BUSINESS AND INDUSTRIAL ECONOMICS
FACULTY: Professor Paola Garrone - Professor Luca Grilli - Professor Cristina Rossi-Lamastra
Basics of economics: The market forces of supply and demand; elasticity and its applications; consumers, producers, and their objective functions (utility maximization and profit maximization); the basic assumptions of the classical economic theory: perfect rationality and perfect information; the costs of production.
Basics of mathematics: functions and limits, basics of derivatives and differentiation, basics of integration, basics of optimization. Please note that the course does not require any complicated mathematical training.
Basics of econometrics: Basics of regression analysis.
Students can found extracts on the aforementioned topics (amongst others) in:
Mankiw N. G. (2014). Principles of Economics, 7th Edition. Cengage Learning, Boston, MA (chapters 1, 2, 3, 4, 5, 13, 14)
Sydsaeter K., Hammond P., Strom A. (2012). Essential Mathematics for Economic Analysis, 4th Edition (chapters from 1 to 9 are strongly recommended, but also the remaining chapters might be useful).
Wonnacott T.H., Wonnacott R.J. (1990). Introductory Statistics, 5th Edition. Wiley, New York, USA (chapter 11).
Useful online course
The power of microeconomics: Economic principles in the real world (Lectures 1-4), with Professor Peter Navarro, University of California, Irvin. Available on Coursera: https://www.coursera.org/course/ucimicroeconomics
Objectives and contents of the course
This course presents the major principles of industrial economics normally taught to Master of Science students in Economics and Engineering schools. The course provides models of firms’ competition and of the functioning of industries, focusing, in particular, on the determinants and consequences of market power. Students will acquire knowledge on theories of the firm, production theory and production costs, competitive structures, entry barriers, market failures, externalities, economics of innovation processes, industrial and competition policies. The concepts will be presented from the double point of view of firms competing on the markets and of policymakers who supervise and regulate this competition. Such an approach will teach students to make sense of the heterogeneity of real-world industries’ structures and of the consequences of this heterogeneity on firms’ profits, competitive dynamics, and, more generally, social welfare.
Table of contents
Efficiency, coordination, and economic organization
Why do firms and industries exist? The role of specialization, exchange, coordination; Efficient allocation of resources (general equilibrium and welfare economics); Coordination mechanisms: the invisible hand of markets and the visible hand of firms and institutions.
Theory of production and costs
Production functions; Short-run and long-run cost curves; Economies of scale and scope
Basics of competitive structures
Perfect competition; Monopoly; Oligopoly; Concentration and concentration indices; Natural monopoly and regulation.
Market power: allocative inefficiency; Externalities: consumption and production externalities, remedies to externalities, network externalities; Public Goods; Information asymmetries: moral hazard and adverse selection, remedies to information asymmetries: signals and incentives; Transaction costs: bounded rationality, specific investments, opportunistic behavior; Transaction costs and governance of transactions.
Strategic interdependence and duopolistic classical models: Bertrand, Cournot, and Stackelberg; Entry barriers, entry deterrence and limit pricing; Price discrimination; The theory of contestable markets: on the conditions for potential competition and on the existence of perfectly contestable markets.
Alternative theories of the firm and their implications
The neo-classical profit maximization assumption: critiques and alternatives; Modern theories of the firm: managerial theories, contractual perspectives (agency theory, property rights theory), resource- and knowledge-based theories; Determinants and insights into firm boundaries: horizontal and vertical integration, diversification, mergers & acquisitions, alliances and other intermediate forms between firm and market; Determinants of internationalization and the multinational corporation: oligopolistic theories and the eclectic approach.
Technological change and innovation
Theories of technological change: the legacy of Schumpeter; Market structure and innovation; The economics of standards: hardware/software paradigm, winner-takes-all-markets and technological standard wars.
Industrial and competition policy
Classification of policies: industrial policy, regulation and antitrust; The economics of anti-trust (market power analysis, collusion and cartels, predatory pricing and exclusionary practices); The economics of ex-ante regulation (road “map” to regulation, first- and second-best solutions; asymmetric information and regulation: cost-plus, price-cap, yardstick competition); Industrial policy: approaches and experiences.