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Industrial Organization for Entrepreneurs (MiE)

Industrial organization is a field of microeconomics that explores the dynamics of industries and in particular the way firms compete with each other. Therefore, this course focuses on strategic competitive behavior, with special attention being paid to the perspective of newly founded ventures. Within this context we will discuss how to assess market power /structure and its implications, pricing mechanisms, as well as how regulations impact strategy design. The course uses a mixture of case studies, lectures, guest lectures and a final written exam.
Course code
ECON502
Course type
MSc Course
Weekly Hours
2,5
ECTS
5
Term
HS 2020
Language
Englisch
Lecturers
Juniorprof. Dr. Priscilla Sarai Kraft
Please note that exchange students obtain a higher number of credits in the BSc-program at WHU than listed here. For further information please contact directly the International Relations Office.
How do markets work and influence the strategic competitive behaviors of firms and particularly new ventures? And how do regulations influence markets and how firms compete with each other? Industrial organization is a field of microeconomics concerned with providing answers to these important questions. While none of you might become regulators, all of you will encounter regulations and markets as entrepreneurs or managers. Successful start-ups, such as Airbnb and Uber, are facing severe legal problems which are not only costly for those firms but also set their future success at risk. Therefore, it is important to understand how markets and regulations work and how they influence the strategic competitive behaviors of firms and particularly new ventures. The main objective of this course is thus to provide an overview of this important topic. Specifically, we will focus on the following questions:
  • What is market power and how is it related to a firm’s strategic competitive behaviors?
  • How do firms use certain pricing mechanisms to maximize profits?
  • How do markets influence innovation – and how does innovation affect market structure?
  • How do technological change andnew digital business models affect markets and competition?
  • Why should entrepreneurs care about regulatory environments? How do regulations affect the strategic decision making in firms and particularly new ventures?
  • How effective are regulatory frameworks in the digital sharing economy?
  • How can entrepreneurs cope with regulatory challenges?


The course consists of 8 sessions and uses a mixture of lectures, case studies, classroom discussions, and guest lectures.

Session 1: Introduction - What is Industrial Organization?

(October 29, 15:30 AM – 18:45 PM)

  • What are the fundamental themes of industrial organization?

  • What is market power and how is it related to a firm’s strategic actions?

  • Is there a role for public policy regarding market power?

  • Discussion of the “Big Tech Hearing” in the United States

  • What are the applications of Game theory to the industrial organization studies?
Required Readings:
  • Cabral, L.M.B. (2001) Introduction to Industrial Organization. MIT Press. pp. 1-11.

  • McNamee, R. (July 2020). A historic antitrust hearing in Congress has put big

    tech on notice,The Guardianhttps://www.theguardian.com/commentisfree/2020/jul/31/big-tech-house-historic- antitrust-hearing-times-have-changed

  • Romm, T. July 2020. Amazon, Apple, Facebook and Google grilled on Capitol Hill over their market power, The Washington Post,https://www.washingtonpost.com/technology/2020/07/29/apple-google-facebook- amazon-congress-hearing/

  • Feiner, L. July 2020. Tech competitors are ‘blown away’ by Congress’ CEO grilling and hopeful for antitrust reform,https://www.cnbc.com/2020/07/31/big- tech-competitors-were-blown-away-by-house-antitrust-ceo-hearing.html

Session 2: Pricing Strategies

(November 02, 13:45 PM – 17:00 PM)

  • How do firms use various pricing strategies for revenue maximization?

  • How does a firm with market power set its basic prices?

  • Why are some customers charged higher prices for the same product than

    others?

  • Why do firms offer special discounts for certain customer groups?

  • Discussion of Netflixcase study

Required Readings:

  • Cabral, L.M.B. (2001) Introduction to Industrial Organization. MIT Press. pp. 167-

    183.

  • Netflix Case

  • Why Netflix pricing could decrease as risk of subscriber losses grows,https://www.cnbc.com/2020/01/28/why-netflix-pricing-may-decrease-as-risk-of-subscriber-losses-grows.html

Session 3: Technological Change, Innovation, and Digital Business Models

(November 10, 11:30 AM – 15:15 PM)

  • How does innovation affect or change markets and competition?

  • And how do markets influence or even incentivize innovation?

  • Why do R&D expenditure vary among industries?

