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   Course Title    The Theory of Industrial Organization
Lecturer    Sergei Pechersky
Institution    European University of Saint-Petersburg
Country    Russia

Aims of the Course:

The aim of the course is to consider the latest theories and empirical material related to Firm Theory, Industry Structure, a role of Firm Entry in modifying of the structure, some aspects of Industrial Policy, and some specific features of Industry Structure in Russia.

This course is a mandatory course for second-year students at the Economic Department of the European University at Saint-Petersburg. The study of industrial organization adds to the perfectly competitive model real-world friction, such as transaction costs, costs of adjusting prices, limited information, government actions, barriers to entry by new firms into a market. It considers how firms are organized and how they compete in such a world. The prerequisite for the course is the course Game Theory for Economists (second semester course, teacher responsible: S.Pechersky)

Teaching arrangements:

Weekly lectures and seminars (2 + 2 hours) with a total of 56 hours.

For each topic taken up by this course an introductory lecture will be given, and then in a subsequent seminar the specific problems connected to that topic will be discussed. Case studies will also be essential parts of the seminars. Students are encouraged to give short seminars on topics related to the course.

Course Content:

WEEK 1: - Introduction: Paradigms: Structure-Conduct-Performance, Price Theory, Transaction Costs, Contestable Markets. Transaction costs analysis and the problem of Economic Organization, Organizational strategies of the modern firm, Economic Organization and efficiency.

WEEK 2: - Theory of the Firm: Transaction costs and opportunistic behaviour, The firm as a Loophole of the exercise of monopoly power, The firm as a static synergy, The firm as a long-run relationship, The firm as incomplete contract, Ownership and control, The objective of the firm, Principal-agent problem.

WEEK 3: - Monopoly: Pricing behavior: A single-product monopoly, Multi-product monopoly, A durable-good monopoly; Cost distortion, Rent-seeking behavior, Dominant firm.

WEEK 4: - Price Discrimination: The nature of price discrimination, Perfect price discrimination, Multi-market (third-degree) price discrimination, Personal arbitrage and screening (second-degree price discrimination, Non-linear pricing, Empirical tests.

WEEK 5 - Vertical Control: Linear prices and vertical restraints, Externalities and vertical control, Intrabrand competition, Interbrand competition, Incentives to impose vertical restraints, Vertical restrains under uncertainty, The effects of size, Diversification, Empirical evidence

WEEK 6: - Short-Run Price Competition: The Bertrand paradox, Solutions to the Bertrand paradox: The Edgeworth solution, The temporal competition, Product differentiation; Rationing rules, Traditional Cournot analysis, Concentration Indices and Industry Profitability.

WEEK 7:- Dynamic Price Competition and Tacit Collusion: Collusion, Stable noncooperative collusion in a static model, Collusion in repeated noncooperative games, Price wars, Price rigidities, Empirical studies of collusive behaviour.

WEEK 8: - Product Differentiation: Price Competition and Non-Price Competition. Horizontal product differentiation, Product quality and vertical product differentiation, Monopolistic competition, Advertising and informational product differentiation, Selling expenses, Actual patterns of advertising, Welfare consequences of advertising

WEEK 9: - Entry, Accommodation and Exit: Measurement of seller concentration, Fixed costs: natural monopoly and contestability; sunk costs and barriers to entry, Product differentiation as a barrier to entry, Econometric studies of market structure, The evolution of market structure.

WEEK 10: - Information and Strategic Behaviour: Reputation, Limit Pricing and Predation. Static competition under asymmetric information, Limited information about quality, Limited information about price, Accomodation and tacit collusion, Predation for merger, Multimarket reputation.

WEEK 11: - Research and Development: The value of innovation, Patent races, Strategic adoption of new technologies, Patent licensing and research joint ventures, Network externalities, standardization and compatibility.

WEEK 12: - Public Policies: Antitrust policies, The objectives of regulations, Making monopolies more competitive, Making competitive industries more monopolistic, Deregulation, Privatization.

WEEK 13 - 14: - Russian specificity: Privatization, Industry structure, "Old" and "New" sectors, Some specific features of Russian firms, Natural Monopoly, Principal-Agent relationship in Russia, Insider-owned firms, Public policies. The Evolution of business and Economic systems.

Examination Arrangements:

The final mark for the course is a weighted average of the coursework (10%), two mid-term tests (25% each) and a three-hour final examination (40%).

Reading list:

Mandatory Readings:

We will use three textbooks for this course:

D.W.Carlton, J.M.Perloff. Modern Industrial Organization. Harper Collins Publishers, 2nd ed., 1995.

F.M.Sherer, D.Ross. Industrial Market Structure and Economic Performance, 3rd ed., Houghton Mifflin Company, Boston, Massachusetts, 1990.

J.Tirole. The Theory of Industrial Organization. Cambridge, Massachusetts: The MIT Press, 1988.

Recommended reading:

R.H.Couse. The Firm, the Market and the Law, Chicago and London: The University of Chicago Press, 1988.

R.Friedman, Rapaczinski at al. The Privatization Process in Russia, Ukraine and Baltic States, CEU, 1993.

C.G.Krouse. Theory of Industrial Economics. Oxford, Basil Blackwell, 1990.

P.Milgrom, J.Roberts. Economics, Organization, and Management, NJ: Prentice Hall, Englewood Cliffs, 1992.

U.Pagano, R.Rowthorn eds. The Competitive Selection of Democratic Firms in a World of Self-Sustaining Institutions in Democracy and Efficiency in the Erconomic Enterprise, London, NY: Routlege, 1996.

W.G.Shepherd. The Economics of Industrial Organization. Englewood Cliffs, NJ: Prentice-Hall Inc., 1990.

R.C.Schmalensee, R.D.Willig (eds). Handbook of Industrial Organization. Amsterdam: North-Holland, 1989.

O.Shy. Industrial Organization: Theory and Applications. Cambridge, Massachusetts: The MIT Press, 1995.

O.E.Williamson. The Economic Institutions of Capitalism. NY: Free Press, 1985.

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