ECO3480 Industrial Organization

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ECO3480 Industrial Organization

• Travis Ng
• 2007 Fall

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Textbook Coverage

•   I. Introduction  
• 1. What Is Industrial Organization? 2. Basic
  Microeconomics 3. The Firm4. Games and Strategy  
• II. From monopoly to perfect competition  
• 5. Monopoly and Regulation6. Perfect (and Almost
  Perfect) Competition  
• III. Oligopoly  
• 7. Oligopoly Competition8. Collusion9. Market
  Structure and Market Power  
• IV. Price and non price strategies  
• 10. Price Discrimination11. Vertical Relations12.
  Product Differentiation13. Advertising  
• V. Entry and exit  
• 14. Entry Costs, Market Structure, and Welfare15.
  Strategic Behavior, Entry and Exit  
• VI. Technology  
• 16. Research and Development17. Networks and
  Standards

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Textbook Coverage

•   I. Introduction  
• 1. What Is Industrial Organization? 2. Basic
  Microeconomics 3. The Firm4. Games and Strategy  
• II. From monopoly to perfect competition  
• 5. Monopoly and Regulation6. Perfect (and Almost
  Perfect) Competition  
• III. Oligopoly  
• 7. Oligopoly Competition8. Collusion9. Market
  Structure and Market Power  
• IV. Price and non price strategies  
• 10. Price Discrimination11. Vertical Relations12.
  Product Differentiation13. Advertising  
• V. Entry and exit  
• 14. Entry Costs, Market Structure, and Welfare15.
  Strategic Behavior, Entry and Exit  
• VI. Technology  
• 16. Research and Development17. Networks and
  Standards

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Some Terminology

• Industrial
• Industry
• Industrial Organization
• The study of the workings of markets and
  industries, in particular, the way firms compete
  with each other.

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Industrial Organization
MICROECONOMICS
Neoclassical
Game Theory
IO

• Emphasis of firm strategies that are
  characteristics of market interactions
• Price competition, product positioning,
  advertising, RD, etc.

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Industrial Organization
Perfect Competition
Monopoly
IO

• 1lt n lt Many,
• where n no. of firms in a market
• The economics of imperfect competition

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Main Questions

• Is there market power?
• How do firms acquire and maintain market power?
• What do market power imply?
• Is there a role for public policy regarding
  market power?

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Is there market power?
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Is there market power?

• What is a market? How do we define it?
• What is market power?
• Why market power?
• Yes, No, or a matter of degree.
• Chicago School

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How to acquire/maintain?
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How to acquire/maintain?
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How to acquire/maintain?

• Legal protection / Natural monopoly
• Be the first to a market. Be the best one. Be the
  toughest player within a market. Be the most
  innovative one. Be the one with the heaviest
  advertisement. Be differentiate. Be the one who
  gets the most favor from the government.

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Strategy

• Legal protection / Natural monopoly
• Be the first to a market. Be the best one. Be the
  toughest player within a market. Be the most
  innovative one. Be the one with the heaviest
  advertisement. Be differentiate. Be the one who
  gets the most favor from the government.

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Implications of market power
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Implications of market power

• Good to the firm, bad to the society?
• Arguments
• Statics
• PgtMC gt inefficient allocation of resources.
• Dynamics
• No challenge, no motivation.
• Inefficient use of resources lobbying on govt
  protection.
• Good to society too!
• Creative destruction.

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Public Policy

• Primary role Avoid negative consequences of
  market power
• Regulations
• Anti-trust
• Industrial Policy

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Methodology

• Structure conduct performance

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Micro Review
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Reference

• McCloskeys Micro Text
• Friedmans Micro Text
• Your own 2nd year micro Text

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Demand

• What is an individual demand curve?
• What to do with a demand curve?
• Predict amount of purchase
• Consumer surplus
• From individual to market demand

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Demand elasticity

• We want to ask
• What is the change of quantity demanded as a
  result of change in price.
• It is more convenient not to care about the unit.
  We therefore ask the question in terms of
  change.

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Costs

• Fixed cost
• Variable cost
• Total cost
• Average cost
• Marginal cost

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Opportunity Cost

• What is it?
• Sunk cost
• Economic vs accounting profit

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Production

• Economies of scale
• Economies of scope

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Profit maximization

• How?
• Is it true?

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Efficiency

• Allocative efficiency
• Productive efficiency
• Static vs dynamic