MICROECONOMICS II (Industrial Organization), Course 2009-2010.

  

Objetives 

In this course we introduce the students to the field of Industrial Organization. We will study situations where only a few companies interact in the marketplace. Since there are just a few participants, companies are not price followers like in the general equilibrium model, but they decide market variables. We shall also analyze how their strategic behaviour affects consumer and total welfare.

 

Organization

The course is composed of 10 lectures and 8 seminars. The lectures consist of standard lectures where we will present the basic theoretical material of the course. Seminars will be used to (1) extend the material covered in theoretical lectures, (2) to practice (and participate, through experiments) on the type of issues dealt with during the lectures and (3) to investigate some relevant topics related to the industrial organization theory and to present and defend them publicly. Apart from the lectures and the seminars, students will be asked to solve a problem set each week. Problem sets could be handed in groups of maximum two people. The same group could work together during four weeks at most. Problem set solutions must be well-justified, since this is the most important part when being graded. Problem set solutions must be given to your respective TA before 3pm, every next Monday after their publication.

In seminars 1, 2 we shall extend and apply models seen in class, in seminar 3 you will take part in a laboratory experiment. Students' evaluations in these seminars will depend on their individual involvement. In seminars 4, 5, 7 and 8, students will present an investigation paper (one presentation per group, not per student). The evaluation in this part will take into account the presentation, the paper itself and the participation and contribution to other's group presentations. (We provide more information about the presentations in another document). Finally, seminar 6 will be used to solve doubts and questions about past problem sets.

 

Evaluation

Final grades in March will be determined as follows: 

• 60% Final exam grade.

• 20% Average problem sets grades.

• 20% Grades obtained in the investigation project (document and presentation) and seminar participation.

In any case, it is necessary to pass the final exam in March with at least a minimum grade of 3,5 out of 10 in order to pass the course. Final grades in September will be determined favorably to the student by choosing the highest grade between the formula listed above and September's final exam grade as 100% of the final grade.

 

Bibliography

Chapter 8 of Motta's book (2004) will provide the basic material for lessons 1-6. Other useful books for the course are Tirole (1990) and Cabral (1997).

[1] Luis Cabral, 1997, Economía Industrial, McGraw-Hill.

[2] Massimo Motta, 2004, Competition Policy: Theory and Practice, Cambridge University Press.

[3] Jean Tirole, 1988, The Theory of Industrial Organization, MIT Press.

Spanish translation: 1990, La Teoría de la Organización Industrial, Ariel.

 

Planning:

Lesson 1: Subject introduction. Monopoly.

Motta, chapter 8.2.1

Tirole, chapter 1.1.1

Lesson 2: Multi-product monopolist.

Motta, chapter 8.2.2

Tirole, chapter 1.1.2; 3.2.1
            Seminar 1: Cross-licensing. Double marginalization.

Motta, chapter 4.5.3; Motta, chapter 6.2.1, Tirole, chapter 4.2.2.

Lesson 3: Nash Equilibrium. Price competition: Bertrand's model.

Motta, chapter 8.3.1, Tirole, chapter 11.1-11.2;

Motta, chapter 8.4.1.1; Tirole, chapter 5.1
            Seminar 2: Bertrand's model with capacity constraints.

Motta, chapter. 8.4.1.1; Tirole, chapter 5.2-5.3

Lesson 4: Competition in quantities: Cournot's model. A differentiated product model with a comparison between price and quantity competition.

            Motta, chapter 8.4.2.1, Tirole, chapter 5.4

Singh, N. and X. Vives, 1984. "Price and quantity competition in a differentiated duopoly", RAND Journal of Economics, 15: 546-54.

            Seminar 3: Collusion experiment.

Lesson 5: Subgame perfect Nash equilibrium. Repeated-stage games. Collusion.

Motta, chapter 8.3.2; Tirole, chapter 11.3;

Motta, chapter 8.4.3, Tirole, 6.3
            Seminar 4: Presentations.

Lesson 6: Industrial concentration and market competition: Two-stage models with both entry and competition decisions (in prices, quantities or joint profits maximizations)

Class notes.
            Seminar 5: Presentations.

 

Lesson 7: Product differentiation: Hotelling model.

Tirole, chapter 7.1
            Seminar 6: Problem set Q&A session.

Lesson 8: Mergers.

            Class notes. Motta, chapter 5.2.

            Seminar 7: Presentations.

Lesson 9: Strategic investments.

            Motta, chapter 8.5.1, Tirole, chapter 8.2

            Seminar 8: Presentations.

Lesson 10: Predatory pricing.

Class notes. Chiara Fumagalli, Massimo Motta, 2009, "A simple theory of predation", CEPR Discussion Paper No. 7372.