GENERAL INFORMATION
- New material will be uploaded by 12PM on Wednesdays
LECTURES
Lecture 00 : Introduction SLIDES-L0, HANDOUT-L0
Lecture 01 : Monopoly and price discrimination SLIDES-L1, HANDOUT-L1
Lecture 02 : Oligopoly SLIDES-L2 HANDOUT-L2
Game Theory I: Nash Equilibrium HANDOUT-GTI
PROBLEM SETS
TAs
Si Hao Li (si.li@ip-paris.fr)
Haitam Chakori (haitam.chakori@ip-paris.fr)
TEXTBOOKS
D Fudenberg, J Tirole; 1991, Game Theory, MIT Press
J Tirole, 1988, The Theory of Industrial Organization, MITPress
DIARY
Day 1 – 11 September
Introduction to economics and industrial organization
Positive and normative analysis in IO
Market failures and notion of market power
Definition of monopoly and sources of monopoly power
Demand and inverse demand functions
Profit maximization of a single-product monopolist
Marginal revenue and marginal cost
Price elasticity of demand – definition and properties
Elasticity as a logarithmic derivative
The Lerner index and the inverse elasticity rule
Elastic and inelastic regions of demand
Isoelastic demand functions
Two-product monopolist
Cross-price elasticity and substitutes/complements
Generalized inverse elasticity rule
Day 2 – 18 September
Welfare diagram and deadweight loss from monopoly pricing
Economies of scale and decreasing average costs
Relationship between marginal cost and average cost
Cost elasticity and the marginal-cost/average-cost ratio
Economies of scope
Submodular and supermodular cost functions
Price discrimination
First-degree price discrimination
Two-part tariffs as a form of first-degree price discrimination
Consumer choice under a two-part tariff
Optimal fixed and variable components of a two-part tariff
First encounter with game theory concepts
Prisoner’s Dilemma
Normal-form games and payoff matrices
Best responses and dominant strategies
Nash equilibrium as mutual best response
Pareto optimality and efficiency versus Nash equilibrium
Bertrand “pick a number” game
Nash equilibrium with continuous actions
Undercutting incentives
Day 3 – 25 September
Nash Equilibrium (NE)
Best response
Interpretation of NE
Submodular, Modular, Supermodular Games
Relationship between cross derivatives and reaction function slope
Strategic substitutes, independent actions, and strategic complements
Oligopoly definition and examples
Cournot competition: definition, best responses, equilibria
Examples with Cournot competition: Linear inverse demand, constant marginal costs
Bertrand competition: definition, best responses, equilibria
Discussion of the Bertrand paradox and its solutions
Examples of Bertrand with imperfect substitution: Linear demand function, constant marginal costs
Mergers
Discussion on timing horizon and frim choices
Capacity constrained Bertrand competition
Subgame Perfect Nash Equilibrium (SPNE)
Residual demand
NE of the pricing stage
Connection with Cournot profit function at capacity choice stage
