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INDUSTRIAL ORGANIZATION

Syllabus

EN IT

Learning Objectives

LEARNING OUTCOMES: the aim of this course is to introduce students to strategic reasoning through a formal training in game theory and a parallel set of lectures on applications to competition policy. Specifically, we will formally introduce the basic ingredients of non cooperative games and a number of equilibrium concepts used to solve them. These will be applied to studying strategic interaction among firms and to design incentive schemes to achieve a number of basic public policy goals.

KNOWLEDGE AND UNDERSTANDING:
At the end of the Course students should be able to understand and apply the logical approach of game theory to analyse the strategic environment that firms face in regime of oligopoly. In particular, we will study anti-competitive conducts put forth by firms and public policies to address them.

APPLYING KNOWLEDGE AND UNDERSTANDING:
At the end of the Course students should be able to apply the knowledge to identify potential anti-competitive practices.

MAKING JUDGEMENTS:
Given a firm's conduct, the student should be able to (i) sketch its overall impact on economic surplus and its redistributive impact on the individual surplus of the parties involved and (ii) suggest potential interventions.

COMMUNICATION SKILLS:
At the end of the course students should be able to analyse market practices and prepare presentations to discuss their effects on competition.

Prerequisites

There are no prerequisites for students who attend this course.

Program

First part: Complete Information

Static games of complete information. The Nash equilibrium in pure strategies. Nash equilibrium in mixed strategies. Cournot model. Bertrand model. Dynamic games of complete information. Extensive form games and backward induction. Subgame perfect Nash equilibrium. Stackelberg model of duopoly. Repeated games. The Prisoner’s dilemma and coordination. The Folk theorem.

Second part: Incomplete Information

Static Games of incomplete Information. Bayesian Nash equilibrium. An auction game. Harsanyi’ interpretation of mixed strategies. Dynamic games of incomplete information. Perfect Bayesian equilibrium. Basics of signalling.

Books

Gibbons, R. (1992), Game theory for applied economists, Princeton University Press.

Bibliography

Osborne, M. J. (2009), Introduction to Game Theory, Oxford University Press.
Osborne, M. J. (1994), A Course in Game Theory, MIT Press.

Teaching methods

The module is composed of classes and practice sessions.

Exam Rules

The assessment method is entirely based on a written exam. The exam is composed of two or three exercises, possibly including theoretical questions. It requires students to be able to solve games covered in the module.
The grade for the exam is expressed out of thirty points.
Since EEBL students take the exam at the same time as the exam in Industrial Organization, the grade obtained in each of the two modules will have a 50% weight in determining the final grade for the course. In particular:
Final Grade = 0.5 x (Grade in Game Theory Module) + 0.5 x (Grade in Industrial Organization Module).
Students will have to obtain at least 18/30 in each of the two modules to pass the exam.
The final exam grade reflects the student’s understanding and mastering of the course material according to the following scale.
The grading is as follows:
Fail: major deficiencies and/or inaccuracies in knowledge and understanding of topics; limited ability to analyze, apply and synthesize.
o 18-20: Barely sufficient knowledge and understanding of topics with possible imperfections; basic understanding of models of competition with limited ability to solve applied problems.
o 21-23: Routine knowledge and understanding of topics; Correct analysis and synthesis skills with coherent logical argumentation and some ability to solve applied problems.
o 24-26: Fair knowledge and understanding of topics; Good analytical and synthesis skills with rigorously expressed arguments and good ability to make connections and apply the course material.
o 27-29: Comprehensive knowledge and understanding of topics; Remarkable skills of analysis, synthesis. Very good ability to independently make connections and apply learnt material.
o 30-30L: Excellent level of knowledge and understanding of topics. Remarkable analytical and synthesis skills and independent ability to apply and make connections within the course material. Arguments expressed in an original way.