Economics of Markets and Organisations

Description

Practical information Course ID: FEB13050 Credits: 4 EC Instruction language: English Registration procedure: Via OSIRIS Secretariat: Support Office Economics, E1-28, 010-4081441, office.ec@ese.eur.nl Course description Content: Aim and scope: In modern societies, people specialize in productive activities and trade to obtain their complete consumption package. Trading occurs in markets, most production takes place in organisations. This makes markets and organisations crucial for our material well-being. Furthermore, organizations are an important source of social interactions and markets and organizations affect many environmental and social outcomes. This makes proper functioning of markets and organisations important, for our material and immaterial well-being. However, examples abound of markets and organisations that do not always function properly. Recognizing such situations, designing improvements, and implementing these will be a major part of your future jobs. Economists have studied markets for a long time (think about Adam Smith’s invisible hand). This field is known as Industrial Organisation. More recently economists also study organisations, in the field known as Organisational Economics. In both fields, outcomes of markets and organisations are determined by decisions and actions of people, which in turn depend on market design, organisational architecture, and management practices. Both fields have a microeconomic approach. This course covers several main insights from the fields of Industrial Organisation (IO) and Economics of Organisations (OE), and lets you acquire skills that allow you to understand other parts of IO and OE. Starting point of IO en OE: Specialization in society yields two fundamental issues: coordination and motivation. Coordination revolves around decision-making and allocation: What is produced and consumed, by whom, and how? How are such decisions made? Motivation revolves around inducing people to act accordingly. As most production takes place in markets and organizations, coordination and motivation play an important role. In the market, prices coordinate and motivate. This leads to optimal outcomes under some conditions but may fail to achieve desirable outcomes in other situations (due to market failures or non-desirable distributional outcomes). IO focuses predominantly on market power: How do firms acquire market power (entry / exit decisions, innovation, mergers and acquisitions, exclusive contracting), how does market power affect firm decision making (pricing, market entry, capacity, sourcing, innovation, etc.), how does this depend on market structure, and when and how can regulation improve functioning of markets? The starting point of OE is that ‘the organisation’ is not a decision-making unit. Rather, production is shaped by the decisions of people within the organisation. People involved in an organisation will have different objectives, which may hamper cooperation. Furthermore, people may have different pieces of information regarding the optimal course of action. Hence, also within firms, coordination and motivation problems arise. This gives rise to questions of allocation of authority (the right to make decisions in particular situations) and leadership, job design, team-work, transfer pricing, (incentive) pay, subjective assessment of non-verifiable performance, social norms and organizational culture, reputational concerns and commitment, etc. In short, OE and IO study how (i) choices of individuals in organisations and firms in markets affect the outcomes (in terms of production, performance, efficiency, and distribution), and (ii) how these choices are affected by organizational architecture, management practices, institutions, and market circumstances. Learning goals: - Understand and apply the main concepts, tools, and theories regarding the behaviour of people in organisations. - Understand and apply the main concepts, tools, and theories regarding the behaviour of people and organisations in markets. - Recognise and analyse situations of strategic interaction between individuals in organisations and between organisations in markets. - Recognise how institutions and organisations have developed to cope with conflicts of interests between people. - Critically assess the scientific literature in the fields of Organisational Economics and Industrial Organisation. Changes as compared to previous year: Dr Delfgaauw no longer teaches the course. New lecturers are BSY Crutzen and A. Non. Extra: None Study materials Journal articles (links are supplied on Canvas and the journal articles are freely accessible with your erna id).; More articles. Entrance requirements Entrance requirements course enrolment: You must meet the following requirements Enrolled for one of the following degree programmes BSc2 Econometrics ECON-DIV Econometrics and Operations Research Economics and Business Economics International Bachelor Econometrics and Operations Research International Bachelor Economics and Business Economics Premaster Economics and Business Premaster Economics and Business Economics Period Enrolment periods: Enrolment period: 1 December 2025 until 16 January 2026 23:59 Unenrolment: until 16 January 2026 23:59 Period of education: 29 december 2025 until 28 februari 2026 Assessment Assessment materials: Hand-outs, lecture slides, and notes. Selection of papers. All material otherwise covered. Assessments (result in OSIRIS): Test weight: 30; Test weight: 70 Assessment: Resit opportunity