ECON306: Industrial Organization « Saylor.org – Free Online Courses Built by Professors

Industrial Organization

Purpose of Course show close

This course surveys major topics and theories in the field of Industrial Organization. As part of the applied microeconomics structure, Industrial Organization uses the basic tools of microeconomic theory and game theory to study the structure and behavior of firms and their strategic interactions with one another in the marketplace. Industrial Organization also studies the impact that those interactions have on market structure and welfare. Different kinds of market structures (perfect competition, imperfect competition, monopoly, oligopoly, and so forth) present different scenarios in which firms strive to acquire and use market power for their strategic advantage. While perfect competition and monopoly are two market structures on opposite ends of the spectrum, imperfect competition—where a limited number of firms attempt to manipulate their rivals or consumers—is a more realistic set-up. This course will emphasize market structure analysis and the strategic behaviors of competing firms, including (but not limited to) product differentiation, collusion, price discrimination, pricing strategy, non-price discrimination (i.e. advertising), horizontal mergers, vertical integration, and vertical restraints. Industrial Organization also examines the public policies that affect the structure of markets and the behavior of firms. The government’s role as a regulator, working to prevent monopolization and restraint of trade, has been a constant topic of study in and of itself. Although this course will introduce Antitrust Laws in the above context, it will not delve into the regulatory implications or the welfare analyses of firms' strategic behaviors, as those subjects belong to more advanced Industrial Organization modules. By the end of this course, you will be able to understand, analyze, and evaluate the basic theoretical models that define the behavior of firms and industrial organization more generally. You will also learn the game theory approach to some of these models. While emphasizing theory, the lessons in this course will include empirical studies that will provide you with a deeper understanding of the topic. This should enable you to apply the theory you have learned to real world examples. This course requires you to have completed the Principles of Microeconomics course and Calculus I. You should also have a basic understanding of game theory prior to enrolling in this course.

Course Information show close

Course Information
Welcome to ECON306. Below, please find general information on the course, including its requirements.

Course Designer: Jubeet Kaur Singh

Primary Resource: The study material for this course includes a range of free online content. However, the initial part of the course assigns chapters mainly from the following text:
Berkeley Electronic Press: Jeffrey R. Church and Roger Ware’s Industrial Organization: A Strategic Approach

You will need to download the PDF file of the book by clicking on the "Download" tab on the right hand side of the webpage. Please note that the PDF file of this book will be used repeatedly in this course, so you may want to save this file.

Requirements for completion: In order to successfully complete this course, you will need to work through each unit and its assigned material, in the order they are presented. Please note that each chapter in this course provides a comprehensive discussion of the topic along with examples and in order to fully understand the material, it is essential to practice the problems on your own.

Note that you will be officially graded only for the final exam. In order to "pass" the course, you will have to attain a minimum of 70% on the Final Exam. Your score on the final exam will be tabulated as soon as you complete it. You will have the opportunity to retake the exam if you do not pass it.

Time Commitment: This course should take you approximately 76 hours to complete. A time advisory is presented under each subunit to guide you on the amount of time that you are expected to spend in going through the lectures. Please do not rush through the material to adhere to the time advisory. You can look at the time suggested in order to plan out your week for study and make your schedule accordingly.

Tips/Suggestions: The theoretical concepts presented in this course are pretty simple and logical and what makes this course extremely interesting is its connection to the real world. Although it is important to learn the theory behind every topic, it is more important to relate it to case studies and to the way firms operate in a market. The learning from this course would greatly benefit you if you form a regular habit of reading news articles relevant to the business issues covered in the course and important economic and policy changes what affect the behavior of firms. Good sources are The Wall Street Journal, New York Times, The Economist, and Business Week.

Learning Outcomes show close

Upon successful completion of this course, students will be able to:

Identify different theories of the firm.
Describe the different market structures under which firms operate, with particular emphasis on concentration and monopoly power as well as oligopoly.
Analyze how market structures impact the behavior of firms.
Identify and compare the anti-competitive pricing strategies that firms adopt under various market structures.
Use the theoretical insights presented in this course to explain observed features of particular markets and industries.
Apply a deepened knowledge of game theory to understand the strategic behavior of firms in the market.
Determine the factors that influence the firm’s decision-making over time.
Critically analyze the role of the government in regulating industries and the subsequent implications of public regulation.

