C.

Textbook for the course:Basic text for this course is International Economics: Theory
and Policy, by Krugman and Obstfeld (latest edition available). Other reading material will
be uploaded to courseweb.

5.

The Economics of Business Policy (EC-227)

Prof. Anindya Sen

Internationally, a lot of integration is taking place between economic theory, particularly

industrial organization theory, and management strategy theory. On the one hand, industrial
organization theorists are trying to draw on real life management practices to develop newer and
more relevant theories. On the other hand, management strategy theorists are coming to depend
on industrial organization theory to provide a general framework for organizing the otherwise
incoherent mass of facts available to them.
In this context, the current course seeks to provide management students with an introduction to
the interface between industrial organization theory and strategic management theory.

References:
Texts:
D. Besanko, D. Dranove, M. Shanley and S. Schaefer, Economics of Strategy. Wiley
Student Edition
Luis M.B. Cabral, Introduction to Industrial Organization. PHI Learning Pvt. Ltd.
Supplementary Readings:
Stephen Martin Advanced Industrial Economics. Blackwell Publishers.
A. Sen Microeconomics-Theory and Applications. Second edition. Oxford University Press.
Other references will be provided as and when necessary

Evaluation
Students will be graded on the basis of a mid-term examination (accounting for 50% of the total
marks) and a final examination (accounting for 50% of the total marks). Exams will not, in
general, be cumulative, but if sufficient material is not covered before an exam, some material
from earlier part of the course might be included.

Course Outline
1. Costs
Transaction Costs; Bounded Rationality; Opportunism.
2. Market Structures

The Cournot model. Cournot equilibrium as Cournot-Nash equilibrium. First order and
second order conditions. Conjectural variations and the coefficients of cooperation. Strategic
substitutes and complements. Measures of market concentration and market power.
Perfectly competitive results with imperfect competition. Cournot competition with many
firms. Bertrand competition in prices. The Edgeworth resolution of the Bertrand Paradox.
3. Entry Barriers
Entry Barriers and Limit Pricing (Absolute Cost Advantage; Product Differentiation
Advantage; Economies of Scale; The Limit Pricing Model); Other Models of Entry
Deterrence (Building Extra Capacity: Commitment and credibility; Plant Proliferation;
Product Proliferation; Reputation; Predatory Pricing; Strategic Groups and Mobility
Barriers); Entry Strategies Gelman and Salops model.
4. Collusion, Entry Barriers and Entry Strategies
Cartels and collusion. Explicit collusion. Cheating in a cartel. Successful operation of a
cartel.
5. Product Differentiation
Horizontal and vertical product differentiation. Bertrand model with product differentiation.
Hotellings model. Advertising (Informative advertising. Persuasive advertising. The
Dorfman-Steiner model. Extensions of the D-S model).
6. Commitment
Strategic Commitments. Direct and Strategic effects. Commitments. Taxonomy of strategies.
Flexibility and Option Value.
7. Multi-market Operations
Types of Multi-market Operations; Vertical Integration; Conglomerate Diversification;
8. Architecture I: Internal Architecture and the Organisation Structure

Internal Architecture; Designing the Organisation Structure; Organisation

Forms
9. Architecture II: Compensation and Performance Evaluation Systems
Designing the Compensation System; Designing the Performance
Evaluation System; External Architecture; Corporate Governance
10. Network Effects
Critical Mass and Tipping. Two-sided Markets.

11. Non-profit maximizing behavior.

The labor-managed firm. Nash bargaining solution.
12. Theory of the Firm
The Concept of Proprietary Assets; A Resource-based View of the Firm
13. Regulation and Privatization

Regulation (Price Controls; Rate of Return Regulation; Alternatives to Regulation;

Environmental Regulation); Privatization (Reasons for Privatization; Techniques of
Privatization; Obstacles to Privatization; Privatization in India); A Model of the Interaction
between Private and Public Sector
14. The Environment of Business
Competition Law; Different Approaches: The Indian Context; Competition Law in India

6.

