Slides

Lecture 00 : Introduction
Lecture 01 : Monopoly and price discrimination
Lecture 02 : Oligopoly
Lecture 03 : Collusion
Lecture 04 : Product Differentiation
Lecture 05 : Advertising
Lecture 06 : Market structure and market power
Lecture 07 : Strategic behavior, entry, exit
Lecture 08 : Vertical relations
Lecture 09 : Innovation and intellectual property
Lecture 10: Network Industries

Slides of previous edition
http://ses-perso.telecom-paristech.fr/bourreau/ecoindus.html

Texbook

Tirole, 1988, The Theory of Industrial Organization, MITPress

Additional references will be provided based on the content covered during the lectures.

Additional Readings

Artificial Intelligence, Algorithmic Pricing, and Collusion
Demo of Q-Learning in Iterated Prisoner’s Dilemma

General Infromation

Written exam:
10% Midterm at half of the course,
90% Final exam.

Mock exam 2024
Midterm 2025

Problem Sets

Exercise Sheet 1
Exercise Sheet 2
Exercise Sheet 3
Exercise Sheet 4
Exercise Sheet 5
Exercise Sheet 6

Diary

Day 1 – 19 September
Introdcution on economics and industrial organization
Definition of monopoly
Price elasticity of demand – definition and properties
The inverse elasticity rule
Comparative statics of prices with respect to marginal cost functions
Two-product monopolist and generalized inverse elasticity rule
Construction of individual demand function and market demand function from Consumer valuations
Welfare diagram
Welfare loss from monopoly pricing

Day 2 – 26 September
Effect of taxation on welfare
Optimal subsidy for a monopolist
First-degree price discrimintation
–Non-linear pricing (fixed component, variable component)
–Example of Telecommunication monopolist
–The Envelope condition (derivatives with respect to an optimized choice variable)
Second-degree price discrimination
–Generalization of the inverse elasticity formula
–Effects on Welfare, Consumer Surplus, and Profits
Intertemporal price discrimination
–Time-value of money and the discount factor
–Learning by doing (two period model, infinite horizon discrete, infinite horizon continuous)
The Cournot Model
Notion of strategic complements and strategic substitute actions
First encouter with game theory concepts
–Reaction functions
–Beliefs
–Nash Equilibrium for 2 firms and 2 simultaneous actions

Day 3 – 3 October
Nash equilibrium two players, two continuous actions
Strategic complementarity and strategic substitutability
Relation between reaction function slope and cross derivative of profit function
Total derivative of profit function
Cournot model with 2 firms
Cournot model with N firms
Mergers in Cournot model
Bertrand paradox
Nash equilibrium of Bertrand model
The Bertrand paradox as a Prisoner Dilemma
Nash equilibrium two players, two discrete actions
Collusion as equilibrium of an infinitely-repeated Bertrand game
Conditions for collusion and role of discount factor (patience)
Equilibrium of a finetely repeated Bertrand game
Collusion incentives with external demand shocks (market entry)
Collusion incentives and frequency of interactions
Collusion incentives and industry structure

Day 4 – 10 October
Midterm [text and solutions]


Day 5 – 17 October
Notion of differentiation and product space – horizontal and vertical
Two-stage games and notion of Subgame Perfect Nash Equilibrium (SPNE)
Total differentiation of stage-1 profits: direct effect, strategic effect, envelop theorem
Definition of the Hotelling model
SPNE of the Hotelling Model
Intuition for maximum differentiation principle in the Hotelling model (with quadratic costs)
Hotelling with location choices and fixed prices
Welfare calculations in the Hotelling model
The Salop model of entry
The free entry condition
SPNE and comparative statics of the Salop model
Welfare calculations in the Salop model
Vertical differentiation
SPNE of the vertical differentiation model
Intuition for maximum differentiation principle in the vertical differentiation model
Capacity constrained Bertrand game
The efficient rationing rule
Equivalence betwen NE of Cournot model and SPNE of Capacity-constrained Bertrand model

Day 6 – 24 October
Notion of energy barriers
Legal entry barriers
Structural entry barriers
Free-entry equilibrium in Cournot with fixed cost
Efficient pricing in economies with fixed costs
Strategic entry barriers
SPNE of the Stackelberg model without fixed costs
Comparison with simultaneous equilibrium and importance of commitments (fixed costs are sunk)
Relationship between First mover / Second mover advantage and strategic complementarity/ substitutability
Strategic behavior in Stackelberg model with fixed costs : conditions for blockaded entry, accomodation, deterrance
SPNE of Stackelberg game with fixed costs (all cases)
Taxonomy of strategic entry barriers
Analysis of Deterrance strategy: Strategic effect on Entrant’ s profits
Analysis of Accomodation strategy: Strategic effect on Incumbent’s profits
Characterization and examples of strategic behavior: Top dog, lean and hungy, fat cat, puppy dog
Policy debates:
– Stackleberg model and overcapacity in Electric vehicles
– Strategic taxonomy and international industrial policy (tariffs)
– Discussion on Prisoner dilemma and dynamics of international coorpation among countries
Notion of vertical intergation, value chain, and vertical contracting
Examples of vertically integrated companies
The double marginalization problem

Day 7 – 11 November
Two part tariff as solution of double marginalization problem
The free riding problem
Exclusive territories
Notion of positive and negative network effects
NE of 2 actions 2 players with network effects
Rational expectation equilibria, critical mass, no adoption trap
Notion of network industries and two sided platforms
Standards and lock in effect

Day 8 – Exam