82181 - Industrial Economics and International Trade

Learning outcomes

The aim of the course is to introduce the student to the main concepts of industrial organisation in the context of open economies. First, the course analyses the interaction of firms in the market focusing on their strategic behaviour and on how the latter is affected by competition policy. Second, the course introduces the models of international trade to illustrate how international competition affects firms and country behaviour and its impact on economic growth. At the end of the course students are able to: (a) understand strategic interaction of firms; (b) evaluate the role of competition policy; (c) understand how international trade fosters economic growth.

Course contents

The general traditional model of international trade. Overview. The general traditional model: assumptions; autarkic equilibrium; free-trade equilibrium; gains from trade in consumption and production; the direction of trade; the excess demand curve (net imports). [Slides]

The Ricardian model of international trade. The concept of opportunity-cost. The Ricardian model of trade: assumptions: the linear production possibility frontier; definition of autarkic equilibrium; the free-trade equilibrium; the excess demand curve in the Ricardian model; gains from trade. [Slides]

The Heckscher-Ohlin model of international trade. Overview. The model: assumptions; production in a small open economy; factor prices and commodity prices; the Stolper-Samuelson theorem; international equilbrium; integrated equilibrium; the theorem of equalization of factors prices; the Rybczynski theorem; the Heckscher-Ohlin theorem; international trade and income distribution. [Slides]

Models of international trade with increasing returns to scale and imperfect competition.Determinants of international trade in the new theories. Market power. Pro-competitive effect (Markusen). Selection effect. Variety effect (Dixit and Norman). [Slides]

International trade policy. Efficiency and equity. What is protectionism in trade? Protectionism in trade: demand, supply and trade with a single industry; the effect of an import tariff - the case of a small economy; the effect of an export subsidy - the case of a small economy. [Slides]

International trade policy: arguments in favor of protectionism.Overview. Traditional arguments in favor of protectionism: the argument of a big economy (effect on the terms of trade); the argument of the infant industry; the argument of increasing returns to scale; the argument of internal market distortions. [Slides]

Multinational enterprises and Foreign Direct Investment.Definitions. Stylized facts. Advantages (and disadvantages) of multinationals. Location choice: horizontal and vertical FDI. Internalization choice: outsourcing and licensing. [Slides FDI.1] [Slides FDI.2] [Slides FDI.3] [Slides FDI.4] [Slides FDI.5]

Foundations of Industrial Economics. Industrial Organization: What, How, and Why. Market Structure and Market Power. Technology and Cost.

Monopoly Power. Price Discrimination and Monopoly: Linear Pricing. Price Discrimination and Monopoly: Nonlinear Pricing. Commodity Bundling and Tie-In Sales.

Strategic Interaction and Basic Oligopoly Models. Static Games and Cournot Competition. Oligopolistic Price Competition. Dynamic Games and First and Second Movers. Monopolistic Competition.

Readings/Bibliography

For international trade the textbook is: Krugman P. R., Obstfeld M., Melitz M. J. (2015) International Economics: theory and policy. Pearson. Three copies of this textbook are available at the Central Library Roberto Ruffilli (two copies are available for borrowing, the other is not).

Another book that will be useful for the international trade part is: Markusen J. R., Melvin J. R., Kaempfer W. H., Maskus K. E. (1995) International Trade: Theory and Evidence. McGraw-Hill. ISBN: 0-07-040447-X. Five copies of this book are available at the Central Library Roberto Ruffilli.

For Industrial Economics the textbook is: Pepal L., Richards D., Norman G. (2014) Industrial Organization. Wiley.

Assessment methods

The final mark of the exam is structured in the following way.

90%: final written exam.

10%: attendance of classes in an active manner, namely by giving evidence of having properly digested the topics covered during previous classes.

In case of a positive final mark the student has the right to renege on the mark only once.

Office hours

See the website of Gaetano Alfredo Minerva

See the website of Diego Lanzi