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. Emphasis will be given to the role of algorithms and digital markets such as search engines, social media or online marketplaces.
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.
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. Emphasis will be given to the role of algorithms and digital markets such as search engines, social media or online marketplaces.
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
Game Theory (fist part of the course)
Program
MODULE I:
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.
MODULE II:
This course aims at providing a theoretical and practical understanding of main issues in industrial organization and competition policy. Using basic concepts in game theory, the course studies the strategic interaction among firms in imperfectly competitive markets, the sources of market power, and rationale and impact of competition policy. Lectures will make use of analytical tools; practical examples will be provided throughout. A number of case studies are discussed.
LECTURES
Chp 1. What is 'Markets and Strategies'?
Chp 2. Firms, consumers and the market
Chp 3: 3.1.1: Standard Bertrand Model
3.2.1 Cournot Competition
3.4 Strategic substitutes vs strategic complements
Chp: 4:4.1: Stackelberg model
Reading: Chp. 1,2.Chp. 3.1.1; 3.2.1;3.4; ;4.1.1
Part III. Sources of Market Power
Chp 5. Product differentiation
Horizontal product differentiation
5.2.1 A simple location model
5.2.2 The linear Hotelling model
5.2.3. The Quadratic Hotelling Model
5.3.1. Vertical product differentiation
Reading: Chp. 5.1.; 5-2-1; 5.2.3. 5.3.1.
Part VI. Theory of Competition Policy:
Chp 14. Cartels and tacit collusion:
14. 2: Sustainability of Tacit Collusion
14.2.3 Collusion and multimarket contact
14.3: Detecting and fighting collusion: leniency programs
Testimonial:
Group Presentations: European commission cartel cases
Reading: Chp. 14.2; 14.2.1; 14.2.2; 14.2.4 (simplified; see slides); 14.2.5 (simplified; see slides); 14.3.1; 14.3.2 (only leniency programs/no maths)
Chp 15. Horizontal mergers
15.1 Profitability of simple Cournot Mergers
15.1.2: Mergers between several firms
15.1.3: Efficiency increasing mergers
15.2: Welfare Analysis of Cournot mergers
Testimonial
Reading: Chp. 15.1.1; 15.1.2; 15.1.3 (no maths); 15.2 (no maths)
Chp 16. Strategic incumbents and entry Week 5 (6hrs)
Chp 16.3 Strategies Affecting Demand variables:
Brand Proliferation
Bundling
16.4 Limit Pricing under Complete information
Limit Pricing under Incomplete information
Reading: Chp. 16.3.; 16.3.1, 16.3.2; 16.4
Group Presentations:
Revision lecture
Testimonial
Tutorials/Seminars:
•
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.
MODULE II:
This course aims at providing a theoretical and practical understanding of main issues in industrial organization and competition policy. Using basic concepts in game theory, the course studies the strategic interaction among firms in imperfectly competitive markets, the sources of market power, and rationale and impact of competition policy. Lectures will make use of analytical tools; practical examples will be provided throughout. A number of case studies are discussed.
LECTURES
Chp 1. What is 'Markets and Strategies'?
Chp 2. Firms, consumers and the market
Chp 3: 3.1.1: Standard Bertrand Model
3.2.1 Cournot Competition
3.4 Strategic substitutes vs strategic complements
Chp: 4:4.1: Stackelberg model
Reading: Chp. 1,2.Chp. 3.1.1; 3.2.1;3.4; ;4.1.1
Part III. Sources of Market Power
Chp 5. Product differentiation
Horizontal product differentiation
5.2.1 A simple location model
5.2.2 The linear Hotelling model
5.2.3. The Quadratic Hotelling Model
5.3.1. Vertical product differentiation
Reading: Chp. 5.1.; 5-2-1; 5.2.3. 5.3.1.
Part VI. Theory of Competition Policy:
Chp 14. Cartels and tacit collusion:
14. 2: Sustainability of Tacit Collusion
14.2.3 Collusion and multimarket contact
14.3: Detecting and fighting collusion: leniency programs
Testimonial:
Group Presentations: European commission cartel cases
Reading: Chp. 14.2; 14.2.1; 14.2.2; 14.2.4 (simplified; see slides); 14.2.5 (simplified; see slides); 14.3.1; 14.3.2 (only leniency programs/no maths)
Chp 15. Horizontal mergers
15.1 Profitability of simple Cournot Mergers
15.1.2: Mergers between several firms
15.1.3: Efficiency increasing mergers
15.2: Welfare Analysis of Cournot mergers
Testimonial
Reading: Chp. 15.1.1; 15.1.2; 15.1.3 (no maths); 15.2 (no maths)
Chp 16. Strategic incumbents and entry Week 5 (6hrs)
Chp 16.3 Strategies Affecting Demand variables:
Brand Proliferation
Bundling
16.4 Limit Pricing under Complete information
Limit Pricing under Incomplete information
Reading: Chp. 16.3.; 16.3.1, 16.3.2; 16.4
Group Presentations:
Revision lecture
Testimonial
Tutorials/Seminars:
•
Books
• Belleflamme, Paul and Martin Peits, (2015) Universität Mannheim, Germany Industrial Organization Markets and Strategies, 2nd Edition Cambridge University Press
Gibbons, R. (1992), Game theory for applied economists, Princeton University Press.
Gibbons, R. (1992), Game theory for applied economists, Princeton University Press.
Bibliography
Motta Massimo (2014), Competition Policy: Theory and Practice, Cambridge University Press.
Teaching methods
The course comprises lectures and seminars.
Attendance is not mandatory, but highly recommended. Attending students are typically able to reap more benefits from the course and more easily meet the learning objectives.
Attendance is not mandatory, but highly recommended. Attending students are typically able to reap more benefits from the course and more easily meet the learning objectives.
Exam Rules
The assessment method is based 100% on the written exam. EEBL students take the exam at the same time as the exam in Game Theory. This exam is composed of two exercises, including theoretical questions, related to the topics covered in the module. The grade for the exam is expressed out of thirty points.
Since EEBL students take the Game Theory exam at the same time as the exam in Industrial Organisation, 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 Organisation Module)
Students will have to obtain at least 18/30 in each of the two modules to pass the exam.
`The exam is written and it lasts 1.5 hours. It is potentially composed of different sections.
The first section 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 second section will test the candidate's knowledge of formal models of competition using the language of mathematics by either asking to present and discuss them or asking to solve exercises.
Since EEBL students take the Game Theory exam at the same time as the exam in Industrial Organisation, 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 Organisation Module)
Students will have to obtain at least 18/30 in each of the two modules to pass the exam.
`The exam is written and it lasts 1.5 hours. It is potentially composed of different sections.
The first section 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 second section will test the candidate's knowledge of formal models of competition using the language of mathematics by either asking to present and discuss them or asking to solve exercises.