Module leader

Gregory Crawford/Claudio Mezzetti

Industrial Economics 2 (EC326) requires that students be able to understand and work with simple mathematical models that use algebra and calculus.  In addition to your degree course regulations, see pages 9-11 of Choosing your Second- and Third-Year Courses and Modules in Economics 2009-10.

Teaching format

2 lectures a week during the first two terms.

Assessment methods

3–hour final exam (80%) in term 3. Course work (20%).

Academic aims

The aim of this module is to put industrial economics into a practical context, to analyse policy issues arising in industrial economics, and to develop an understanding of policymaking in this area.

Learning objectives

The objectives of the module are to analyse industrial policy-making in a variety of industrial economies, covering the regulation of firms and markets and associated empirical material.  This analysis covers the broad area of competition and regulation policy.  By the end of the course students should have gained a good understanding of the applications of industrial economics to real world issues.

Learning methods

Lecture attendance is crucial for this module as no textbook can substitute for it.  Use will be made of case studies and factual material. 

Syllabus

The module is divided into two parts. The first part is business strategy.  Theories and empirical tests will be covered in all areas wherever possible.  The second part is competition policy and regulation in the UK, EU and North America. Additional indicative details follow.

Part 1: Business strategy. 

This course is concerned with the long-term strategy of a business organization from an economic perspective.  It deals with identifying and analyzing past and current strategies and with formulating and implementing new ones.  Our perspective is that of the general manager with overall responsibility for the performance of the firm or of a business unit within the firm. Such a manager needs to understand the basis or the current performance of the firm and to identify those changes (inside or outside the firm) that are most likely to adversely affect or to provide opportunities to improve future performance.  The manager must then develop a strategy that uses the company's resources and capabilities to
compete successfully in its new environment.

This course will apply the material previously presented in Industrial Economics 1 and 2, reformulate it in strategic terms, and apply it in business settings. Examples include the analysis of homogenous products, differentiated products and product positioning, strategy under demand-side increasing returns (network effects), and responding to entry.

The majority of coursework will be based on case discussions (augmented by lectures as needed).  Case preparation, class attendance, and class participation are essential to the success of the course.  Strategy topics covered include strategy identification, competitive advantage, industry analysis in different market settings, managing strategic change, dynamic competitive advantage, and corporate (multiple-business-unit) strategy.

Part 2: Competition and regulation policy

UK, EU and North American competition policy- the policy framework.  The Market and Market definition.  Measures, determinants, and consequences of horizontal concentration.  Horizontal merger policy.  The relationships between upstream and downstream firms including vertical integration, restraints, and mergers. The rationale for regulation of natural monopoly.  Models of regulation of competitive industries. Government ownership, privatisation, and deregulation.  Optimal multiproduct and nonlinear pricing.  Price cap vs. rate of return regulation.  Essential facilities and access pricing. Asymmetric information and regulation.  Mixed enterprise.  Monopoly Franchising.

Illustrative reading

Part 1:

Saloner, G., Shepard, A., and Polodny, J., 2005, Strategic Management, 2nd edition, Wiley.

Besanko, D., Dranove, D., Shanley, M., and Schaefer, S., 2006, Economics of Strategy, 4th edition, Wiley.

Part2:

Cabral, L., 2000, Introduction to Industrial Organization, MIT Press.

Carlton, D. and Perloff, J., 2000, Modern Industrial Organization, Addison, Wesley.

Church, J. and Ware, R., 1999, Industrial Organization: A strategic approach, McGraw-Hill.

Motta, M., 2004, Competition Policy: Theory and Practice, Cambridge U. Press.

Newbery, D.M., 2001, Privatization, Restructuring, and Regulation of Network Utilities, MIT Press.

Spulber, D.F., 1989, Regulation and Markets, Cambridge: MIT Press.

Viscusi, K., Vernon, J., and Harrington, J., 2000, Economics of Regulation and Antitrust, MIT Press.