Industrial organization

Credits: 9 Management and Governance (Classes + Assignment)

Credits 6 Economics (Classes)

ETCS: 9

(2017-2018, 1st semester)

Classes: Monday 10:00-12:00 am (Room 6); Tuesday 4:00-6:00 pm (Room 6); Wednesday 2:00 – 4:00 pm (Room 10)

Opening class: 25 September 2017

Mid-term exam: 8 November, 2:00 pm

End-of-the-course exam: 20 December, 2:00 pm

 

Lecturer: Luigi Luini

 

Objectives:

The aim of the course is to help students to be familiar with contemporary topics in advanced

industrial organization both theoretical and applied. The course is focused on special topics as

Network economics, Media industries and Advertising.

 

Recommended prerequisites:

Industrial Economics (introductory level) as in: Cabral, Introduction to IO, MIT Press, 2001, Ch. 4

Games and Strategies; Ch. 5 Monopoly; Ch. 6 (Almost) Perfect Competition; Ch. 7 Oligopoly:

Bertrand and Cournot; Ch. 8 Collusion; Ch 9 Market Power.

 

Assessment:

9 Credits:

Exam (80%): Part I, Part II, Part III + Assignment (20%).

A series of assignments and activities are designed to prepare students’ presentation on selected theoretical topics and case studies.

6 Credits:

Exam (100%) Part I, Part II, Part III

Syllabus

 

 Short

 

Part I. Refreshing and advances on IO theoretical topics. Market power and sources of market power

1 Oligopoly models: Cournot, Bertrand, Hotelling, Stackelberg

2 Product differentiation: Empirical analysis

3 Asymmetric information, price and advertising signals

4 Consumer inertia

 

Part II. Networks, Standards and Systems, Market Intermediation

5 Intellectual property in the digital economy

6 Markets with network goods

7 Strategies for network goods

8 Markets with intermediated goods

9 Information and reputation in intermediated product markets

 

Part III. Selected topics in ICT industry. Media Industries

10 The Economics of Network Neutrality and the access question

11 Two-sided markets: Media, payment card, operating systems

12 Internet markets: Scale and customization, online and offline advertising and commerce, cloud computing

13 Features of the (traditional) media markets: Audience and advertising

14 Variety in media industry: Program diversity and information plurality

15 Cloud computing

 

Main Reference:

Belleflamme-Peitz, Industrial Organization. Markets and Strategies, 2d ed, CUP, 2015, Ch. 3, 4, 5, 6, 7, 19, 20, 21, 22, 23.

 

Long

 

Part I. Refreshing and advances on IO theoretical topics. Market power and sources of market power

 

1.Oligopoly models: Cournot, Bertrand, Hotelling, Stackelberg. Static and dynamic aspects of imperfect competition

1.1 Sequential choice: Stackelberg, 1.2 One leader and one follower, 1.3 One leader and an endogenous number of followers, 1.4 Commitment, 1.5 Free entry: endogenous number of firms, 1.6 Properties of free-entry equilibria, 1.7 The Cournot model with free entry, 1.8 Price competition with free entry, 1.9 Monopolistic competition, 1.10 Industry concentration and firm turnover, 1.11 Exogenous versus endogenous sunk costs, 1.12 Dynamic firm entry and exit

 

Reference:

Belleflamme-Peitz, Industrial Organization, CUP, 2015, Ch 3& 4

 

2 Product differentiation: Empirical analysis

2.1 Probabilistic choice and the logit model, 2.2 Empirical analysis of horizontal product differentiation, 2.3 Empirical analysis of vertical product differentiation, 2.4 Nested logit and other extensions

 

Reference:

Belleflamme-Peitz, Industrial Organization, CUP, 2015, Ch 5

 

3 Asymmetric information, price and advertising signals

3.1 Asymmetric information problems, 3.1.1 Hidden information problem, 3.1.2 Hidden action problem, 3.2 Advertising and price signals, 3.2.1 Advertising signals, 3.2.2 Price signals, 3.2.3 Joint price and advertising signals, .3 Price signalling under imperfect competition

 

Reference:

Belleflamme-Peitz, Industrial Organization, CUP, 2015, Ch 6

 

4  Consumer inertia

4.1 Uninformed consumers and search costs, 4.2 Price dispersion, 4.3 Consumer search, 4.4 Empirical investigation of price dispersion, 4.5 Switching costs, 4.6 Competitive effects of switching costs, 4.7 Coupons and endogenous switching costs, 4.8 Estimating switching costs, 4.9 Customer poaching

 

Reference:

Belleflamme-Peitz, Industrial Organization, CUP, 2015, Ch 7

 

Part II. Networks, Standards and Systems, Market Intermediation

 

5 Intellectual property rights

5.1 Alternative incentive mechanisms: rewards and secrecy, 5.2 Protection of IP in practice,

Protecting innovations, 5.2.1 Optimal design of IP rights, 5.2.2 Rewards vs. patents, 5.2.3 Secrecy vs. patents 5.3 Cumulative innovations, 5.3.1 Sequential innovations and holdup 5.3.2 Complementary innovations and anticommons, 5.4 Intellectual property in the digital economy, 5.4.1 End-user piracy, 5.4.2 Software protection

 

Reference:

Belleflamme-Peitz, Industrial Organization, CUP, 2015, Ch. 19

 

