This course is designed to introduce students on the Engineering Business and Finance course to this important area of the economic enterprise in order to give a rounded and nuanced view of how economists see competition, organization and regulation in the context of an engineering based business, and how investors and other financial bodies can use the tools for analyzing potential performance of investment opportunities.
This module aims to introduce students in the EBF programme to the concepts, techniques and tools of analysis used in industrial organization for looking at competition, co-operation, regulation and firm and industrial performance. The intention is that by the end of the course, students will have an appreciation for the effect of organization on performance, a knowledge of some of the key dimensions used by economists to evaluate industries, such as innovation and various performance and competition measures and have an understanding of how organization both influences and is influenced by the activities of competitive and innovative firms and the wider regulatory background. Most of the topics follows a mathematical modelling approach along with the discussion of some empirical applications.
Upon successful completion of the module, a student will be able to:
- Follow and understand economic arguments relating to real business decisions
- Develop the intuition about why markets are organized the way they are
- Understand the theoretical foundations behind the firms’ behaviour and how markets are organized as a result of such behaviour.
- Be able to use economic frameworks to analyse industrial structure and to be able to apply them in a business context.
- Apply theoretical tools to determine optimal pricing decisions for firms in different competitive environments.
- Use empirical tools to measure market concentration and critically assess the potential role of government regulation.
- Understand how competition and market structure affects the incentives for innovation, the role of patents and other regulations.
- Be able to follow and intelligently discuss articles in the serious strategic and financial press relating to topics surrounding industrial organisation
Industrial Organization studies the firm behaviour and its interaction with other economic agents at different competitive environments. Some of the topics covered by the course include:
Review of Microeconomic Theory. Fundamental Theorems of Welfare.
Monopolic behavior and non competitive pricing strategies.
Oligopolic Markets and Product Differentiation. Spatial models and Advertising.
Collusive Behaviour and Cartels. Repeated Games Theory.
Measuring Market Power using available data. Merger and Antitrust regulation.
Upstream-Downstream markets. Vertical Control and Double Marginalization.
Intra-firm organization: Incentives, information and Moral Hazard.
Market Design: Adverse Selection and incomplete markets. Auctions. Mechanisms and contract theory (time permitting)
Elements of Game Theory and Statistics are covered during the module as part of the analytical tools required to understand some topics. The course also covers different empirical applications related to the main theories discussed during the lectures.
Assessment comprises the following components:
Unseen 2-hour written examination worth 60%; 2 x coursework problem sets worth 10% each (approximately 3 pages per problem set); extended investigation worth 20%
Current students should refer to Moodle for specific details of the current year’s assessment.