Syllabus: Industrial Organization

Institution: Toulouse School of Economics
Session: Spring 2024
Teachers: Isis Durrmeyer, Bruno Jullien and Patrick Rey

Course objectives

This is a course in the Graduate Industrial Organization sequence. We aim to give a solid grounding in understanding the structure of markets, and the strategic behavior of firms and their consumers. This course has three parts:

1. Vertical relations (Patrick Rey).
2. Two-sided markets (Bruno Jullien).
3. Empirical methods and research topics in industrial organization at the frontier of the empirical IO research (Isis Durrmeyer)

Bibliography/references:

Part I. Vertical relations (Patrick Rey, 3 weeks)

Introduction: vertical restraints, vertical integration and antitrust issues
Vertical coordination
Double marginalization

• Telser, Lester (1960), “Why Should Manufacturer Want Fair Trade,” Journal of Law and Economics, 3: 86-105.
• Rey, Patrick, and Jean Tirole (1986), “The Logic of Vertical Restraints,” American Economic Review, 76: 921-939. Nonprice dimensions
• Mathewson, Frank, and Ralph Winter (1984), “An Economic Theory of Vertical Restraints,” RAND Journal of Economics, 15: 27-38.
• Comanor, William, and H.E. Frech III (1985), “The Competitive Effects of Vertical Agreements,” American Economic Review, 75: 539-546.
• Caillaud, Bernard, and Patrick Rey (1987), “A Note on Vertical Restraints with the Provision of Distribution Services,” Working Paper INSEE and MIT.

Downstream agents

• Bernheim, B. Douglas, and Michael D. Whinston (1985), “Common Marketing Agency as a Device for Facilitating Collusion,” RAND Journal of Economics, 16: 269-281.
• Bernheim, B. Douglas, and Michael D. Whinston (1986), “Common Agency,” Econometrica, 54: 923-942.
• Bernheim, B. Douglas, and Michael D. Whinston (1998), “Exclusive Dealing,” Journal of Political Economy, 106: 64-103.

Upstream agents

• Hart, Oliver, and Jean Tirole (1990), “Vertical Integration and Market Foreclosure,” Brookings Papers on Economic Activity: Microeconomics, 205-285.
• O’Brien, Daniel P., and Greg Shaffer (1992), “Vertical Control with Bilateral Contracts,” RAND Journal of Economics, 23(3): 299-308.
• McAfee, R. Preston, and Marius Schwartz (1994), “Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity,” American Economic Review, 84(1): 210-230.
• Rey, Patrick, and Thibaud Vergé (2005), “Bilateral Control with Vertical Contracts,” RAND Journal of Economics, 35(4): 728-746.
• Marx, Leslie, and Greg Shaffer (2007), “Upfront Payments and Exclusion in Downstream Markets,” RAND Journal of Economics, 38: 823-43.
• Rey, Patrick, Jeanine Miklós-Thal and Thibaud Vergé (2011), “Buyer Power and Intrabrand Coordination,” Journal of the European Economic Association, 9(4): 721-741.
• Rey, Patrick, and Michael D. Whinston (2013), “Does Retailer Power Lead to Exclusion?,” RAND Journal of Economics, 44(1): 75-81.

Rivalry among vertical structures
Strategic delegation

• Bonanno, Giacomo and John Vickers (1988), “Vertical Separation,” Journal of Industrial Economics, 36: 257-265.
• Rey, Patrick, and Joseph E. Stiglitz (1995), “The Role of Exclusive Territories in Producers’ Competition,” RAND Journal of Economics, 26: 431-451.
• Caillaud, Bernard, Bruno Jullien and Pierre Picard (1995), “Competing Vertical Structures: Precommitment and Renegotiation,” Econometrica, 63: 621-646.
• Caillaud, Bernard, and Patrick Rey (1995), “Strategic Aspects of Vertical Delegation,” European Economic Review, 39: 421-431.
• Slade, Margaret E. (1998), “Beer and the Tie: Did Divestiture of Brewer-owned Public Houses Lead to Higher Prices?,” The Economic Journal, 108: 565-602

Facilitating practices

• Jullien, Bruno, and Patrick Rey (2007), “Resale Price Maintenance and Collusion,” RAND Journal of Economics, 38(4): 983-1001.

Interlocking relationships

• Rey, Patrick, and Thibaud Vergé (2010), “Resale Price Maintenance and Interlocking Relationships,” Journal of Industrial Economics, 58(4): 928-961.
• Collard-Wexler, Allan, Gautam Gowrisankaran and Robin Lee (2018), “"Nash-in-Nash" Bargaining: A Microfoundation for Applied Work,” Journal of Political Economy, forthcoming.
• Crawford, Gregory, Robin Lee, Michael D. Whinston and Ali Yurukoglu (2018), “The Welfare Effects of Vertical Integration in Multichannel Television Markets,” Econometrica, 86(3): 891–954.
• Ho, Kate, and Robin S. Lee (2016), “Equilibrium Provider Networks: Bargaining and Exclusion in Health Care Markets,” American Economic Review, forthcoming.
• Ho, Kate, and Robin S. Lee (2017), “Insurer Competition in Health Care Markets,” Econometrica, 85(2): 379-417.
• Ghili, Soheil (2016), “Network Formation and Bargaining in Vertical Markets: The Case of Narrow Networks in Health Insurance,” mimeo.
• Rey, Patrick, and Volker Nocke (2018), “Exclusive Dealing and Vertical Integration in Interlocking Relationships,” Journal of Economic Theory, forthcoming.
• Rey, Patrick, and Thibaud Vergé (2016), “Secret contracting in multilateral relations,” TSE Working Paper, n. 16-744.

