Today

1
Today

• Information for the Week 6 Assignment.
• Competitive Pricing Game.
• FAS 13 Discussion.
• Derek Dalton (about 330)
• A brief survey for a paper hes working on.
• relative to MBAs, accountants think more
  carefully about accounting.
• A brief survey for the second part of our class.

2
More Stuff

• Remaining Q1s
• money supply / inflation (Uzbekistan)
• a jury of your peers (Columbia)
• immigration (Poland)
• technology overhead (Japan next week)
• The Oct. 11th Class is the one we were going to
  have off regardless of the PWC Xact vote.

3
Includes two Billboard 1 singles Another on
bites the dust Crazy little thing called love.
4
The Pricing Game

• What matters?
• ability to collude
• ability to enter and exit
• sunk vs. not sunk costs
• number of competitors
• relative starting position
• many other things

5
Downward Price Trend(n 144, 24 per FC cell)
6
Downward Price Trend
7
U-Shaped Average PricesWhy?
8
Levitt rejection I think this is a useful and
informative paper, but is not up to the threshold
of innovation that I need at JPE.
9
Buchheits Accounting Story(weak link to
footnotes vs. financials matter)
10
FAS 13 Accounting for Leases is the Worst
Accounting Standard Ever!

• C. Reither, 1998 What are the Best and the Worst
  Accounting Standards? Accounting Horizons, V.12,
  No. 3 pp 283-292.
• Why??? (Bullet points from page 288 of the
  article)
• Fails to achieve objectives because many
  obligations that, in substance, are capital,
  sales-type, or direct-financing leases are
  recognized as operating leases
• Bright-line rules for lease capitalization result
  in abuse of standard
• Complicated standard (???) which is evidenced
  by its many amendments, interpretations and EITF
  issues
• Relies too heavily on disclosure to assess lease
  obligations
• Does not significantly improve accounting for
  lease transactions.

11
Week 6 Assignment

• Distribute (and clarify???)

12
Week 4 Assignments

• Four very nice assignments are posted on the
  class web-page.
• There were no negative content grades.
• I invented a new v / v category for content on
  this assignment.
• If you received no content mark, you received a
  v.

13
Week 4 Assignments

• There were many v- scores for writing.
• Tips from the grader
• read her posting on the internet.
• dont turn in a first draft.
• she only critiqued the first page on many
  low-scoring papers.
• There will be no writing grade for W5 (but there
  will be a writing grade for W6).

14
Week 5 Assignments

• Countries that should take the second chance
  opportunity
• Egypt, Morocco, Nigeria, Taiwan, Turkey.
• My comments Part 1 should be fairly objective
  and requires an answer. Part 2 is your thoughts
  and requires supporting arguments.

15
A Jury of Peers (Columbia)

• Background Accounting is complicated.
• Question Why cant we get a jury full of
  experts?
• Things to think about
• Do you ever have a jury of peers?
• Why would a jury of accounting peers help resolve
  what is right?
• Did the FASB jury agree on FAS 159?
• Check out Dr. Pasewarks paper on majority vs.
  super-majority FASB voting.

16
Immigration (Poland)

• What is the best solution to the immigration
  issue and how will the US accomplish this?
• Just to avoid my common, Who Knows? response
  We will eventually come to a solution
  democraticallybut the solution will be a
  political compromise (meaning, not the best
  solution in everyones mind).

17
Immigration (Poland)

• Things to think about
• Unions are still powerful and have their own
  incentivesthese incentives clearly involve
  making the US a closed labor market.
• Leamers stuff applies here - in spades.
• There are similarities between the legalize
  dont criticize debate and immigration.
• Tax what will happen anyway vs. spend vigorously
  to mitigate things from happening.

18
Im no Macroeconomist

• Why doesnt the government regulate the money
  supply so that inflation rates are kept at an
  absolute minimum? Why does inflation have to
  exist at all? (Uzbekistan)
• Economists dont seem to talk about money supply
  that much nowadayslikely because M0 is lt 20 of
  all the Ms today, but it was gt50 forty years
  ago.
• Due to electronic money (higher number Ms) and
  the fact that the FED controls currency and
  interest rates, the primary lever for inflation
  control seems to be FED established interest
  rates.

19
Im no Macroeconomist

• Most people agree that the FEDs job is to halt
  financial panics before they spiral into
  depressions and to keep inflation from getting
  out of handall by moving one number.
• Reducing rates helps halt financial panic (easy
  money).
• Inflation is trickier.

20
Inflation

• By historic and worldwide standards, the US has
  low inflation rates (about 3 over the past
  decade).
• My memories of BusinessWeeks zero inflation
  article.
• 0 may be out of the governments control (oil
  prices go up, causing other prices to go up, etc.)

21
Inflation

• Short supply causes inflation / Too much demand
  causes inflation.
• Growth causes inflationtoo much growth is the
  overheated economy storywhich can lead to
  hyperinflation (followed by a crashlike the
  housing market).
• Why I hate macroeconomics higher interest rates
  put a brake on growth (reducing inflation), but
  higher rates make things more expensive
  (increasing inflation).this leads us back to the
  what will happen? who knows? story.

22
Clear as Mud

• Saying what you mean clearly is difficult.
• Frequently, you (meaning all of usin particular,
  me) learn to say things more clearly after you
  get feedback about what you thought you said
  clearly the first time.
• Business Question 2 Please give me something
  microeconomic from the WSJthe macroeconomics get
  very repetitive and unclear.
• Something microeconomic probably means that the
  WSJ article talks about a specific company
  Company X is doing Yand you are interested in
  why theyre doing Y.

23
BQ 2

• If your second question didnt involve a company
  (or a WSJ article), please submit a revision
  sometime before October 16th.
• The requested revision is due to me not being
  clearbut microeconomic discussions will be more
  educational (meaningIll say who knows less
  often)microeconomic discussions should also be
  more applicable to your career.

24
Next Week

• We will have an optional exam (you can look at
  it, then decide if you want it to count as ½
  the course exam grade).
• Bring a calculatorits a relevant cost
  problem.
• Japans Q How is new technology affecting the
  overhead costs of companies in the US and are
  companies spending too much trying to keep up?