  1. Markets with network goods

6.1 Network effects, 6.2 Direct and indirect network effects, 6.3 Network effects and switching costs,

6.4 Empirical evidence on network effects,  6.5 Markets for a single network good, 6.6 Modelling the demand for a network good, 6.7 Provision of a network good, 6.8 Markets for several network goods, 6.9 Demand for incompatible network goods, 6.10 Oligopoly pricing and standardization

 

Reference:

Belleflamme-Peitz, Industrial Organization, CUP, 2015, Ch. 20

 

7  Strategies for network goods

7.1 Choosing how to compete, 7.2 A simple analysis of standardization, 7.3 A full analysis of standardization, 7.4 Strategies in standards wars, 7.5 Building an installed base for pre-emption, 7.6 Backward compatibility and performance, 7.7 Expectations management, 7.8 Public policy in network markets, 7.9 Ex ante interventions, 7.10 Ex post interventions

 

Reference:

Belleflamme-Peitz, Industrial Organization, CUP, 2015, Ch. 21

 

8  Markets with intermediated goods

8.1 Intermediaries as dealers, 8.2 Intermediated versus nonintermediated trade, 8.3 Dealer versus pure platform operator, 8.4 Intermediaries as matchmakers, 8.5 Divide-and-conquer strategies, 8.6 Sorting by an intermediary in a matching market, 8.7 Intermediaries as two-sided platforms, 8.8 The price structure for intermediation services, 8.9 Competing intermediaries, 8.10  Implications for antitrust and regulation, 8.11 Network effects in media industries

 

References:

Main:

Belleflamme-Peitz, Industrial Organization, CUP, 2015, Ch. 22

Additional:

Parker, G., M. Van Alstyne, 2005, Two-Sided Network Effects: A Theory of Information Product Design,

Management Science

 

9 Information and reputation in intermediated product markets

9.1 Intermediation and information, 9.2 Information overload, 9.3 ‘Infomediaries’ and competition in search markets, 9.4 Information and recommendation networks, 9.5 Intermediation and reputation, 9.6 Certifying intermediaries, 9.7 Reputation systems

 

Reference:

Belleflamme-Peitz, Industrial Organization, CUP, 2015, Ch. 23

 

Part III. Selected topics in ICT industry: Media Industries

 

10 The Economics of Network Neutrality

10.1 Centrality of the access question, 10.2 Private and social incentives to (not) prioritize contents

 

Reference:

Economides N., B. E. Hermalin, 2012, The Economics of Network Neutrality, RAND Journal of Economics

 

11 The media markets as two-sided markets

The role of intermediaries in: 11.1 Media, 11.2 Payment card, 11.3 Operating systems

Reference:

Rysman, M,  2009, The economics of two-sided markets, Journal of Economic Perspectives

 

12 Internet markets

12.1  Scale and customization, 12.2 Online and offline advertising: targeting, obtrusiveness

and privacy, 12.3 Online and offline commerce

 

Reference:

Levin J.D., 2011, The economics of internet markets, wp NBER

 

13 Features of the (traditional) media markets

13.1 The first side: Audience, 13.2 The second side: Advertising, 13.3 Markets for news, 13.4 TV markets,  13.5 Movie market, 13.6 Music market

 

References:

Anderson S, and J Gabszewicz, 2006, The media and advertising: a tale of two-sided markets, Handbook of the Economics of Art and Culture

Van der Wurff  R, 2005, Competition, Concentration and Diversity in European Television Markets, Journal of

Cultural Economics

Eliashberg J, A Elberse, M Leenders, 2006, The motion picture industry: Critical issue in practise, current research and

new research directions, Marketing Science, 25 (6), 638-61.

Schulhofer-Wohl S, M. Garrido, 2009, Do Newspapers Matter? Evidence from the Closure of The Cincinnati Post, WP

George L, J Waldfogel, 2006, The New York Times and the Market for Local Newspapers, American Economic Review

Alexander P J, 2002, Market Structure of the Domestic (US) Music Recording Industry,1890-1988 Historical

Methods

 

14 Variety in media industry

14.1 Program diversity. 14.2 Information plurality

 

References:

Dimmick J and D. G. McDonald, 2001, Network Radio Oligopoly (US), 1926–1956: Rivalrous Imitation and Program

Diversity, Journal of Media Economics

Suhck Bae, Hyuhn, 1999, Product Differentiation in Cable Programming: The Case in the Cable National All-News

Networks, Journal of Media Economics , 12, 4, 265-277

 

15 Cloud computing

15.1 Platform competition, 15.2 Cloud  Security

 

Reference:

Fershtman, C., N. Gandal, 2012. Migration to the cloud ecosystem: Ushering in a new generation of platform competitionCEPR Discussion Papers 8907

 

 

Elective topics for assignments (9 credits only):

(additional bibliography available at the lecturer’s web page)

 

Spectrum Allocation: Advanced topics; Pricing in search engine advertising; Attention economy;

Collaborative action models; E-commerce: online and offline competition and complementarity;

Magazines; Books; Free download and piracy: Music market, Movie market; Public service broadcasting in the digital world; Free vs. fee debate; The long tail and the distinction between amateur and professional;

Digital media start-ups; Social networks; Wikipedia; Open Source; Cloud computing: Platform competition, Security.