Michael R. Baye

Michael Baye is the Bert Elwert Professor of Business Economics & Public Policy at Indiana University’s Kelley School of Business. He received his B.S. from Texas A&M University in 1980, and earned a Ph.D. in Economics from Purdue University in 1983.

Michael has held visiting appointments at Cambridge, Oxford, Erasmus University, Tilburg University, and the New Economic School in Moscow, Russia. He serves on numerous editorial boards in economics as well as marketing.

 Michael has won many awards for outstanding teaching, and regularly teaches courses in managerial economics and industrial organization at the undergraduate, M. B. A., and Ph. D. level. Prior to joining Indiana University, Michael  taught graduate and undergraduate courses at The Pennsylvania State University, Texas A&M University, and the University of Kentucky, where he also served on the faculty.

 According to the 4th edition of Who's Who in Economics, Michael's research primarily focuses on pricing strategies and their impact on consumer welfare and firm profits. His early papers showed how to properly construct indices of prices when different firms charge different prices for the same product and consumers have imperfect price information.

In subsequent research, these results were extended to retail environments where consumers optimally search for lower prices. His related research showed that, by appropriately modifying price indices, cost-of-living measures and real wage indices to account for a progressive income tax, one could quantify the impact of “bracket creep” on consumer welfare.

This research contributed to the policy debate of the 1980s by documenting the “cost” of various proposals to delay or repeal the indexation of the US federal income tax code.

Michael's more recent work utilizes uses tools from game theory and industrial organization to derive equilibrium strategies in network industries, mergers, auctions, and contests. Much of this research concerns pricing strategies in oligopoly environments where consumers view the products sold by different firms to be close substitutes.

Michael's pricing research applies to both conventional and online markets. Among other things, it shows that optimal pricing strategies by firms and information “gatekeepers” can lead to equilibrium price dispersion when firms have identical costs, shoppers are well-informed, and firms’ products are perceived to be identical.

Many of these pricing strategies are discussed in his best-selling managerial economics textbook, and are taught to business students around the world.