Module Code and Title:       DEV308          Industrial Economics

Programme:                          BA in Development Economics

Credit Value:                         12

Module Tutor:                       Sonam Yeshey

General objective: This module provides an introduction to current theory and empirical framework in industrial economics. It examines the internal structure of firms, various aspects of their strategic interaction, and determinants of industrial structure. The module aims to provide analytical skills required to examine problems in industrial economics.

Learning outcomes – On completion of this module, learners should be able to:

1. Describe the pricing behaviour of firms with market power.
2. Examine the welfare implications of the pricing decisions of firms.
3. Discuss analytical models of firm behaviour and strategic interaction.
4. Explain the implications of the separation of ownership and control in modern large companies.
5. Explain the notions of transaction costs and their relevance for the theory of the firm.
6. Explain the notions of investment and its relevance for the theory of the firm.
7. Analyse the effectiveness entry barriers created by firms.
8. Describe and derive the Bertrand paradox.

1. Discuss the basic determinants of market structure and the key issues in competition policy and regulation.

Learning and Teaching Approach: This module will be taught by means of lectures, tutorials, group work, case studies, classroom workshops and self-directed study. Lectures will aim at explanation of various concepts and theories. Tutorials will be an integral part of the module, and it is expected that much of the learning and application of econometric concepts will be achieved through these. Students will also use cross sectional/ country-specific case studies for better understanding.

Assessment Approach:

A. Individual Assignments (2): Portion of Final Marks: 20%

Two written assignments will be conducted, on each before and after midterm examination, on the topics covered in the preceding two weeks. Each assignment (worth 10%) should have a maximum limit of 750 words.

• 1%       Adequacy of references used
• 1%       Defining the concepts
• 2%       Use of effective analytical tool
• 4%       Analysis and discussion on findings
• 2%       Conclusion

B. Class Test: Portion of Final Marks: 10%

One written test will be conducted that will comprise 45 min duration and cover 4 weeks of material.

C. Case study: Portion of Final Mark: 20%

Students will complete a group project based on a Bhutan-specific case study on any of the relevant topics. The cases should be related to policy response of the agents. Report word limit: 750 words. The written report will be followed by a 20 min presentation.

• 1%       Adequacy of data collected
• 1%       Situation analysis
• 2%       Methodology
• 6%       Analysis of the information/data
• 1%       Data presentation
• 1%       Reasoning on the deviation of behaviour from the ‘rationalist’ perspective
• 1%       Identification of policy implications
• 1%       Timely submission of the report
• 1%       Structure of the report
• 2%       Presentation of the report (individually assessed)
• 3%       Defence of the findings in Q&A session (individually assessed)

D. Midterm Examination: Portion of Final Mark: 20%

Students will take a written exam of 1.5 hr duration covering topics up to the mid-point of the semester.

Pre-requisites: CET103 Introductory Macroeconomics

Subject matter:

1. Theory of the firm
   • Size and structure of firms
   • Technological view of the firm
   • Transaction costs-property rights approach
   • Investment specificity
   • Incomplete contracts and vertical integration and their empirical evidence
2. Separation of ownership and control
   • Managerial incentives
   • Limits to managerial discretion
   • Foundations of the profit-maximization hypothesis
3. Firm conduct and market structure
   • Short-run price competition and the Bertrand model
   • Bertrand competition with capacity constraints
   • Cournot model
4. Dynamic price competition
   • repeated interaction
   • Collusion and cartel stability
   • Theories of price wars
   • Empirical analysis of market power and collusive behaviour
5. Entry deterrence and entry accommodation
   • First-mover advantages and the value of irreversible decisions
   • Strategies to deter entry
   • Strategic substitutability vs. complementarities
   • Taxonomy of business strategies
6. Vertical restraints
   • Efficiency explanations for vertical restraints
   • Vertical and horizontal externalities
   • Vertical restraints as instruments that restrict competition
   • Empirical evidence
7. Competition policy and regulation
   • Competition policy
   • Current issues in competition policy
   • Industrial policy towards R&D
   • Regulation of firms with market power under symmetric information
   • Regulation under asymmetric information
   • Liberalisation and regulation

Reading List:

1. Essential Reading
   • Church, J.R. & Ware, R. (2000). Industrial Organization: A Strategic Approach. McGraw-Hill.
   • Tirole, J. (1988). The Theory of Industrial Organization. Cambridge, MIT Press.
2. Additional Reading
   • Armstrong, M., Cowan, S. & Vickers, J. (1994). Regulatory Reform. Cambridge, MIT Press.
   • Belleflamme, P. & Peitz, M. (2010). Industrial Organization: Markets and Strategies. Cambridge University Press. .
   • Bolton, P., Brodley, J.F., & Riordon, M.H. (n.d.) Predatory Pricing: Strategic Theory and Legal Policy. Department of Justice, USA. http://www.justice.gov/atr/predatory-pricing-strategic-theory-and-legal-policy
   • Hinde, K. (n.d.) Kevin Hinde’s Cyber Economics Tour. Retrieved from http://www.kevinhinde.com (for instructor’s resources).

Date: January 15, 2016