Industrial Organization

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, 2d ed, MIT Press, 2017, 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

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

6 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

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 (traditional) 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

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 competition, CEPR Discussion Papers 8907

Elective topics for assignments (9 credits only):

-Pricing in search engine advertising;

-Attention economy;

-Spectrum Allocation: Advanced topics;

-Collaborative action models;

-E-commerce: online and offline competition and complementarity in a specific market;

-News(papers), Magazines, Books;

– Music market, Movie market: Free download, piracy, streaming;

– Public service broadcasting in the digital world;

-Public-Private interests in the platform economy;

-(Ab)use of market power in the internet market;

-Consumer single/multi-homing;

–Social networks;

-Wikipedia;

-Open Source;

-Cloud computing: Platform competition, Security.

Selected Bibliography for writing the Assignment:

Srnicek, Nick, (2017) Platform capitalism; Polity P.

Ross, Alec, (2016) Industries of the future, Simon & Schuster, Ch. 5: Data: The raw material of the information age, pp 152-185

Koen, Frenken, Arnoud van Waes, Magda Smink, Rinie van Est (2018) Safeguarding public interests in the platform economy, Vox, 3 April

Pasquale, Frank (2018) Tech Platforms and the Knowledge Problem, American Affairs, May 20