Industrial Organization - JEB156
Title: Industrial Organization
Guaranteed by: Institute of Economic Studies (23-IES)
Faculty: Faculty of Social Sciences
Actual: from 2023
Semester: summer
E-Credits: 6
Examination process: summer s.:combined
Hours per week, examination: summer s.:2/2, Ex [HT]
Capacity: 97 / 97 (unknown)
Min. number of students: unlimited
4EU+: no
Virtual mobility / capacity: no
State of the course: taught
Language: English
Teaching methods: full-time
Teaching methods: full-time
Note: course can be enrolled in outside the study plan
enabled for web enrollment
priority enrollment if the course is part of the study plan
Guarantor: Matěj Bajgar, D.Phil.
Teacher(s): Matěj Bajgar, D.Phil.
Mgr. Vojtěch Mišák
Class: Courses for incoming students
Pre-requisite : JEB108
Examination dates   SS schedule   Noticeboard   
Annotation
Last update: Matěj Bajgar, D.Phil. (09.02.2024)
Most markets are not accurately described by the standard perfect competition and monopoly models. Instead, they are characterised by firms strategically interacting with each other. Firms try to increase and protect their market power, and to do so, they diversify their products, build brands, spend on advertising, invest in research & development, apply for patents, acquire competitors and sometimes even resort to illegal strategies such as collusion. Additional challenges (and opportunities for firms!) are presented by markets with asymmetric information (e.g. used cars or health insurance), network effects (e.g. social networks, operating systems) or two-sided platforms (e.g. Amazon, Airbnb).

Industrial Organization (IO) studies the rich set of strategies that firms employ to compete in the market (and for the market!). As such, it gives unique insights into workings of the economy around us, and it has implications for competition economics, market design, innovation policy and many other areas.

The objective is to provide students with an understanding of key concepts, models and empirical results within selected IO topics, and make them familiar with modern IO research. This will allow them to read and evaluate applied IO work and provide them with the background required to write a thesis in the field of IO.

In order to understand the strategic interaction between firms, the IO relies heavily on the theory of games. The course, thus, also serves as an applied introduction to game theory. In this way, it nicely complements the course Game Theory and Applications, which explores game theory more formally and with many applications from outside of the IO. It can be useful to take both courses in parallel, but it is also absolutely fine to take either of them alone.
Course completion requirements
Last update: Matěj Bajgar, D.Phil. (14.02.2024)

Components of final grade

Your final grade will consist of three parts with the following weights:

  • 3 homeworks: 30%
  • Written mid-term exam (1,5h): 20%
  • Written final exam (3h): 50%

Grades ECTS

  • 91-100 A
  • 81-90 B
  • 71-80 C
  • 61-70 D
  • 51-60 E
  • 0-50 F

Home assignments

There will be 3 homeworks consisting of a combination of problems, reading summaries and data analysis. You should work out your own homework individually, but feel free to discuss with other students if you are struggling with a particular problem.

Homeworks will be uploaded to the course website in the SIS, and you will also submit your answers and have them graded in the SIS. Please submit your homeworks in a pdf format. They should be prepared in text-processing software, with problems involving mathematics typed or written by hand and scanned, whichever you prefer.

Homeworks must be uploaded to SIS before midnight of the due date. Late submissions will receive zero points.

For questions about the concent of the homeworks (prior to the deadline), contact matej.bajgar@fsv.cuni.cz. For questions regarding the grading of the homeworks (after the deadline), please contact vojtech.misak@fsv.cuni.cz.

Important dates (subject to change):

  • Homework 1 due: 12th March
  • Midterm exam: 25th March
  • Homework 2 due: 9th April
  • Homework 3 due: 23th April
  • Final exam (1st date): 13th May
Literature
Last update: Matěj Bajgar, D.Phil. (09.02.2024)

Primary course textbook

Belleflamme, P., and M. Peitz (2nd ed. 2015) Industrial Organization: Markets and Strategies. Cambridge University Press.

 

Other textbooks

Cabral L. M. B. (2000) Introduction to Industrial Organization. MIT Press.

Pepall, L., D. Richards and G. Norman (5th ed. 2014) Industrial Organization: Contemporary Theory and Empirical Applications. Blackwell Publishing.

Teaching methods
Last update: Matěj Bajgar, D.Phil. (09.02.2024)

Each week, there will be an 80-minute lecture, followed by an 80-minute seminar. Lectures will introduce stylised facts, models and empirical results describing the analysed topics. Seminars will illustrate the models on numerical examples, and they will also be used to provide feedback for home assignments and the mid-term exam.

Questions and comments are highly appreciated in the class. You can also ask questions ouside of the class by emailing me at matej.bajgar@fsv.cuni.cz.

I am also available for consultations. If you would like to schedule one, drop me an email.

Syllabus
Last update: Matěj Bajgar, D.Phil. (09.02.2024)

The course will cover the following topics. A topic can extend across multiple lectures, and one lecture can cover multiple topics.

1. Introduction to game theory

  • Introducing industrial organization
  • Normal form games and Nash equilibrium
  • Extensive form games and subgame perfection
  • Asymmetric information games

2. Market power

  • What is market power?
  • Market power under perfect competition and monopoly
  • Static oligopoly as a game
  • Dynamic oligopoly as a game
  • Product differentiation

3. Anti-competitive behaviour

  • Cartels, tacit collusion and common ownership
  • Entry deterrence and accommodation
  • Entry deterrence through capacity commitments
  • Brand proliferation and switching costs
  • Leveraging market power across markets

4. Information

  • Hidden information problem
  • Hidden action problem
  • Signalling
  • Advertising
  • Warranties
  • Branding

5. Innovation

  • Market structure and incentives to innovate
  • R&D spillovers
  • Support for R&D
  • Diffusion of innovation
  • General purpose technologies

6. Intellectual property protection and intangible investment

  • Patents and other types of IP protection
  • Optimal design of IP rights
  • Market for patents
  • Other types of intangible investment: software, data, brands, management…
  • Properties and implications of intangible investment

7. Mergers & acquisitions

  • Horizontal mergers & the merger paradox
  • Cost synergies
  • Vertical mergers & the double-marginalisation
  • Killer acquisitions

8. Network effects

  • Direct and indirect network effects
  • Demand and supply with network goods
  • Competing „in the market“ vs. „for the market“
  • Standards and standard wars

9. Intermediaries and platforms

  • Dealers
  • Matchmakers
  • Two-sided platforms
  • Search markets
  • Certification and reputation systems

10. Auctions

  • English and second-price private value auctions
  • Dutch and first-price private value auctions
  • The revenue equivalence theorem
  • Common value auctions and the winner’s curse
  • Auctions and oligopoly pricing
Entry requirements
Last update: Matěj Bajgar, D.Phil. (09.02.2024)

The course builds on the material of Microeconomics II, in particular the following topics: perfect competition, monopoly, oligopoly. Having successfully taken Microeconomics II (or an equivalent course in intermediate micro at another institution) is a requirement for enrolling in this course.

Prerequisities: Microeconomics II