Course Requirements show close

In order to take this course, students must:

√ Have access to a computer

√ Have continuous broadband Internet access

√ Have the ability/permission to install plug-ins (e.g. Adobe Reader or Flash) and software

√ Have the ability to download and save files and documents to a computer

√ Have the ability to open Microsoft files and documents (.doc, .ppt, .xls, etc.)

√ Have competency in the English language

√ Have completed ECON101 and ECON103/MA101

√ Have read the Saylor Student Handbook.

Unit Outline show close

1 The Field of Industrial Organization
1.1 What Is Industrial Organization?
1.2 Methodologies in Industrial Organization
1.2.1 The Structure-Conduct-Performance Paradigm
1.2.2 The New Industrial Organization
1.3 Methodologies in Industrial Organization
1.3.1 The New Industrial Organization
1.3.2 The Theory of Business Strategy
1.3.3 Antitrust Law
1.4 Topics in Industrial Organization

2 MARKET STRUCTURES AND WELFARE MEASURES
2.1 Perfect Competition and Its Efficiency
2.2 Monopoly Pricing and Its Inefficiency
2.3 Monopolistic Competition and Product Differentiation
2.4 Oligopoly Markets
2.5 Industrial Concentration
2.5.1 Determinants of Concentration
2.5.2 Measurements of Concentration- The Lerner Index
2.5.3 Consequences of Industrial Concentration

3 Theory of the Firm
3.1 Perfect Competition and Its Efficiency
3.1.1 Nature of the Firm
3.1.2 Review of Cost Functions
3.1.3 Economies of Scale
3.1.4 Economies of Scope
3.1.5 Seller Concentration
3.2 Monopoly Pricing and Its Inefficiency

4 Monopoly
4.1 Market Power
4.1.1 Price Setting Behavior in the Presence of Market Power
4.1.2 Determinants of Market Power
4.1.3 Sources of Market Power
4.2 Pricing Strategies
4.2.1 Single Price
4.2.2 Price Discrimination and Non-Linear Pricing
4.2.3 More on Pricing Strategies

5 Models of Oligopoly
5.1 Concepts in Game Theory
5.1.1 Introduction to Game Theory
5.1.2 Static Games and Nash Equilibrium
5.1.3 Dynamic Games and Nash Equilibrium
5.2 Cournot Oligopoly (Homogenous Products)
5.3 Bertrand Duopoly
5.4 Stackelberg (sequential) Oligopoly
5.5 Collusive Behavior
5.5.1 Cooperative Collusion-Cartels
5.5.2 Non-Cooperative Collusions
5.5.3 Tacit Collusions

6 Business Practices: Strategies and Conduct
6.1 Introduction to Strategic Behavior
6.1.1 Strategic and Tactical Choices
6.1.2 The Stackelberg Model
6.1.3 Entry Deterrence
6.1.4 Limit Pricing
6.2 Anticompetitive Strategic Behavior
6.2.1 Predatory Pricing
6.2.2 Entry Deterrence
6.3 Principles of Strategic Behavior
6.4 Applications of Strategic Behavior
6.5 Non-Price Discrimination
6.5.1 Advertising
6.5.2 Research and Development
6.6 Horizontal Mergers
6.7 Vertical Integration and Vertical Restraints

7 Antitrust Markets
7.1 Economic Markets and Antitrust Markets
7.2 The Search for Market Power
7.3 Case Study

8 The Role of Government
8.1 The Rationale for Regulation
8.2 Governmental Regulation
8.2.1 Regulation of Competition
8.2.2 Regulation of Industries
8.2.3 Social Regulation
8.3 Problems with Regulation

9 Final Exam

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Unit 1: The Field of Industrial Organization

The most basic questions that concern the field of Industrial Organization are: How do firms acquire market power? How do firms use market power? What are the implications of market power? And can public policy limit unrelenting growth of market power? This section of the course will address the systematic frameworks in which the theory of markets and the behavior of firms can be studied.

Unit 1 Time Advisory show close

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1.1 What Is Industrial Organization?

