Industrial Organization

Course Director: Andreea Enache

Purpose

This course provides a broad introduction to the field of Industrial Organization (IO). IO focuses on firm behavior in imperfectly competitive markets. In particular, IO focuses on strategic interactions between firms in markets that span between monopoly and perfect competition. In essence it is a sub-field of microeconomics that deals with questions such as: What determines how many and how large firms there are active in an industry? What are firms’ optimal pricing and product strategies given the structure of the market? How can firms improve profits by acting strategically? How and when should firms introduce new products or enter new markets? What is competition policy and law and how the infringements to the competition law can be detected? What is abuse of dominant position or the unilateral effects of mergers? Why are cartels harmful and under what conditions are they likely? What is the effect of mergers and acquisitions on market competition? How can firms use advertising and R&D in a strategic way? What is special about network goods, such as media players and operating systems? The answers to these questions are essential not only to profit-maximizing firms, but also to competition authorities and other regulators trying to improve consumer welfare; which may explain why IO economists are in high demand from competition authorities, market regulators, individual firms and consultancies that assist in business strategy and competition policy.

Content

The course will introduce you to the “work-horse” models and provide theoretical and empirical tools for analyzing oligopoly markets: price and quantity competition, product differentiation, cartels, entry and exit. The course will also give an introduction to auctions, which are commonplace in for instance public procurement but also on the web (e.g. eBay). In the absence of perfect competition, the role of public policy will be important as a corrective device, and therefore the role of antitrust regulation will be reviewed. The course will introduce you to the empirical methods of how to estimate demand, detect cartels, estimate models of entry and extracting valuations from auction data and using them for policy experiments. These empirical tools highlight how one can use real data for analyzing market outcomes and evaluate public policies.

Format & Structure

The course consists of 15 lectures and 4 seminars.

Course administrator: jessica.kihlman@hhs.se

Students will develop skills for a logical and structured analysis of formal IO models and to apply these to empirical data. More specifically, this will include:

1. Understanding and applying models of price/quantity competition and models of entry;
2. Understanding and applying models of cartel formation and collusion;
3. Understanding of basic auction theory;
4. Understadning of the role of public policy in the absence of perfect competition;
5. Understanding regulation and information asymmetries settings.
6. Knowledge on how to apply ILO a)-e) in empirical settings.

The student is expected to have had good knowledge of microeconomic theory and good training in econometrics. The methodology used in the literature will span from formal theory, to applied econometrics and competition policy case studies. Students without the required training can take the course but they need to be prepared to work hard to grapple with the course material.

• Shy, O. (1995). Industrial organization: theory and applications. MIT press.
• Paul Belleflamme and Martin Peitz (2015). Industrial Organization: Markets and Strategies. Cambridge University Press. Second edition.
• M. Motta (2004), Competition Policy: Theory and Practice, Cambridge University Press.
• Jean Tirole (1988). The Theory of Industrial Organization. MIT Press.
• Laffont, J. J., & Tirole, J. (1993). A theory of incentives in procurement and regulation. MIT press.
• There will be also handouts and other papers to read and that will be recommended throughout the course.

• Written exam 80%.
• Assignments 20%.

Find the course schedule in TimeEdit

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