Market Power in the New Economy

ECON 1644 Subject & Catalog Number

Description

This course studies firms, markets and competition, in the context of today's (globalized) world. Nowadays, in the majority of markets, a handful of firms interact strategically and compete in numerous dimensions, including prices, products offered, advertising and investment. We will use formal models in order to address questions like: Why are markets organized the way they are? How does market organization affect firm behavior, such as firm production or pricing? How does the behavior of firms in turn affect the market structure? How does government policy shape firm behavior and market structure? What is the impact on welfare? Through the use of both theory and data, we will attempt to answer these questions.

The course will proceed in three parts. We will first tackle decentralized markets; i.e. markets where many small firms compete in an ad hoc fashion (e.g. taxis, oceanic shipping, real estate). A recent and growing phenomenon in this setup is the emergence of platforms, such as Uber and Lyft, Uber Freight, Airbnb, etc. We will discuss their impact on markets and societal welfare.

Then, we will introduce key concepts from the field of Industrial Organization in order to study oligopolistic markets. Through the use of models (mainly game theory) but also empirical analysis, we will explore the strategic interactions between firms and the impact of market power on society. Using these tools, we will study collusion and mergers. We will rely on game theory to analyze the strategic environment under study.

Finally, we will study market power in global markets. In a strong recent trend, governments around the world are engaging in industrial policy (e.g. Made in China 2025). What are the rationales behind these initiatives? Are they effective? What is their impact on both domestic and global societal welfare? In this last part of the course we will focus on the role of governments in shaping global competition.

The goal of this class is to get you engaged in topics of current interest and heated policy debates; “what is market power and how does it affect the world?”, “how has uber changed transportation?”, “does industrial policy work?” but also to get you to think about these questions through the rigorous lens of an economist armed with a good combination of formal modeling and empirical tools.