Exclusionary practices
Naked exclusion

• Aghion, Philippe and Patrick Bolton (1987), “Contracts as a Barrier to Entry,” American Economic Review, 77: 388-401.

• Rasmusen, Eric B., J. Mark Ramseyer and John S. Wiley (1991), “Naked Exclusion,” American Economic Review, 81: 1137-1145.

• Segal, Ilya, and Michael D. Whinston (2000), “Naked Exclusion: Comment,” American Economic Review, 90(1): 296-309.

• Fumagalli, Chiara, and Massimo Motta (2006), “Exclusive dealing and entry, when buyers compete,” American Economic Review, 96(3): 785-795.

• Julian Wright (2005), “Exclusive Dealing and Entry, when Buyers Compete: Comment,” American Economic Review, 99(3): 1070-81.

• Simpson, John, and Abraham L. Wickelgren (2007), “Naked Exclusion, Efficient Breach, and Downstream Competition,” American Economic Review, 97: 1305-1320.

• Wright, Julian (2008), “Naked exclusion and the anticompetitive accommodation of entry,” Economics Letters, 98(1): 107-112.

• Abito, Jose Miguel, and Julian Wright (2008), “Exclusive Dealing with Imperfect Downstream Competition,” International Journal of Industrial Organization, 26: 227-246.

• Rey, Patrick, and William S. Comanor (2000), “Vertical Restraints and the Market Power of Large Distributors,” Review of Industrial Organization, 17(2): 135-153.

Vertical integration and foreclosure

• Ordover, Janusz, Garth Saloner and Steven C. Salop (1990), “Equilibrium Market Foreclosure,” American Economic Review, 80: 127-142.
• Hart, Oliver, and Jean Tirole (1990), “Vertical Integration and Market Foreclosure,” Brookings Papers on Economic Activity: Microeconomics, 205-285.
• Rey, Patrick, and Volker Nocke (2018), “Exclusive Dealing and Vertical Integration in Interlocking Relationships”, Journal of Economic Theory, forthcoming.
• Bolton, Patrick and Michael Whinston (1993), “Incomplete Contracts, Vertical Integration, and Supply Assurance,” Review of Economic Studies, 60: 121-148.
• Chipty, Tasneen (2001), “Vertical Integration, Market Foreclosure, and Consumer Welfare in the Cable Television Industry,” American Economic Review, 91(3): 428-453.
• Allain, Marie-Laure, Claire Chambolle and Patrick Rey (2016), “Vertical Integration as a Source of Hold-up,” The Review of Economic Studies, 83(1): 1-25.

Part II: Network effects two-sided markets (Bruno Jullien, 2 weeks)

Network competition

• Katz, Michael, and Carl Shapiro (1985), “Network Externalities, Competition and Compatibility,” American Economic Review.
• Farrell, Joseph, and Garth Saloner (1985), “Standardization, Compatibility and Innovation,” Rand Journal of Economics, 16: 70-83.
• Farrell, Joseph, and Michael Katz (2000), “Innovation, Rent Extraction, and Integration in Systems Markets,” Journal of Industrial Economics, 48(4): 413-432.
• Crémer, Jacques, Patrick Rey and Jean Tirole. (2000) "Connectivity in the Commercial Network" Journal of Industrial Economics, 48(4): 433-72

Economics of platforms and two-sided markets

• Armstrong, Mark (2006), “Competition in Two-Sided Markets,” Rand Journal of Economics, 37(3): 668-691.

• Caillaud, Bernard, and Bruno Jullien (2001), “Competing Cybermediaries,” European Economic Review (Papers & Proceedings), 45: 797-808.

• Caillaud, Bernard, and Bruno Jullien (2003), “Chicken and Egg: Competition among Intermediation Service Providers,” Rand Journal of Economics, 309-328

• Hagiu, Andrei. "Pricing and commitment by two‐sided platforms." The RAND Journal of Economics 37.3 (2006): 720-737.

• Jullien, Bruno, and Alessandro Pavan. "Information management and pricing in platform markets." The Review of Economic Studies 86.4 (2019): 1666-1703.

• Jullien, Bruno, Alessandro Pavan, and Marc Rysman. "Two-sided markets, pricing, and network effects." Handbook of Industrial Organization. Vol. 4. No. 1. Elsevier, 2021. 485-592.

• Liu, C., Teh, T. H., Wright, J., & Zhou, J. (2022). Multihoming and oligopolistic platform competition. Available at SSRN 3948799.

• Rochet, Jean-Charles and Jean Tirole (2002). "Cooperation among Competitors: Some Economics of Payment Card Associations", RAND Journal of Economics, 33: 549-570.

• Rochet, Jean-Charles, and Jean Tirole (2003), “Platform Competition in Two-Sided Markets,” Journal of the European Economic Association 1: 990–1029.

• Rochet, Jean-Charles, and Jean Tirole. (2006), “Two-sided Markets: A Progress Report,” Rand Journal of Economics, 37: 645-667.

• Rochet, Jean-Charles and Jean Tirole (2011). "Must-Take Cards: Merchant Discounts and Avoided Costs", Journal of the European Economic Association, 9(3): 462-495.

• Weyl, Glen (2010), “A price theory of two-sided markets,” American Economic Review, 100(4), 1642-1672

Part III: Empirical (Isis Durrmeyer, 5 weeks)

Detailed reading list provided in class.
Outline:

1. Demand and Supply Models of Product Differentiation
2. Measuring Market Power, Welfare and Merger Analysis
3. Industry regulation
4. New Models of price determination