Selected Topics in Industrial Organization and Competition Economics

Winter term 24/25 general topic: Bundling and Tying

Deadline for application: Oct. 06, 2024

Application form available here

Requirements: Very good working knowledge of theoretical microeconomics. This seminar is recommended to students who have followed the courses Advanced Microeconomics I & II, Digital and Network Economics, and Industrial Organization

Qualification target: During the seminar, a specific topic in industrial organization and competition economics will be covered in depth, such that students gain a thorough understanding of this topic. They will learn how to approach a specialized field of study and how to write and present a seminar paper. These skills are particularly helpful for writing a Master thesis.

Examination type: Each student will be working on a specific article. Seminar participants have to write a seminar paper (circa 5,000 words plus equations), to do a presentation (25 min), and to implement (parts of) the theoretical model developed in the paper in MATLAB.

In their seminar papers, participants should provide a critical discussion of the paper, notably in light of the existing literature, as well as an extension of the results.

Students’ workload and supervision: Students will (i) participate in block sessions, (ii) participate in bilateral meetings in order to benefit from personalized supervision, on both the economic aspects of the paper and on implementing the theoretical model in MATLAB, and (iii) work on their seminar paper and MATLAB code individually.

Note: MATLAB can be acquired free of charge through the Software Shop of Freiburg University. For further information please check here.

Important dates:

• Deadline for application: October 6, 2024. Priority will be given to early applications in case of a large number of applications.
• Acceptance decision and allocation of articles: October 10, 2024
• Introductory meeting (mandatory): October 22, 2024 (12:00 - 16:00), HS 1098
• Block session on MATLAB (mandatory): October 29, 2024 (12:00 - 16:00), HS 1098
• During the semester:
• Two individual meetings to discuss the economics as well as extension ideas and the structure of the seminar paper (prior booking required) (November 18 and 19, 2024, December 16 and 17, 2024)
• Two individual meetings to discuss the implementation of the model in MATLAB (prior booking required) (November 25 and 26, 2024, January 13 and 14, 2025)

• Block seminar presentations and feedback: January 24 (10:00 - 13:00), HS 1221
• Submission of the final seminar paper: February 9, 2025

List of specific articles:

• Article 1: Choi, J. P. and Stefanadis, C. (2001): “Tying, Investment, and the Dynamic Leverage Theory,” The RAND Journal of Economics.
• Article 2: Carlton, D. W. and Waldman, M. (2002): “The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries,” The RAND Journal of Economics.
• Article 3:  Nalebuff, B. (2004): “Bundling as an Entry Barrier,” The Quarterly Journal of Economics. (Supplementary reading: Peitz, M. (2006): “Bundling may blockade entry,” International Journal of Industrial Organization)
• Article 4: Fang, H. and Norman, P. (2006): “To Bundle or Not to Bundle,” The RAND Journal of Economics.
• Article 5: Carlton, D. W., Gans, J. S., and Waldman, M. (2010): “Why Tie a Product Consumers Do Not Use?” American Economic Journal: Microeconomics.
• Article 6: Armstrong, M., & Vickers, J. (2010): “Competitive Non-linear Pricing and Bundling,” The Review of Economic Studies.
• Article 7: Chu, C. S., Leslie, P., & Sorensen, A. (2011): “Bundle-Size Pricing as an Approximation to Mixed Bundling,” The American Economic Review.
• Article 8: Zhou, J. (2017): “Competitive Bundling,”. Econometrica.
• Article 9: Reisinger M., Schmidt J. And Stieglitz N. (2021): “How Complementors Benefit from Taking Competition to the System Level,” Management Science.

• Article 10: Jeon D., Choi J. P., and Whinston M. D. (2024): “Tying with Network Effects,”, Working Paper, available at www.tse-fr.eu/sites/default/files/TSE/documents/doc/wp/2024/wp_tse_1524.pdf .

Note: All papers are available online (e.g. on www.jstor.org or onlinelibrary.wiley.com) from the university or connecting via a VPN to the university’s network.

Background reading:

• Motta, Massimo (2004): Competition Policy – Theory and Practice, CUP (Chapter 7)
• Belleflamme, Paul and Martin Peitz (2015): Industrial Organization – Markets and Strategies, 2^nd edition, CUP (Chapter 11)
• Adams, W. J., and Yellen, J. L. (1976): “Commodity Bundling and the Burden of Monopoly,” The Quarterly Journal of Economics.
• McAfee, R. P., McMillan, J., and Whinston, M. D. (1989): “Multiproduct Monopoly, Commodity Bundling, and Correlation of Values,” The Quarterly Journal of Economics.
• Whinston, M. D. (1990): “Tying, Foreclosure, and Exclusion,” The American Economic Review.