Theory of Industrial Organization

Objective

This course aims to provide a solid grounding in the core theoretical models that are useful in understanding how imperfect markets work and how firms interact on such markets. It is core field course in the “Industrial Organization and Digital Markets” track (M2 Master in Economics) and in the “Data Science for Business Decisions” track (ENSAE 3A).

The course provides presentation of seminal academic papers on various important topics such as collusion, competition in search markets, non-linear pricing and exclusionary pricing, commitment and asymmetric information, direct and indirect network effects, patents and innovation, etc.

Each session will cover several seminal academic papers focusing on understanding/discussing essential features (modelling assumptions) and intuitions (including resolution) of the core theoretical models. Sessions will also include short (15 minutes) student presentations of one of two seminal papers.

Pre-requisite: understanding of imperfect competition models (covered in Microeconomics 2 (ENSAE 2A or M1 Master in Economics) as well as models of strategic interactions such as subgame-perfect Nash-equilibrium and perfect Bayesian Nash-equilibrium (covered in Microeconomics 2 (M1 MiE) or Théorie des jeux (ENSAE 2A)).

Evaluation method: In-class presentation [15-minute presentation reviewing one of the papers to be discussed in class], critical review of a separate article [to be handed-in by the end of the course period], short oral examination [discussing the critical review handed-in earlier but also reviewing topics covered in class]. 

Planning

Eight three-hour sessions taught by Marie-Laure Allain (sessions 1 and 2), Laurent Linnemer (sessions 3, 4 and 5) and Thibaud Vergé (sessions 6, 7 and 8).

1.       Refreshers on oligopoly and price discrimination

2.       Law and Economics / Cartels and collusion

3.       Search costs and competition

4.       Non linear pricing and exclusion

5.       Commitment and information

6.       Network effects

7.       Two-sided markets

8.       Bundling / Tying

References

The full list of references will be provided at the beginning of the course covering papers to be discussed / presented during the different sessions.

Standard Industrial Organization textbooks are also useful background reading. Such textbooks include for instance:

·         Tirole, Jean (1988), The Theory of Industrial Organization, MIT Press.

·         Belleflamme, Paul and Martin Peitz (2015), Industrial Organization: Markets and Strategies, Cambridge University Press.