81604 - Industrial Organizations: Theory and Applications

Learning outcomes

Students attending this course will acquire a thorough knowledge of how firms interact in markets. By the end of the module, students will understand strategic behavior in markets and how firms may gain and exploit a competitive advantage over their rivals. Furthermore, students will gain a thorough understanding of competition policy: in particular, what are its aims, how it works, and how firms must adapt their behavior in order to avoid antitrust sanctions.

Course contents

1. Anatomy of demand and the shape of market competition in the representative consumer approach: Bertrand and Cournot models.

2. The alternative approach: discrete choice theory of horizontal and vertical differentiation.

3. Supply function competition.

4. Implicit collusion: the evolution of our view of cartels across three folk theorems.

5. Market power and innovation: monotone and nonmonotone results.

6. Network externalities and platforms.

Whenever appropriate, the illustration of models will be complemented by a flavour of their (usually unspoken) environmental consequences.

Readings/Bibliography

Part 1

Chonné, P. and L. Linnemer (2020), "Linear demand systems for differentiated goods: Overview and user's guide", International Journal of Industrial Organization, 73, article no. 102663, 1-25.

Singh, N. and X. Vives (1984), “Price and Quantity Competition in a Differentiated Duopoly”, Rand Journal of Economics, 15, 546-54.

Part 2

d’Aspremont, C., J.J. Gabszewicz and J.-F. Thisse (1979), “On Hotelling’s ‘Stability in Competition’”, Econometrica, 47, 1045–50.

Shaked, A. and J. Sutton (1983), “Natural Oligopolies”, Econometrica, 51, 1469–83.

Part 3

Delbono, F. and L. Lambertini (2015), "On the properties of linear supply functions in oligopoly", Economics Letters, 136, 22–24.

Klemperer, P. and M. Meyer (1989), "Supply function equilibria in oligopoly under uncertainty", Econometrica, 57, 1243–1277.

Menezes, F. and J. Quiggin (2012), "More competitors or more competition? Market concentration and the intensity of competition", Economics Letters, 117, 712–714.

Part 4

Abreu, D.J. (1986), “Extremal Equilibria of Oligopolistic Supergames”, Journal of Economic Theory, 39, 191-225.

Friedman, J.W. (1971), “A Non-Cooperative Equilibrium for Supergames”, Review of Economic Studies, 28, 1-12.

Part 5

Gilbert, R. and D. Newbery (1982), "Preemptive Patenting and the
Persistence of Monopoly", American Economic Review, 72, 514-26.

Reinganum, J. (1983), "Uncertain Innovation and the Persistence of Monopoly", American Economic Review, 73, 741-48.

Aghion, P., N. Bloom, R. Blundell, R. Griffith and P. Howitt (2005),
"Competition and Innovation: an Inverted-U Relationship", Quarterly Journal of Economics, 120, 701-28.

Part 6

Rohlfs, J. (1974): ‘‘A Theory of Interdependent Demand for a Communications Service’’, Bell Journal of Economics, 5, 16–37.

Armstrong, M. (2006), "Competition in two-sided markets", Rand Journal of Economics, 37, 668–691.

Teaching methods

Lecture in class and/or online (depending upon the circumstances).

Formal analysis of existing models. All mathematical aspects will be illustrated in class.

Students will become familiar with the construction of basic theoretical models and the selective addition of ingredients required for the analysis of extensions and applications, as well as the resulting normative implications.

Home assignments may be delivered to students after each lecture.

Assessment methods

The exam can be taken in two different forms:

I. A single written exam, 2 hrs and 30'. It contains six questions related to the contents of the lectures. The candidate must pick four of them.

III. A partial exam, 1 hour and 15'. It contains six questions related to the contents of the lectures. The candidate must pick two of them. To complete the exam, the candidate must produce an essay on a specific theme chosen in agreement with the lecturer.

In case online exams will be envisaged by the University of Bologna, the structure of the written exam is the same. The exam will be run through Zoom or Teams and Exams Online (EOL). Detailed instructions on how to manage and hand in the online exam are available on the course page on the VIRTUALE platform.

The maximum possible score is 30 cum laude, in case all anwers are correct, complete and formally rigorous.

The grade is graduated as follows:

<18 failed
18-23 sufficient
24-27 good
28-30 very good
30 e lode excellent

Teaching tools

The slides used during the course will appear in its web page, together with the link to the video of each lecture as soon as it becomes available. The material for essays will be chosen on a case by case basis.

Office hours

See the website of Luca Lambertini