Major-related elective. This course cannot be combined with the course IO & Competition Theory (LUISS).
The learning objective of Managerial Economics and Industrial Organisation
is to develop a profound understanding of the market forces in “realistic” markets, i.e. markets that in microeconomics are often referred to as "imperfect competition". We will take both, a manager's point of view: how a company can take advantage of this imperfection to be more profitable, as well as the public policy's point of view: what are the ramifications to the society of this imperfection, and policy implications.
We will explicitly look at situations, where a relatively small number of firms have the liberty to determine prices, product qualities, advertising and R&D expenditures, and many other strategy dimensions. We will also look at market entry and strategic innovation. At the end of the course, students are able to reflect on central questions of competition policy and firms’ possibilities to navigate their competitive strategies within the legal realm of the current competition policy.
We use game theoretical tools to study firms that need to take into account the strategies of their rivals and the impact of their own strategies on rivals’ responses. These strategic considerations should, at the same time, be acknowledged by a competition authority trying to improve market outcomes. We study explicitly questions such as:
- Which market conditions facilitate collusion and price fixing agreements? And what can regulators do about that?
- Why do firms cooperate in R&D? When is R&D collaboration socially desirable?
- How can a firm prevent its rivals from entering the market?
- Why do firms differentiate their products? What is the socially optimal degree of product differentiation?
- Why does one firm spend money on advertising while its competitor does not?
Understanding strategic market interaction provides a more nuanced and realistic view of the relation between market structure and firm performance. The course is essential for students heading for a Master’s program in Law and Economics, in particular for a track in Competition Policy and Regulation, but it also offers a useful preparation for any Master in Strategic Management, or general Economics, and Economic Policy.
his course focuses on the following academic skills:
• Being able to solve problems (identifying the problem, devising a path towards the solution, follow this path, verify the outcome), independently and for complex problems.
For independent large economic and multidisciplinary problems/questions:
• Thinking conceptually, thinking in terms of theory, linking theory and evidence..
The basic elements of the course are the weekly lectures, tutorials, and homework assignments. To fully gain from the course, good learning techniques need to be adopted. These are regular attendance, continuous reading of the suggested material, and frequent practice in applying the concepts presented in the lectures to the homework assignments. A premium is placed on logical thinking and on applying the concepts taught to unfamiliar problems.
: you are expected to provide yourself with all the relevant study material and to read the relevant chapters ahead of the classes. You can find the weekly reading assignments in the course schedule below. Make use of your texts, they are a valuable resource!
to fully gain from the actual practice of the taught material, you are required to hand in (in a team of 3-4 students) the answer to a take-home assignment on a weekly basis. Every week, a new problem set will be posted on Blackboard. It is your duty to answer all the indicated questions. The team formation will be organised during the first tutorial.
• The take-home assignments: 30% of the final grade. Three of the submitted team assignments will be randomly selected for grading and count towards the grade of every team member.
Grading criteria: logic coherence, diligence of work, ability to link the problem at hand to the theories taught in class.
• Written exam: 70% of the final grade.
In order to be eligible for the retake exam, the teams have to hand in their take-home assignments on a weekly basis.
Students are expected to have knowledge of:
Intermediate Microeconomics, Games and Behaviour (ECB2VMIE) or Advanced Mathematics (ECB2VWIS).
The 3rd-year course Game Theory is a useful, but not compulsory, prerequisite.
Position in curriculum
Good analytical reasoning and knowledge in elementary calculus are assumed. The course builds upon the theories developed in Microeconomics I and II
(ECB1MI & ECB2VMIE) and complements the 3rd-year elective courses:
• Competitive Strategy and Game Theory (ECB3GT)
• Market Dynamics and Corporate Innovation (ECB3DSM)
• Entrepreneurial Ecosystems (ECB3ACP)