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BUSINESS AND INDUSTRIAL ECONOMICS
FACULTY: Professor Paola Garrone - Professor Luca Grilli - Professor Cristina Rossi-Lamastra
PREREQUISITES
Basics of economics: on-line course on Economics (Microeconomics) freely available on the POK (Polimi Open Knowledge) platform at www.pok.polimi.it.
COURSE OUTLINE
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. Students will acquire knowledge on theories of the firm, competitive structures, entry barriers, market failures, externalities, economics of innovation and technological change, 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.
Competitive structures
Insights into different market forms; Concentration and concentration indices; Regulation of natural monopoly.
Market failures
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.
Oligopolistic markets
Strategic interdependence and duopolistic models; 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.
Theories of the firm and their implications
The neo-classical profit maximization assumption: critiques and alternatives; 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.
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.
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