Theory of Industrial Organization


Objectif

This course is a Core Field Course of the “Industrial Economics, Markets and Organizations” specialization field of the 2nd year of the Master in Economics of the University of Paris Saclay. The objective of the course is to provide an advanced presentation of important topics of Industrial Organization. For each topic that will be covered in this course, the presentation will usually start with a discussion of seminal papers on which research has been build upon. Next, the class will move on to more recent models.

The course is taught by three Professors. It starts with an overview of the IO models and literature (class 1) with the aim to link the fields with applications in antitrust policy. In particular, how firms tend to abuse their dominant position or how they tacitly or not organize to collude (price or quantity fixing, or market sharing agreements). Class 2 looks how IO models have been used in the Law&Economics literature. The course then moves to model how prices are chosen in an environment where information is not perfect. First, consumers have search costs which prevent them from observing freely all prices (class 4). Next, firms themselves (class 5) can have imperfect information about their competitors (for example the level of their production costs). The course, next, focus on three important fields where IO models are used. First, there is research & development and in particular how the patent system is organized in order to provide firms with incentives to invest in R&D (class 6). Second, markets with a network structure (class 7) are studied. Third, many markets (notably when organized online) have a two-sided structure where a platform is needed for buyers to meet sellers (class 8). The course moves back to models where a dominant firm confronted with asymmetric information chooses its strategy to build a barrier to entry. First, how a dominant firm uses a nonlinear pricing strategy (e.g. quantity rebates) to prevent entry/expansion of a rival firm into the market (class 9). Second, a dominant firm uses a limit price (i.e. a price below its monopoly price) in order to signal to a potential entrant that the market is not profitable (class 10). Third, how imperfect information prevents a firm to abuse its dominant position (or to limit the abuse) when commitment is impeded by the fact that the other firms do not observe perfectly the action taken by the dominant firm (class 11). Finally, the course concludes on collusion (class 12).

Plan

  1. Overview of IO I
  2. Law&Economics: an IO perspective
  3. Search costs and competition I
  4. Search costs and competition II
  5. Patent
  6. Network
  7. Two-sided markets
  8. Nonlinear pricing and exclusion
  9. Limit Price
  10. Commitment and information
  11. Merger evaluation
  12. Collusion

Références

Various academic articles are discussed during each session and will be given by the professors.