Major-related elective. This course cannot be combined with the course IO & Competition Theory (LUISS).
The learning objective of Industrial Organisation and Competition Policy
is to develop a profound understanding of real-world markets. While conventional economic theory assumes markets to be either dominated by a single firm or in a situation of perfect competition, we move beyond these stylized cases in the course. In the oligopolistic markets treated in the course, there are a small number of large firms with the liberty to determine prices, product qualities, advertising and R&D expenditures, and many other strategy dimensions. At the end of the course, students are able to reflect on central questions of competition policy.
The course builds on the Modern Theory of Industrial Organization (IO), as pioneered by the 2014 Nobel laureate Jean Tirole, and we use Game Theory as our core method. The reason is that game theory is precisely about the analysis of strategic interactions in oligopolistic markets: in such a market, a firm needs to take into account the strategies of its rivals and the impact of its own strategies on rivals’ responses to develop an optimal strategy of its own. These strategic considerations should, at the same time, be acknowledged by a competition authority trying to improve market outcomes.
We develop and study game-theoretic models of price formation, mergers, advertising campaigns, and product differentiation, which give insight into questions such as:
Which market conditions facilitate collusion and price fixing agreements? And what can regulators do about that?
- 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 Research Master: Multidisciplinary Economics, Economic Policy.
This course focuses on the following academic skills:
- Analytical 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.
- Academic reasoning
- 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:
• Market Dynamics and Corporate Innovation (ECB3DSM)
In case online access is required for this course and you are not in the position to buy the access code, you are advised to contact the course coordinator for an alternative solution. Please note that access codes are not re-usable meaning that codes from second hand books do not work, as well as access codes from books with a different ISBN. Separate or spare codes are usually not available.