Innovation and Technology Policy (EC-248)

INNOVATION AND TECHNOLOGY POLICY

1. MEASURING INNOVATION
After having seen in the previous classes the definitions of innovation and the various ways
in which this activity may occur in an economy, we now proceed to analyzing the indicators
or metrics that are employed to measure the rate of innovations occurring an economy. These
indicators may broadly be classified into conventional and new indicators. Finally we also
understand the ways in which firms measure innovations that may occur within a firm.
Smith, Keith (2004), Measuring Innovation, in Jan, Fagerberg, David C.Moweryand
Richard Nelson (eds.), The Oxford Handbook of Innovation, Oxford: Oxford
UniversityPress, pp. 148-177;
Nagaoka, Sadao, Kazuyuki Motohashi and Akira Goto (2010),Patent statisticsas an
innovation indicator, Bronwyn Hall and Nathan Rosenberg , Handbook of
theEconomics of Innovation, Amsterdam: North-Holland, pp. 1084-1127.
2. PATENTS AND INNOVATION
We have seen in the previous lecture that patents statistics is used as a measure of innovation.
However it is also seen that firms more often than once also use patents to deter entry of
competing firms into their space and thereby stifle competition. Therefore the lecture will
seek to answer the question whether patents do always contribute to innovations or prevent it
from happening.
Scotchmer Chapter 1, Institutions: A Brief Excursion through History; Chapter 2,
pp.31-41 only, Chapter 3, pp.65-78 only; Chapter 4, On the Optimal Design of
IntellectualProperty

3.: NATURE AND ROLE OF OTHER FORMS OF INTELLECTUAL PROPERTY RIGHTS

This lecture will focus on other forms of IPRs that a firm may use to protect its intangible assets.
These
manifest in the form of trademarks, designs and utility models, and copyrights. The lecture will
also seek to

find answers to whether patenting is always the best route to protection and also the alternative
ways of
providing incentives to innovate.
Greenhalgh, Christine and Mark Rogers (2010), Innovation, Intellectual Property, and
Economic
Growth, Princeton: Princeton University Press, Chapter 2.

4. : DIFFUSION OF INNOVATION
The lecture will focus on understanding the process of diffusion of innovations in an
economy
Hall, Bronwyn (2004) "Innovation and Diffusion" in Jan Fagerberg, Davic C.Mowery
and Richard R.Nelson (eds.), The Oxford Handbook of Innovation, Oxford: Oxford
University Press, pp. 459-484.
5.: POLICY INSTRUMENTS TO PROMOTE INNOVATION AND DIFFUSION
A variety of policy instruments are used to promote investments for the generation of
innovation and its diffusion at the firm level. These sessions would explore the role of
financial (Tax incentives, Research Grants & Venture Capital) and non-financial (standards)
instruments.
Hall, B and J V Reenen (2000), How Effective is Fiscal Incentives for R&D? A
Review of Evidence, Research Policy, 29, 449-469.

6.: INDUSTRIAL CLUSTERS AND TECHNOLOGICAL CAPABILITY

Industrial clusters are being increasingly seen as locus of innovation. Therefore, policy
support for cluster development is seen as dynamically efficient. This session would discuss
the role of clusters in innovation and technological capability building.
Parto, Saaed (2008), Innovation and economic activity: an institutional analysis of
the role of clusters in industrializing economies , Journal of Economic Issues, Vo.42,
No: 4.
7.. : GLOBALISATION OF INNOVATION
Internationaltechnologytransferisanimportantmechanismtobuildtechnologicalcapabilities.
Cantradeandforeigninvestmentpoliciesfacilitatesuchcapabilitybuilding? Natureoftechnology,
industryandfirmcharacteristicshavesignificantimplicationsforthecontentof
a
firmstechnologystrategyandfortheprocessthroughwhichitisdevelopedandimplemented.
Industrial,
trade,
manpower,
financialandcompetitionpoliciesaffectfirmleveldecisionsincludingthoserelatingtotechnology.
Thesesessionswouldfocusonhowvariouspolicymeasurescaninfluencefirms'
decisionsaboutmaking, buyingandcopying (stealing) technology.

 Hoekmam Bernard and Beata Smarzynska Javorcick (2006), Lessons from

Empirical Research on International Technology Diffusion through Trade and Foreign
Direct Investment in Hoekman and Javorcick (eds.) Global Integration and
Technology Transfer, New York: Palgrave Macmillan and the World Bank, Chapter
1.
Saggi, K (2006), Foreign Direct Investment, Linkages and Technology Spillovers in
Hoekman and Javorcick (eds.), Chapter 3

7.

India and China (EC-249)

India and China
Course outline
(Prepared for IIM Calcutta)
September 23, 2014

Objective of the course is to enable students to understand the main aspects of the
functioning and evolution of these two giant economies in a comparative perspective. As they
face similar problems of promoting economic development, and finding their rightful places
in global polity, they are competitors and collaborators at the same time. A sound
appreciation of the strengths of these economies, and the challenges they face could be
valuable for prospective managers.
Course duration: 10 lectures, each of 90 minutes duration, delivered over 3 to 4 weekends in
December and January 2014