Industrial Organisation 1

Module description

This is a module in Industrial Organisation for the third-year economics undergraduate students. It will cover topics related to how markets work, how traders (firms, consumers, etc.) interact in markets and how exogenous environments, including policy variables, affect markets and their participants using microeconomics and game theory as tools.

We will cover some fundamental theoretical models of industrial organisation in a rigorous approach. We will pay great attention to the empirical relevance of the models discussed and explore what real-world insights we can get from those models. During this process, we will also introduce relevant game theory concepts and provide students with a basic understanding of game theory.

We will first cover price and quantity competition under different market environments, such as Cournot Competition, Bertrand Competition, and Stackelberg Competition. We will also look into the optimal price-setting strategy of a monopolist under different circumstances. We will then look into how firms can collude for higher profits and how collusion can be sustainable under repeated interaction. Last, we will look into how well-designed competition policies could stop anti-competition practices, improve efficiency and social welfare.

Additional Information:

Internationalisation:

Due to the broad scope of this module, internationalisation is embedded in the content of this module. Competition, market power, and consumer protection are prevalent in every economy. The tools and analytical frameworks discussed in this module will have abundant applications in the global economy and regional markets around the world.

Sustainability:

The tools and analytical frameworks discussed in this module can be used to explore the interaction between industrial organisation and environmental sustainability.

Employability:

The topics covered in this module will enable you to understand how firms optimise their price and quantity decisions, how strategic interactions between market participants take place, and how market power affects the pricing of products/services. These skills are very relevant for jobs in economic consulting firms, government regulators and international organisations, think-tanks, higher education institutions, and many other industries.

Full module specification

Module aims

The module draws from various theories such as game theory and contract theory. The module’s focus is both on the understanding of the general ideas and on techniques and formal modelling. This module aims to introduce students to some fundamental theories of industrial organisation and also some basic game theory tools. It intends to examine and evaluate strategies, behaviour and performance of firms by looking at mainly theoretical models. It will also touch on real-life examples and discuss the empirical relevance of those theoretical models.

Through this process, we aim to provide students with rigorous but manageable training in game theory and Industrial organisation. This could provide them with firm foundations for their postgraduate study in economics programmes. It could equip them with a clear analytical framework that they can rely on to think about real-world IO phenomena and boost their employability in various sectors.

ILO: Module-specific skills

• 1. apply the knowledge of microeconomics and game theory to analyse phenomena in the industries and government regulations;
• 2. develop a good understanding of some fundamental game theory concepts and analytical tools;

ILO: Discipline-specific skills

• 3. develop skills to undertake postgraduate level microeconomics/game theory modules;

ILO: Personal and key skills

• 4. ability to analyse situations in industries analytically to improve employability
• 5. develop the ability to pursue theoretical research in economics
• 6. demonstrate good learning approaches and habits in online/hybrid learning environments

Learning activities and teaching methods (given in hours of study time)

Details of learning activities and teaching methods

Formative assessment

Summative assessment (% of credit)

Details of summative assessment

Details of re-assessment (where required by referral or deferral)

Syllabus plan

Game Theory Tools for Industrial Organisation

Static Oligopoly: Standard Bertrand and Cournot Models without product differentiation (Tirole, Ch. 5).

Product Differentiation, Price Competition and Non-Price Competition (Tirole, Ch.7)

Mergers

Price Discrimination by a Monopolist (Tirole, Ch.3)

Dynamic Price Competition and Tacit Collusion (Tirole, Ch.6)

Introduction to Competition Policy  

Indicative learning resources - Basic reading

Tirole, J. (1988) Theory of Industrial Organisation, MIT Press

Access through the University’s Library:

http://encore.exeter.ac.uk/iii/encore/record/C__Rb4098541__SThe%20Theory%20of%20Industrial%20Organization__Orightresult__U__X7?lang=eng&suite=cobalt

Module has an active ELE page?

Yes

Indicative learning resources - Other resources

Further readings (if interested):

Industrial Organisation textbooks:

1. Belleflamme, P. and Peitz, M. (2015) Industrial Organization: Markets and Strategies (2^nd edition), Cambridge University Press.
2. Carlton, D. W. & Perloff, J. M. (2015) Modern Industrial Organization (4^th edition): Global Edition. Pearson Education.

Game Theory:

1. Fudenberg, D. and Tirole, J. (1991) Game Theory. MIT Press.
2. Watson, J. (2013). Strategy: An Introduction to Game Theory (Third International Student Edition). WW Norton.

Economics of competition policy:

1. Motta, M. (2004) Competition Policy: Theory and Practice, Cambridge University Press.

Origin date

01/09/2007

Last revision date

09/07/2020