Course 2016-2017 a.y.

Course Objectives

The core question addressed by the course is how firms should be organized to achieve their performance objectives. The first part of the course focuses on firms’ external environment.We will study the way firms behave in their competitive environment through the formulation of economic models of competition. The purpose is to understand the determinants of firms/industry profitability based on the intensity of rivalry in the market and on the existence of (strategic and non-strategic) barriers to entry. The second part of the course will look at the internal environment and to the problem of organization design. The course will make use of microeconomic tools to understand how to create the right incentives within an organization so as to generate more profits or create more value. We will develop economic models that illustrate the trade-offs that firms face to motivate and coordinate their members’ actions. This issue is not only important for the design of compensation schemes, but also for broader issues, such as how to structure divisions in a company (whether to centralize or decentralize), how to establish transfer prices, or how to explain firm scope.

Course Content Summary

• The Firm and its Competitive Environment.
• The determinants of rivalry.
• Strategic Commitment.
• Incentives and Organizations.
• The Power of Incentives.
• Motivation and Group Pay.
• Externalities and Transfer Pricing.

Detailed Description of Assessment Methods

The assessment will be based on a written exam. The exam consists of exercises and short open questions. Students can take:

1. Two-partial exams. The exam is passed if in both partial exams are passed. The final grade is given by the average grade in the two partial exams.
   
2. A general exam covering the entire course material.

Textbooks

• P. Belleflamme, M. Peitz, Industrial Organization, Cambridge University Press, 2015, second edition.
• J. Brickley, C.W. Smith, J. Zimmerman, Managerial Economics & Organizational Architecture, McGraw-Hill, 2016, Sixth edition.