MICROECONOMICS II (Industrial Organization), Course 2010-2011.
Professors Jose Apesteguia (group 3) and Massimo Motta (groups 1 and 2)
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 behavior 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 extend the material covered in theoretical lectures as well as to review and practice issues dealt with during the lectures.
The planning below gives details on where to find the material for the seminars. Students are supposed to read carefully the material before the seminar, and participate actively in the discussion of the topic during the seminar.
Apart from the lectures and the seminars, each week a problem set will be announced in Aula Global. Of all the problem sets, two of them (corresponding to those of weeks 5 and 9) must be handed in at the end of the Monday class to the TAs. These two problem sets must be welljustified and done individually.
Evaluation:
Final grades in March will be determined as follows:
- 60% Final exam grade.
- 20% Average of the grades of the two special problem sets.
- 20% Grades obtained in 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.
Students taking part in the Erasmus program during the teaching period of the course are entitled to have 100% final exam grade in March.
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:
Week 1. Lesson 1: Subject introduction. Monopoly. (Single-product and introduction to multiproduct monopolist)
Motta, chapter 8.2.1, 8.2.2
Tirole, chapter 1.1.1 ; 3.2.1.
Week 2. Lesson 2: Multi-product monopolist (continued). Two-sided markets.
Motta, chapter 8.2.2
Tirole, chapter 1.1.2; 3.2.1
Armstrong, Mark. 2006. "Competition in Two-Sided Markets," RAND Journal of
Economics, 37(3), pages 668-691, Autumn.
Week 3. 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 1: Durable good monopolist: flexibility v. commitment.
Tirole, Section 1.1.3 (pages 72-74) and section 1.5.2.1 (pages 80-84)
Week 4. 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 2: Double marginalization.
Motta, chapter 4.5.3; Motta, chapter 6.2.1, Tirole, chapter 4.2.2.
Week 5. 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 3: Bertrand's model with capacity constraints.
Motta, chapter. 8.4.1.1; Tirole, chapter 5.2-5.3
First problem set to be graded. (Strictly individual and to be handed in person to TAs)
Week 6. 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 4: Correction in class of the Problem set.
Week 7. Lesson 7: Product differentiation: Hotelling model.
Tirole, chapter 7.1
Seminar 5: Collusion under symmetry and multi-market contacts.
Motta, chapter 4.2.5.2
Week 8. Lesson 8: Horizontal Mergers.
Class notes. Motta, chapter 5.2.
Seminar 6: Vertical product differentiation.
Tirole, chapter 2.1.1 and 7.5.1.
Week 9. Lesson 9: Predatory pricing.
Class notes. Chiara Fumagalli, Massimo Motta, 2009, "A simple theory of predation", CEPR Discussion Paper No. 7372.
Seminar 7: The chain-store paradox, and (informally) reputation theory of predation.
Motta, chapter 7.2 and 7.2.3.1
Second problem set to be graded. (Strictly individual and to be handed in person to TAs)
Week 10. Lesson 10: Strategic investments.
Motta, chapter 8.5.1, Tirole, chapter 8.2
Seminar 8: correction of second problem set and Q&A session.