Reading: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware’s Industrial Organization: A Strategic Approach: "Chapter 1, Section 1.1: A More Formal Introduction to IO"
Link: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware’s Industrial Organization: A Strategic Approach: "Chapter 1, Section 1.1: A More Formal Introduction to IO " (PDF)

Instructions: You will need to download the PDF file of the book by clicking on the "Download" tab on the right hand side of the webpage. Please note that the PDF file of this book will be used again for other readings in this course, so you may want to save this file. Please read the Introduction in its entirety. This reading presents a case study to help you understand the vast number of topics that fall under the realm of Industrial Organization.

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1.2 Methodologies in Industrial Organization

1.2.1 The Structure-Conduct-Performance Paradigm

Note: This is the traditional approach to studying Industrial Organization. This approach dominated the field from the 1940s to the 1960s, but by the early '70s, a new approach, called the "new industrial economics," gained popularity. While the former approach was more empirical and linked common elements of market structure observed across industries to their conduct and performance, the latter approach emanated based on the need to develop and test theoretical models of firm conduct.

Reading: University of North Carolina, Chapel Hill: Professor Ralph Byrns’s Economicae: An Illustrated Encyclopedia of Economics: “The Structure-Conduct-Performance Paradigm”
Link: University of North Carolina, Chapel Hill: Professor Ralph Byrns’s Economicae: An Illustrated Encyclopedia of Economics: “The Structure-Conduct-Performance Paradigm” (HTML)

Instructions: Please read this brief article, which explains the main idea behind the Structure-Conduct-Performance Paradigm.

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1.2.2 The New Industrial Organization

Reading: Berkeley Electronic Press: Jeffrey R. Church’s and Roger Ware’s Industrial Organization: A Strategic Approach: "Chapter 1, Section 1.2: Methodologies"
Link: Berkeley Electronic Press: Jeffrey R. Church’s and Roger Ware’s Industrial Organization: A Strategic Approach: "Chapter 1, Section 1.2: Methodologies" (PDF)

Instructions: If you have not saved this PDF file, you will need to download the PDF file of the book by clicking on the "Download" tab on the right hand side of the webpage. Please read this section in its entirety to learn what comprises the new industrial organization.

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1.3 Methodologies in Industrial Organization

Reading: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware’s Industrial Organization: A Strategic Approach: "Chapter 1, Section 1.2: Methodologies"
Link: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware’sIndustrial Organization: A Strategic Approach:"Chapter 1, Section 1.2: Methodologies" (PDF)

Instructions: If you have not saved this PDF file, you will need to download the PDF file of the book by clicking on the "Download" tab on the right hand side of the webpage. Please read this section in its entirety to learn what comprises the new industrial organization. This reading covers subunits 1.3.1-1.3.3.

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1.3.1 The New Industrial Organization

Note: This subunit is covered by the reading assigned under Unit 1.2.

1.3.2 The Theory of Business Strategy

Note: This subunit is covered by the reading assigned under Unit 1.2.

1.3.3 Antitrust Law

Note: This subunit is covered by the reading assigned under Unit 1.2.

1.4 Topics in Industrial Organization

Note: In this section, you will read a brief overview of the topics we will study in this course.

Reading: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware’s Industrial Organization: A Strategic Approach:"Chapter 1, Section 1.3: Overview of the text"
Link: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware’s Industrial Organization: A Strategic Approach: "Chapter 1, Section 1.3: Overview of the text" (PDF)

Instructions: If you have not saved this PDF file, you will need to download the PDF file of the book by clicking on the "Download" tab on the right hand side of the webpage. Please read this chapter upto 1.3.4 (Strategic Behavior), to learn what we will be covering in this course. The last two topics: 1.3.5(Issues in Antitrust Economics) and 1.3.6(Issues in Regulatory Economics) are beyond the scope of a one-semester course, so please skip those two sections.

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Unit 2: MARKET STRUCTURES AND WELFARE MEASURES

In this section, we will review different market structures and their characteristics. At this point in the course, it is important to recall how firms set their prices under each market structure in order analyze the degree of market power that they wield in different kinds of markets. We will also study Industrial Concentration, its causes, and its consequences, as well as learn about the index used to measure the level of concentration in an industry.

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2.1 Perfect Competition and Its Efficiency

Reading: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach:"Chapter 2, Sections 2.1: Profit Maximization, 2.2: Perfect Competition, and 2.3: Efficiency"
Link: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach: "Chapter 2, Sections 2.1: Profit Maximization, 2.2: Perfect Competition, and 2.3: Efficiency" (PDF)

Instructions: If you have not saved this PDF file, you will need to download the PDF file of the book by clicking on the "Download" tab on the right hand side of the webpage. Please scroll through the document to the sections listed above to read about perfect competition and how it is the ideal form of market structure in terms of economic efficiency.