  • How do technological change and new digital business models disrupt markets

    and competition?

  • Which challenges are existing regulations facing in times of digital economy?

     

Required Readings:
  • Cabral, L.M.B. (2001) Introduction to Industrial Organization. MIT Press. pp. 291-

    308.

  • Beck, Libert. 2018. Three Signals Your Industry Is About to Be Disrupted, MIT

    Sloan Management Review,https://sloanreview.mit.edu/article/three-signals-your-

    industry-is-about-to-be-disrupted/

  • Christensen, C. M., Raynor, M. E., and McDonald, R. 2015. What Is Disruptive Innovation?https://hbr.org/2015/12/what-is-disruptive-innovationArt

  • Light, S. 2018. When Business Blows Up Policy: How to Regulate Disruptions, Wharton Podcast and article:https://knowledge.wharton.upenn.edu/article/when- business-blows-up-policy-how-to-regulate-disruptions/

  • Stalk, G., Stewart, S. Tempo and the Art of Disruption. BCG Henderson Institute,https://www.bcg.com/de-de/publications/2019/tempo-art-of-disruption

Session 4: Guest Lecture: Zalando (details will be provided in due course)

(November 16, 11:30 AM – 15:15PM)

Session 5: Uber Case Study

(November 23, 08:00 AM – 11:15 PM)

  • How did Uber disrupt/change the industry?

  • What kind of pricing mechanisms is Uber using?

  • How did competitors respond to the entry of Uber?

  • How do different national regulatory frameworks influence Uber? What kind of

    regulatory problems is Uber facing and what might be possible solutions?

  • How effective are regulatory frameworks in times of the digital economy?

Required Readings:
  • Uber case study

  • Can Uber Overcome Its Regulatory Obstacles?https://knowledge.wharton.upenn.

    edu/article/can-uber-overcome-regulatory-obstacles/

  • Factbox: Uber's legal challenges around the worldhttps://www.reuters.com/article

    /us-uber-britain-factbox/factbox-ubers-legal-challenges-around-the-world-

    idUSKBN1XZ25F

  • Uber and Lyft must classify drivers as employees, judge rules, in blow to gig economy, The Guardian,https://www.theguardian.com/technology/ 2020/aug/10/uber-lyft-ruling-california-judge

Session 6: Airbnb Case Study

(November 24, 15:30 AM – 18:45PM)

  • How did Airbnb disrupt/change the industry?

  • How do regulatory frameworks influence and threaten the success of Airbnb?

  • How can Airbnb cope with the challenges?

  • How should private companiesandgovernments navigate regulatory gray area

Required Readings:

  • Airbnb case study

  • EU court rules Airbnb does not require estate agent licence, The Guardian,

    https://www.theguardian.com/technology/2019/dec/19/eu-court-rules-airbnb-does-

    not-require-estate-agents-licence

  • Airbnb to America’s Big Cities: See You in Court,https://www.bloomberg.com/graphics/2020-airbnb-ipo-challenges/

Session 7: New ventures and regulatory environments

(November 27,11:30 AM – 17:00 PM)

  • Why should entrepreneurs care about regulatory environments?
  • Which challenges do new businesses in the sharing economy face with existing regulations?
  • How can entrepreneurs cope with these challenges?

Required Readings:

  • Case study: Cooks First or Rules First? Josephine.com's Regulatory Struggles in the Shared Economy”
  • Case study: “Flytenow, Inc.: Regulatory Challenges in the Sharing Economy”

Session 8: Review and Wrap up

(November 27,11:30 AM – 17:00 PM)

Date Time
Wednesday, 28.10.2020 08:00 - 11:15
Monday, 02.11.2020 13:45 - 17:00
Tuesday, 10.11.2020 11:30 - 15:15
Monday, 16.11.2020 11:30 - 15:15
Monday, 23.11.2020 08:00 - 11:15
Tuesday, 24.11.2020 15:30 - 18:45
Friday, 27.11.2020 11:30 - 17:00
Book: Cabral, L.M.B. (2001) Introduction to Industrial Organization. MIT Press.Articles and cases as mentioned in the Syllabus as well as in the lecture (will be provided in Moodle).
Final grades are determined on the following basis:
  • 50% case-based group assignment and presentation
  • 40% case-based individual assignment
  • 10% class participation

Further information on the assignments are provided in the first session.

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