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Course Syllabus

Bachelor 2020/2021

Industrial Organization

Category 'Best Course for New Knowledge and Skills'
Type: Elective course (Economics)
Area of studies: Economics
Delivered by: Department of Applied Economics
Where: Faculty of Economic Sciences
When: 3 year, 1, 2 module
Mode of studies: offline
Instructors: Ekaterina Kazakova
Language: English
ECTS credits: 5
Contact hours: 60

Course Syllabus

Full Syllabus

Abstract

The course introduces the theory of industrial organization (IO) which focuses on the business behavior of firms, its implications for industry structures, and policies of industry regulation. More broadly, we look at the imperfect competition and strategic interactions of firms in different sectors and explain differences across industries. Among possible strategies, we will discuss pricing and production strategies; competition in innovations and cooperation in R&D; informative and persuasive advertising strategies; various anticompetitive practices: collusion, retail price maintenance, price discrimination, tying, exclusive clauses, predatory behavior and entry deterrence. You will become familiar with the main (static and dynamic) models of monopoly and oligopoly, horizontal and vertical product differentiation, models of asymmetric information. Moreover, we will analyze the industry structure and performance. You will study how to measure the market concentration and relate it to the level of competition. Particular emphasis will be given on the determinants and consequences of vertical and horizontal mergers. Throughout the course, we will always discuss possible ways of market regulation and related antitrust policies.
Learning Objectives

Learning Objectives

  • You will become familiar with the most important models of the industrial organization for understanding strategies chosen by firms to acquire and maintain market power.
  • This course improves your (micro-)economic reasoning and modeling skills, which, in particular, can be useful for writing your term papers and Bachelor theses involving analysis at the firm or industry level.
Expected Learning Outcomes

Expected Learning Outcomes

  • Understanding of the basic questions asked in IO. Learning the history of IO.
  • Review of perfect competition, a good understanding of the basics.
  • Review of the basics of game theory. Ability to find NE, SPNE and PBNE.
  • Ability to model pricing decisions and distinguish different types of price discrimination.
  • Understanding of differences of quantity and price competition, very good understanding of the basic homogenous good models.
  • Learning the basics of collusion, incentives to collude and sustainability of collusion.
  • Good understanding of the Hotelling model and differences between address and non-address approached to differentiation modeling.
  • Ability to model advertising choices. Understanding of consequences of advertising.
  • Learning the basics of R&D decisions and regulation of patents.
  • Learning different ways to signal quality and understanding of distortions that come with uncertainty. Understanding of the basics of consumer search.
  • Understanding of the consequences of the presence of network effects, the ability to apply this knowledge to the modeling of markets with network effects.
  • Learning different techniques to reach vertical integration outcomes without vertical integration.
  • Learning of the basics of merger analysis.
  • Understanding of the entry deterrence and entry accommodation strategies and their implication for the market equilibrium outcomes. Understanding how to define the market and measure concentration.
  • General knowledge about antitrust and competition policy.
Course Contents

Course Contents

  • Introduction
    Introduction to IO. History of IO. Main questions studied in IO.
  • Review of perfect competition and monopoly
    Modeling demand and supply sides in a perfectly competitive environment. General equilibrium. Monopoly: baseline model and dominant firm. Natural monopoly.
  • Review of game theory
    Review of the basic tools in the game theory that are applied in IO. Static and dynamic games.
  • Static oligopoly
    Cournot and Bertrand models for homogenous good markets.
  • Dynamic oligopoly and collusion
    Collusion. Punishment schemes.
  • Pricing strategies
    Price discrimination, non-linear pricing, intertemporal discrimination.
  • Product differentiation
    Non-address (goods) approach: Cournot and Bertrand models with differentiated products. Monopolistic competition. Address (location) approach: Hotelling and Salop models. Characteristics approach.
  • Advertising
    Informative and persuasive advertising in monopoly. Informative and persuasive advertising in oligopoly.
  • Patents and R&D
    Major and minor innovations. Innovation and market structure. R&D spillovers, cooperation in R&D and joint ventures. Patents.
  • Imperfect information
    Akerlof model. Signaling about quality with reputation, advertisement, price, warranties. Consumer search.
  • Network effects
    Direct and indirect network effects. Competition in a network goods market. Regulation of a network goods market.
  • Vertical relations
    Double marginalization. Revenue sharing. RPM. Exclusive dealership and exclusive territories. Chicago critic.
  • Mergers
    Simple Cournot horizontal mergers. Extensions: the merger of several firms, scale economies/capacity constraints, synergies, successive mergers, entry, Bertrand competition, product differentiation, coordinated effects. Welfare analysis of mergers.
  • Entry and market structure
    Market definition. Concentration indices. Entry and related strategies. Entry deterrence and entry accommodation. Bain-Sylos postulate. Judo economics. Brand prefiltration.
  • Antitrust
    History of antitrust. Detecting collusion. Indistinguishability theorem. Leniency programs. Review of market regulation discussed in the previous lectures.
Assessment Elements

Assessment Elements

  • non-blocking Quiz
    Every week, there will be a short online quiz which is aimed to test understanding of the basic concepts discussed in the previous lecture
  • non-blocking Homeworks
    The content of homework assignments will be mainly problem-solving. There are 5 small homework assignments.
  • non-blocking Group presentation
    20-minutes presentation of one theoretical or empirical IO paper during the seminar.
  • non-blocking Essay
    Essay on the same paper as presented in the class.
  • non-blocking Exam
    The final written exam consists of three parts: 20 true/false questions, 3 open questions related to the practical application of IO for industry analysis, and 2 theory problems. The exam will be held in a distant format
Interim Assessment

Interim Assessment

  • Interim assessment (2 module)
    0.15 * Essay + 0.4 * Exam + 0.1 * Group presentation + 0.25 * Homeworks + 0.1 * Quiz
Bibliography

Bibliography

Recommended Core Bibliography

  • Belleflamme, P., & Peitz, M. (2010). Industrial Organization : Markets and Strategies. Cambridge, UK: Cambridge eText. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=324082
  • Oz Shy. (1996). Industrial Organization: Theory and Applications. The MIT Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.b.mtp.titles.0262691795

Recommended Additional Bibliography

  • Industrial organization : a strategic approach, Church, J., 2000
  • Microeconomic theory, Mas-Colell, A., 1995