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2.2 Monopoly Pricing and Its Inefficiency

Reading: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach:"Chapter 2, Section 2.4.1: Market Power and Pricing"
Link: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach: "Chapter 2, Section 2.4.1: Market Power and Pricing " (PDF)

Instructions: If you have not saved this PDF file, you will need to download the PDF file of the book by clicking on the "Download" tab on the right hand side of the webpage. Please read the introduction under section 2.4 and then proceed to section 2.4.1 to review how prices are determined under monopoly and the inefficiencies associated with it. Please pay attention to Exercise 2.1 to see how monopoly output and price can be determined given constant marginal costs and a linear demand function.

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Reading: Annenberg Media's Learner.org: Economics U$A:“19. Monopoly”
Link: Annenberg Media's Learner.org: Economics U$A: “19. Monopoly ” (Adobe Flash)

Instructions: Please scroll down the webpage until you reach video 19 titled Monopoly. Then, click on the VoD tab to the right side of program 19: "Monopoly" to view this 30 minute video on three case studies that demonstrated monopoly in the USA.

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2.3 Monopolistic Competition and Product Differentiation

Reading: Melbourne Business School: Professor Joshua Gans’sManagerial Economics Online: “Chapter 4, Section 4.4: Pricing Strategies”
Link: Melbourne Business School: Professor Joshua Gans’s Managerial Economics Online: “Chapter 4, Section 4.4: Pricing Strategies” (HTML)

Instructions: Please follow the link to reach the home page of Managerial Economics Online. Click on the “click here” hyperlink to access additional online content. Then, click on the hyperlinks “Chapter 4: Pricing in Mass Markets” and “Section 4.4: Pricing Strategies.” As you read along, please click on the hyperlinks to learn more about the examples of each form of pricing strategy.

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Reading: California State University, San Bernardino: Professor Eric Nilsson's Capitalism Text: “Chapter 13: Product Differentiation and Competition”
Link: California State University, San Bernardino: Professor Eric Nilsson's Capitalism Text: “Chapter 13: Product Differentiation and Competition” (PDF)

Instructions: Please click on the hyperlink titled Chapter 13: Product Differentiation and Competition to open the PDF file of this chapter. Then, read the chapter in its entirety.

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2.4 Oligopoly Markets

Web Media: Annenberg Media's Learner.org: Economics U$A:“20. Oligopolies”
Link: Annenberg Media's Learner.org: Economics U$A: “20. Oligopolies” (Adobe Flash)

Instructions: Please scroll down until you reach program 20: Oligopolies. Then, click on the VoD tab to the right side of program 20: "Oligopolies" to view this 30 minute video on industries that are typically oligopolistic in nature.

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Reading: California State University, San Bernardino: Professor Eric Nilsson's Capitalism Text: “Chapter 19: Oligopoly”
Link: California State University, San Bernardino: Professor Eric Nilsson's Capitalism Text: “Chapter 19: Oligopoly” (PDF)

Instructions: Please click on the hyperlink titled Chapter 19: Oligopoly, and read it in its entirety to learn about oligopolies.

Note on the Text: This reading introduces the concept of oligopoly mostly with examples and a few graphical illustrations. We will study the models of oligopoly later in the course.

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2.5 Industrial Concentration

Reading: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach:"Chapter 2, Sections 2.4.2: Measurements and Determinants of Market Power and 2.4.3: The Determinants of Deadweight Loss "
Link: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach: "Chapter 2, Sections 2.4.2: Measurements and Determinants of Market Power and 2.4.3: The Determinants of Deadweight Loss" (PDF)

Instructions: If you have not saved this PDF file, you will need to download the PDF file of the book by clicking on the "Download" tab on the right hand side of the webpage. Please read the text to learn how the extent of market power is determined and measured, and results in a deadweight loss to society. This reading covers subunits 2.5.1-2.5.3.

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2.5.1 Determinants of Concentration

Note: This subunit is covered by the reading assigned under Unit 2.5.

