Advanced Industrial Organization

Understanding how competition works is fundamental for any firm devising its market strategy, e.g. when setting price, choosing quality, deciding whether to enter a market or acquiring a rival firm. Competition is also a key aspect for any investors analyzing the performance of individual firms or markets. Topics may vary from year to year and include for instance horizontal mergers, vertical restraints, cartels, predation, price discrimination and auctions.

A thorough analysis of competition is also fundamental for many regulatory authorities and consequently for those who need to deal with these authorities or to predict their decisions. Examples of issues are:

• Why did the European Commission prohibit Volvo’s acquisition of Scania?
• Why can Post & Telestyrelsen interfere with TeliaSonera’s pricing?
• Will deregulation improve the Swedish pharmacy market?
• Why do we subsidize newspapers?

This course in Advanced Industrial Organization will help you analyze market competition: How do firms compete in the market? How strong is the competition? What can firms do to affect the strength of competition? What effect does competition have on firms’ profits and consumers’ welfare? The first part of the course presents the basic theory of competition. You will learn to use the most common workhorse models such as Cournot, Bertrand and Hotelling. You will learn about the strategic role of cost differences, product differentiation and entry. You will also learn to think about the connection between theory and observable behavior. The first part of the course also introduces some empirical techniques that can be used to measure the strength of competition. You will learn to estimate both structural oligopoly models and entry models. The second part of the course will focus on competition policy and regulation.

Microeconomic theory, especially game theory, as well as applied econometrics will be extensively used throughout the course.