AØKA08082U  Advanced Industrial Organization

Volume 2013/2014
MSc in Economics
This course advances on some topics from the undergraduate course on Industrial Organization. It covers selected problems in Theory of the Firm, Vertical Integration and Foreclosure, Horizontal Mergers, Dynamic Competition, Non-Equilibrium Theories of Dynamic Competition, Information and Limit Pricing, Network Externalities and Standardization, Research and Development, and International Trade and Industrial Organization.
Learning Outcome

The aim is that the students get an advanced knowledge of modern theories of industrial organization and their application in understanding real world problems such as competition policy cases.

The students should acquire a level of knowledge, where they understand the details of the theories and are able to analyze problems within industrial organization using the acquired theoretical tools. It is the aim that the student learns how to model economic problems in markets with few firms, can be modelled using the appropriate (often game theoretic) methods as well as how these models are solved. The course furthermore covers a number of competition policy cases, and it is intended that the students should acquire
knowledge so that they are able to analyze such cases using the acquired theoretical tools and basic knowledge about economics.

The course is to some extent based on journal articles and recent research papers. Part of the course is intended to reflect the research frontier and a few topics may therefore change from time to time.

Within the areas covered in the course, the aim is that students should be able to:

  1. Solve formal models using tools from mathematical optimization theory and game theory.
  2. Understand the theories at a level as found in research papers published in the major journals.
  3. Analyze questions related to industrial organization drawing upon one or more theories and to present this analysis in writing using a scientific and concise language.
  4. Analyze formal models that are variations of the models and theories covered in the course and to provide conomic intuition for the results obtained.
Preliminary Syllabus , Advanced Industrial Organization, Spring 2012
The starred (*) items are required readings. The rest are meant as supplementary reading for the interested. Most of the cases are presented in slides, which are required reading for cases.

I. Competition policy and definition of the relevant market
(*) Motta: Competition Policy, Theory and Practise, Cambridge University Press, 2004
- Chapter 1 (sections 1.1-1.4.3),
- Chapter 3 (sections 3.1 - and
Case: The local banks.

II. Foreclosure
(*) Rey and Tirole (2003): A Primer on Foreclosure.
- Foreclosure: 1-2.1.2, and 2.1.4 - 2.2.2 (not the part on ECPR).
- Exclusive dealing: Introduction to section 4, 4.2
Case: Carlsberg

III. Cartel theory
(*) Green-Porter, Econometrica, (- appendix+ Christian’s note)
(*) Stigler, A theory of Oligopoly, JPE 1964 (do not care so much about the model)
(*) Rotemberg-Saloner, AER 1986
(*) Motta, chapter 4 (sections 4.1 - 4.2.4, and 4.6) complement the stuff in the three articles above..
(*) Motta, chapter 4.4 (leniency programs).

IV. Horizontal mergers
(*) Salant, Switzer and Reynolds, 1983, Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium, Quarterly Journal of Economics, 98(2): 185-199
(*) Perry MK and R. H. Porter (1985), American Economic Review, Oligopoly and the Incentive for Horizontal Merger, 75, 1 pp. 219-227

(*) Farrell, J. and C. Shapiro (1990): Horizontal Mergers: An Equilibrium Analysis, American Economic Review, 80, 107-126.

(*) Motta chapter 5, excluding the formal models.
Case: Elsam/E2, virtual capacity.

V. Information on the consumer side of a market
(*) Varian, H. (1980): A Model of Sales, American Economic Review, 79, 700-712.
(*) Varian, H. (1981): A Model of Sales: Errata, American Economic Review, 71, 517.
(*) Stahl, D.O.II (1989): Oligopolistic Pricing with Sequential Consumer Search, AER, 700-712 (read until 705 mid)
Salop, S and J. Stiglitz (1977): Bargains and Ripoffs: A model of Monopolistically Competitive Price Discrimination, Review of Economic Studies, 44, 393-406.
Schultz, C. (2005): Transparency on the consumer side and tacit collusion, European Economic Review, 49, 279-297.

VI. Two sided markets
(*) Rochet, J.-C. and J. Tirole: Two-Sided Markets: A Progress Report, Rand Journal of Economics, 37, 645-667 (excluding sections 5.3 and 5.4).

VII. R&D & Patents
(*) d'Aspremont and Jaquemin (1988): Cooperative and Non cooperative R&D in Duopoly with Spill-overs, American Economic Review, 78, 1133-1137.
(*) d'Aspremont and Jaquemin (1990): Cooperative and Non cooperative R&D in Duopoly with Spill-overs: Erratum, American Economic Review, 80, 641-642.
(*) Gilbert and Shapiro (1990): Optimal Patent Length and Breadth, RAND Journal of Economics, 21, 106-112.
Henriques (1990): Cooperative and Non cooperative R&D in Duopoly with Spill-overs: Comment, American Economic Review, 80, 638-640.
(*) Lerner, J and J. Tirole (2004): Efficient Patent Pools , American Economic Review , 94, 3, 691 -711
(*) Motta, chapter 4 (section

VIII. Network effects
(*) Katz, M. L. and C. Shapiro (1986): Technology Adaption in the Presence of Network Externalities, Journal of Political Economy, 94, 822-841.
David, Paul A., 1985, "Clio and the Economics of QWERTY", American Economic Review 75(2), 332-337. For those of you who are interested.
Liebowitz, Stan & Stephen E. Margolis, 1990, "The Fable of the Keys", Journal of Law & Economics 33, 1-25. For those of you who are interested.

IX. Price discrimination
(*) Armstrong, M. (2006): Recent developments in the theory of price discrimination. We concentrate on: 1, 2.1-2.2, 3, 4.2, 5, 6
Thisse and Vives (1988): "On the strategic choice of spatial pricing, AER, 78, 1, 122-137.

X. Topics in IO and Behavioral Economics

B.Sc. course in Industrial Organization or equivalent as well as basic game theory is recommended
3 hours of lectures per week for 14 weeks
7,5 ECTS
Type of assessment
Written examination, 3 hours under invigilation
A 3 hours written examination taking place at Peter Bangs Vej 36.
Without aids
Marking scale
7-point grading scale
Censorship form
External censorship
100 % censurship
Exam period
Will be updated before the start of the semester
Same as ordinary. But if only a few students have registered for the re-exam, the exam might change to an oral exams with a synopsis to be handed in. This means that the examination date also will change.
Criteria for exam assesment
The Student must in a satisfactory way demonstrate that he/she has mastered the learning outcome of the course.
  • Category
  • Hours
  • Lectures
  • 42
  • Preparation
  • 161
  • Exam
  • 3
  • Total
  • 206