2.5.2 Measurements of Concentration- The Lerner Index

Note: This subunit is covered by the reading assigned under Unit 2.5.

2.5.3 Consequences of Industrial Concentration

Note: This subunit is covered by the reading assigned under Unit 2.5.

Lecture: TED talks: “Yochai Benkler on the New Open-Source Economics”
Link: TED talks: “Yochai Benkler on the New Open-Source Economics ” (Adobe Flash)

Instructions: This is an optional lecture and not a requirement of the course. Please listen to this guest lecture, in which the speaker discusses the emergence of a new type of market structure based on human organization, social production, and innovation.

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Unit 3: Theory of the Firm

In order to understand the mechanics of Industrial Organization, you must have a solid grasp of microeconomic concepts, especially that of competitive markets. We will therefore begin by reviewing some principles of microeconomics. Even if the material seems familiar, take your time reviewing it to ensure you fully grasp the particulars of each concept.
The first part of this section will focus on the neoclassical theory of the firm that was taught in the principles course and introducing you to some new concepts. We will revisit marginal cost and average cost functions, both in the short run as well as in the long run. The course will then present "Economies of Scale" in order to review the relationship between long run average costs and output. "Economies of Scope," a concept that explains the existence of multiproduct firms, will also be discussed.   Finally, we will learn about seller concentration, which will likely be new to you.
The second part of this section will introduce an alternate theory of the firm that was developed in order to counter the neoclassical theory of firm behavior. The neoclassical theory of firm behavior asserts that the firm's existence is a paradox because optimal outcomes can be costless and can be efficiently achieved through the price mechanism, or the "invisible hand."   The Transaction Cost Approach to the Theory of the Firm (attributed to Ronald Coase), on the other hand, contends that there are costs involved in operating the market. The firm itself is an example of one of these costs. Thus, in order to fully understand the working of the economic system or establish sound economic policy, one must account for so-called "transaction costs."

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3.1 Perfect Competition and Its Efficiency

3.1.1 Nature of the Firm

Reading: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach:"Chapter 3, Section 3.1: A More Formal Introduction to IO"
Link: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach: "Chapter 3, Section 3.1: A More Formal Introduction to IO " (PDF)

Instructions: If you did not save the PDF file from earlier subunits, please click “Download” to open up the PDF file of this entire book. Please scroll down the file until you reach sections 3.1.1-3.1.3, and then read all of these sections to review the cost concepts. Most of these should be familiar to you from the principles of microeconomics course. Please make sure to read all the Case Studies to further solidify your understanding of costs and how they pertain to a firm. This reading covers subunits 3.1.2-3.1.5.

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3.1.2 Review of Cost Functions

Note: This subunit is covered by the reading assigned under Unit 3.1.

3.1.3 Economies of Scale

Note: This subunit is covered by the reading assigned under Unit 3.1.

3.1.4 Economies of Scope

Note: This subunit is covered by the reading assigned under Unit 3.1.

3.1.5 Seller Concentration

Note: This subunit is covered by the reading assigned under Unit 3.1.

3.2 Monopoly Pricing and Its Inefficiency

Reading: Wikipedia.org: “Theory of the Firm”
Link: Wikipedia.org: “Theory of the Firm ” (HTML)

Instructions: Please scroll down this article to the section titled "Transaction Cost Theory" to learn the contribution that Ronald Coase made to the theory of the firm.

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Reading: San José State University: Professor Thayer Watkins's “The Transaction Cost Approach to the Theory of the Firm”
Link: San José State University: Professor Thayer Watkins's “The Transaction Cost Approach to the Theory of the Firm ” (HTML)

Instructions: Please read this article introducing the transaction cost theory and the Coase theorem. Please proceed to the hyperlink at the bottom of the page labeled "An Illustration of Coase's Theorem" and go through the numerical example to understand the basic notion behind Coase's theorem.

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Unit 4: Monopoly

A market with a single seller of a product or service has an obvious advantage in pricing, thus posing a persistent threat to desirable competitive outcomes. In this unit, we will identify the possible sources of market power, including scale economies and network organization, both of which are advantageous to a firm seeking to establish monopoly. Entry barriers also foster monopoly by keeping potential competitors out, while patents enable firms to enjoy exclusive rights as a reward for the discovery of an idea and can often result in monopoly as well. After discussing the sources of monopoly, we will study monopolistic pricing strategies.

