, but you must indicate that you have done so, and it will cost you a penaly on the score. Considering each problem to be 100 points, working together will cost 10 points off whatever score your group earns.
For November 18 Material on pricing. Pricing is a fairly tricky thing to understand. We have set up a web page (this shows the examples that will be discussed in class) and also a spreadsheet in Excel format.
You may download the spreadsheet and experiment with it to gain a better understanding of two issues:
(1) personalized pricing. In personalized pricing the business receives, from each customer, a payment (price) which is just equal to the value (beta) of the product or sevice to that customer.
(2) bundled pricing. In this case the business sells at a single price, in the market place. But it combines two or more products into a "bundle" so that customers who value one product more than another will buy the two of them, because, in their minds, they allocate the price against the two parts of the bundle in a way that makes sense ot them.
These are two of the important ways that business may seek to increase the net revenue in selling information products and services.
The situation is somewhat more complicated when we take into account the effect of fixed costs and variable costs. In that case, we can let variable prices drop all the way down to the level of the variable part of the costs, and still have an increase in net revenue. This is discussed in th document Pricing_2.html and illustrated in the spreadsheet Variable costs analyis.
Older materials follow here.
Schedule for the next few weeks:
Thursday 10/10.
Complete Shy:7 -- pricing information goods
Monday 10/14. Read
Shapiro&Varian:2-3 on same topic
Thursday 10/17 Review for the
mid-semester exam
Monday 10/21 In-class exam. the exam will cover all material
since the beignning of the course, It will include 10 multiple choice
questions, 5 question related to calculation and or game theory, and
an essay question which will be your choice of two proposed questions.
Thursday 10/24. Review of the Exam and begin economics of library
and information organizations.
Due on Monday Oct 13, but you may hand it in Thursday Oct 10
and enjoy the weekend Please prepare (using a word processor) a
two page discussion of one idea form each of these two lists. Go on
the web and find an authoritative estimate of the Economic Impact of
each of the two ideas that you chose. Please give a very complete
web "citation" (in other words, if we click on that we actually get
to the page with the information that you used. The two lists are:
Shut down KaZaA: (1) artists not paid at all (work is stolen (2)
artists not paid fairly (only one copy is bought (3) Internet
congestion
Keep it open (1) smaller artists can be heard --
promotes sales (2) valuable service for people who share stuff they
really have a right to share (3) if people follow the disclaimer
rules there would be no problem (4) increasing Internet traffic is
good for providers of bandwidth.
Reading about KaZaA can begin at this
link . Also try Google.
Asst 5. The link is to here for the extra exercisses about Appendix A.
Asst 3. Reading. For Thursday Sept 26. Please read Shy Chapter Seven Section 1 and 2. Do exercise 1 at the end of Chapter 7.
Asst 2: Reading. For Monday, Sept 16th, Please read all of Chapter 1. of Shaprio and Varian. Also, Read the rest of Appendix A of Shy, and do all of the exercises at the end of the appendix. This must be handed in at the start of the class on Sept 19th.
Asst 1:Games and Chance. Due Sept. 12 at the beginning of class.
1. Randomness. What is the "expected value" in dollars of each of
these propositions:
___ a. 30% chance to win $5.00
___ b. 50% chance to win $3.00
___ c. one chance in 3 million to win $2,700,000.
___ d. What is the expected value of a 1 in I million chance for $3Million
___ e. what is your time worth per hour?
___ f. combining the value of your time, and the odds, how big should
the prize be to justify your standing in line 20 minutes to buy a
$1 ticket to win a 1 in 3 million lottery.
2. Non-cooperative games. In a typical non-cooperative game, the
payoffs to players L and R are given by a table like this one
(L,R).
L plays R plays
Defect | Collaborate
|
Defect -10 -10 | 300 0
|
----------------------------------------------------------------
|
Collaborate 0 300 | 20 20
[the left side number is what L gets. The right side number in each
box is what R gets.]
So L says "if I collaborate, R is going to defect because he gains
280. So I'd better defect." R reasons exactly the same way. So they
don't get the 20 each that they could get if they knew and trusted the
other payer. In fact, they each *lose*, if they follow this reasoning.
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An EVEN WORSE situation is the one with these payoffs:
L plays R plays
Defect | Collaborate
|
Defect -10 -10 | 300 -30
|
----------------------------------------------------------------
|
Collaborate -30 300 | 20 20
Now each of them just says: no matter what the other guy does, I will
be better off defecting. So they both defect, and wind up "in
jail". The situation that results is called a Nash equilibrium (after
the famous mathematician John Nash) becasue once they get ot it,
neither of them dares to move away.
=======================
Suppose we said that you have to play this game to earn extra credit
for this class. [We could do this by setting up a web site, and making
random pairings, so that you would not know who you were playing with,
and so you could not make side payments.] What do you think would
happen? What would you do?
3. Suppose you could buy a cloudy crystal ball. It can predict the
fall of a coin, but it is only right about 60% of the time. Would it
make sense to follow its predictions? how much would it be worth if
you were about to wager $100 on the fall of a coin? [Discuss this
problem. By the end of the course you will be able to solve it.]
4. Reading Assignment. Please read Appendix A.1 and A.2 of Shy, and
all of Chapter 1. [Don't be alarmed if it seems too technical. We will
learn what is needed in this course.]