Syllabus
The course will cover the following topics. A topic can extend across multiple lectures, and one lecture can cover multiple topics.
1. Introduction to game theory Introducing industrial organization Normal form games and Nash equilibrium Extensive form games and subgame perfection Asymmetric information games
2. Market power What is market power? Market power under perfect competition and monopoly Static oligopoly as a game Dynamic oligopoly as a game Product differentiation
3. Anti-competitive behaviour Cartels, tacit collusion and common ownership Entry deterrence and accommodation Entry deterrence through capacity commitments Brand proliferation and switching costs Leveraging market power across markets
4. Information Hidden information problem Hidden action problem Signalling Advertising Warranties Branding
5. Innovation Market structure and incentives to innovate R&D spillovers Support for R&D Diffusion of innovation General purpose technologies
6. Intellectual property protection and intangible investment Patents and other types of IP protection Optimal design of IP rights Market for patents Other types of intangible investment: software, data, brands, management… Properties and implications of intangible investment
7. Mergers & acquisitions Horizontal mergers & the merger paradox Cost synergies Vertical mergers & the double-marginalisation Killer acquisitions
8. Network effects Direct and indirect network effects Demand and supply with network goods Competing „in the market “ vs. „for the market“ Standards and standard wars
9. Intermediaries and platforms Dealers
Annotation
Most markets are not accurately described by the standard perfect competition and monopoly models. Instead, they are characterised by firms strategically interacting with each other. Firms try to increase and protect their market power, and to do so, they diversify their products, build brands, spend on advertising, invest in research & development, apply for patents, acquire competitors and sometimes even resort to illegal strategies such as collusion. Additional challenges (and opportunities for firms!) are presented by markets with asymmetric information (e.g. used cars or health insurance), network effects (e.g. social networks, operating systems) or two-sided platforms (e.g. Amazon, Airbnb).
Industrial Organization (IO) studies the rich set of strategies that firms employ to compete in the market (and for the market!). As such, it gives unique insights into workings of the economy around us, and it has implications for competition economics, market design, innovation policy and many other areas.
The objective is to provide students with an understanding of key concepts, models and empirical results within selected IO topics, and make them familiar with modern IO research. This will allow them to read and evaluate applied IO work and provide them with the background required to write a thesis in the field of IO.
In order to understand the strategic interaction between firms, the IO relies heavily on the theory of games. The course, thus, also serves as an applied introduction to game theory. In this way, it nicely complements the course Game Theory and Applications, which explores game theory more formally and with many applications from outside of the IO. It can be useful to take both courses in parallel, but it is also absolutely fine to take either of them alone.