Our study of price discrimination in a single product monopoly context will shed light on how monopolists can charge one consumer one price and another consumer another price, even though the cost of producing the good or serving the consumer remains the same.

We will then take a look at instances where a multi-product firm has monopoly in one product; in these situations, the consumer might be forced to buy another product (or products), because the firm has tied it to the monopolized one. For example, when selling a camera, the buyer has to agree to pay for the film as well. Another way for a multiproduct firm to offer its monopolized good is by bundling them together. Microsoft, for example, bundled Internet Explorer with the Windows Operating System, although the internet browser did not appear to generate revenues directly, because it was bundled at no extra cost. However, Microsoft did achieve its goal of establishing a strong position for itself in the browser market. It was later penalized for this action on the grounds of violating antitrust laws.

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4.1 Market Power

Reading: Melbourne Business School: Professor Joshua Gans’s Managerial Economics Online: “Chapter 4, Section 4.2”
Link: Melbourne Business School: Professor Joshua Gans’s Managerial Economics Online: “Chapter 4, Section 4.2” (HTML)

Instructions: Please follow the link to reach the home page of Managerial Economics Online. Click on the “click here” hyperlink for additional online content, and then click on “Chapter 4: Pricing in Mass Markets” and “Section 4.2: Market Power.” Read the entire webpage for Section 4.2. Please note that this reading covers subunits 4.1.1-4.1.2.

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4.1.1 Price Setting Behavior in the Presence of Market Power

Note: This subunit is covered by the reading assigned under Unit 4.1.

4.1.2 Determinants of Market Power

Note: This subunit is covered by the reading assigned under Unit 4.1.

4.1.3 Sources of Market Power

Reading: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach:"Chapter 4, Section 4.1: Sources of Market Power"
Link: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach: "Chapter 4, Section 4.1: Sources of Market Power " (PDF)

Instructions: If you have not saved this PDF file, you will need to download the PDF file of the book by clicking on the "Download" tab on the right hand side of the webpage. Please read the introduction to the chapter before reading Section 4.1. While reading section 4.1, please go through the case studies and the examples to see how theory can be applied and used for analysis in the workings of the firms. This reading covers subunits 4.1.3.1-4.1.3.3.

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4.1.3.1 Entry Barriers by the Government

Note: This subunit is covered by the reading assigned under Unit 4.1.3.

4.1.3.2 Structural Characteristics

4.1.3.3 Entry Deterrence by Incumbents

4.2 Pricing Strategies

Reading: University of Louisville: Professor Barry Haworth’s “Pricing Strategies for the Monopolist”
Link: University of Louisville: Professor Barry Haworth’s “Pricing Strategies for the Monopolist” (HTML)

Instructions: Please follow the link to read about the pricing strategies used by a monopolist. Please go through the numerical examples by clicking on the hyperlinks "price discrimination" and "two-part tariff" under the second and third points respectively. This reading covers subunits 4.2.1-4.2.3

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4.2.1 Single Price

Note: This subunit is covered by the reading assigned under Unit 4.2.

4.2.2 Price Discrimination and Non-Linear Pricing

Reading: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach:"Chapter 5, Sections 5.1-5.4(5.4.1-5.4.4): Non-Linear Pricing and Price Discrimination"
Link: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach: "Chapter 5, Section 5.1-5.4 (5.4.1-5.4.4): Non-Linear Pricing and Price Discrimination " (PDF)

Instructions: If you have not saved this PDF file, you will need to download the PDF file of the book by clicking on the "Download" tab on the right hand side of the webpage. Please read the introduction to the chapter before reading Section 5.1. You may skip section 5.4.5. This reading covers subunits 4.2.2.1-4.2.2.4.

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4.2.2.1 Examples of Price Discrimination

Note: This subunit is covered by the reading assigned under Unit 4.2.2.

4.2.2.2 Necessary Conditions

Note: This subunit is covered by the reading assigned under Unit 4.2.2.

4.2.2.3 Types of Price Discrimination

Note: This subunit is covered by the reading assigned under Unit 4.2.2.

4.2.2.4 Non-Linear Pricing

Note: This subunit is covered by the reading assigned under Unit 4.2.2.

4.2.3 More on Pricing Strategies

Web Media: Flashecon.org: Living Economics' Microeconomic Lectures: Bundling
Link: Flashecon.org: Living Economics' Microeconomic Lectures: Bundling (Adobe Flash)

Instructions: Please click on the play tab to hear this 5 minute lecture on Bundling.

Note on the Media: Please note this lecture is based off of R.S. Pindyck’s and D.L. Rubinfeld’s Microeconomics textbook published by Macmillan Publishing Company.

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Reading: Melbourne Business School: Professor Joshua Gans’sManagerial Economics Online: “Chapter 4, Section 4.4: Pricing Strategies”
Link: Melbourne Business School: Professor Joshua Gans’s Managerial Economics Online: “Chapter 4, Section 4.4: Pricing Strategies” (HTML)

Instructions: Please follow the link to reach the home page of Managerial Economics Online. Click on the “click here” hyperlink to access additional online content. Then, click on the hyperlinks “Chapter 4: Pricing in Mass Markets” and “Section 4.4: Pricing Strategies.” As you read along, please click on the hyperlinks to learn more about the examples of each form of pricing strategy.

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Unit 5: Models of Oligopoly

The behavior of firms in oligopoly continues to pique the interest of researchers, scholars, and students alike, who have generated numerous models to study the strategy of firms and their competitors in oligopolistic competition. Please note that different models apply to different situations; in this regard, no one model can be deemed “better” than the other. This section will introduce you to some of the first models of oligopoly that were built using the tools of noncooperative game theory. The Cournot and Bertrand models presented here are known as static games of complete information, while the Stackelberg model belongs to the category of dynamic games. Static and dynamic games are explained below.

A note on Game Theory: Game theory involves the process of strategic decision-making. A game theoretic situation arises when the payoffs (profits) arising from the optimal choice made by a firm (or any agent) depends on the actions taken by others. This is also called "payoff interdependency." If the agent recognizes this interdependent decision-making, his optimal choice will be based on his expectations about the choices that others playing the "game” will make. "Static games" are simultaneous move games in which each player moves once, not knowing the action of his or her rivals. These games are sometimes also called "strategic games." In a "dynamic game," players move sequentially with some knowledge of the actions taken by others. Such games are often called "extensive games."

Both static and dynamic games can also be distinguished in terms of the level of certainty or uncertainty of rivals' actions. With perfect information, all of the players know the entire history of the game when it is their turn to move, whereas in games of imperfect information, at least some of the players have only partial knowledge of the history of the game. In games of complete information, everyone knows the payoffs that each player receives when the game is over. However, in games of incomplete information, players know their own payoffs but may not know the ultimate payoffs of some of the other players.

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5.1 Concepts in Game Theory

5.1.1 Introduction to Game Theory

Reading: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach: "Chapter 7, Sections 7.1: Why Game Theory? and 7.2: Game-Theoretic Examples"
Link: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach: "Chapter 7, Sections 7.1: Why Game Theory? and 7.2: Game-Theoretic Examples" (PDF)

Instructions: If you have not saved this PDF file, you will need to download the PDF file of the book by clicking on the "Download" tab on the right hand side of the webpage. Please read the introduction along with sections 7.1 and 7.2 to familiarize yourself with some of the terms and concepts that are used in game theory.

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5.1.2 Static Games and Nash Equilibrium

Reading: Static Games and Nash Equilibrium
Link: Drexel University: Professor Roger McCain's Strategy and Conflict: An Introductory Sketch of Game Theory (HTML)

Instructions: Please read these webpages for intuitive explanations of some of the famous games in game theory. For this section, please begin with the document titled "What Is Game Theory?" by clicking on the hyperlink of this title in the left side table of contents. Proceed by clicking “next” at the bottom of each webpage you read until you reach the document titled "College Applicants." ." Please skip the next two pages ("Proportional Games: The Commuter Game" and "Keynesian equilibrium as a Nash Equilibrium") and resume reading from "Cooperative Games," all the way up to "The Core and Competition." After reading the material, it would be helpful for you to copy the games on a piece of paper and then try and solve them yourself. This reading covers subunits 5.1.2.1-5.1.2.5.

Note on the Text: The pages in this website present a series of static games that you need to know at this level. It progresses step-by-step through the games, explaining the problem of the game, how it is to be solved, and the related concepts associated with it.

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5.1.2.1 The Prisoners' Dilemma