Advanced Microeconomics II (2011)

Last up-dated: August 6, 2011

Office Hours:

Instructor, Yosuke YASUDA: Mondays 10:00-11:30 or by appointment (Room C911)

TA: Ryoko SUSUKIDA: TBA (TBA)

1. Important Announcement

• There will be a Final Exam on July 27 (Wed) from 10:00 to 12:00 at room 5F. July 20

• There will be a TA session on July 22 (Fri) from 10:40 at room 5G. July 20

• There will be a TA session on July 13 (Wed) from 10:40 at room 5F. July 6

• In Question 5 (Problem Set 2), you can assume that firm's marginal cost is 0. July 5

• There will be a TA session on July 1 (FRI) from 10:40 at room 5F. June 23

  • There will be a make-up class on June 24 (FRI) from 10:40 at room 5F. June 23

  • There will be a TA session on June 13 (MON) from 16:40 at room 5F. June 10

• The course website for 2011 is now open. March 29

2. Course Description syllabus

This is an advanced course in microeconomics, succeeding to Advanced Microeconomics I (ECO600E) in which we study individual economic decisions and their aggregate consequences under ideal situations. In this course, we extend our previous analyses to incorporate imperfectly competitive market structures, dynamic market competitions, and incomplete information. To this end, we study game theory, a collection of mathematical tools for analyzing strategically interdependent situations. Most of the topics covered in this course parallels to those of Game Theory (ECO290E), but are explained in much more rigorous way. Course grade will be determined by three homework assignments (45%) and a final exam (55%).

3. Course Outline

1. Monopoly June 1

   1. • [NS] Ch.14

2. Static games and Nash equilibrium June 1

   1. • [G] Ch.1.1; [NS] Ch.8

      • *Reading: Gibbons (1997)

3. Oligopoly models June 8

   1. • [G] Ch.1.2; [NS] Ch.15

      • Reading: Bagwell and Wolinsky (2002)

4. Mixed strategies June 8

   1. • [G] Ch.1.3; [NS] Ch.8

• • TA (1): Review on static games June 13

    • [G] Ch.1; [NS] Ch.8

    • Assignment 1

5. Dynamic games and extensive-form June 15

   1. • [G] Ch.2.1, 2.2.A and 2.4; [NS] Ch.8

6. Subgame perfect Nash equilibrium June 15

   1. • [G] Ch.2.1.B; [NS] Ch.15

7. Commitment June 24

   1. • [G] Ch.2.1.D; [NS] Ch.15

      • *Reading: Watson (2008), Ch.15

      • Reading: Fudenberg and Tirole (1984)

8. Repeated games June29

   1. • [G] Ch.2.3; [NS] Ch.15

      • Reading: Bagwell and Wolinsky (2002)

9. Bargaining Problems June 29

   1. • *Reading: Osborne (2004), Ch.16

      • *Reading: Osborne and Rubinstein (1990), Ch.2

      • Reading: Nash (1950)

      • Assignment 2

• • TA (2): Assignment 1 July 1

10. Static games with incomplete information July 6

    1. • [G] Ch.3.1, 3.2 and 3.3; [NS] Ch.8

       • Reading: Klemperer (2003)

11. Applications of Incomplete Information Games July 6

    1. • [G] Ch.4.2 and 4.3.A; [NS] Ch.8

       • *Reading: McAfee and McMillan (1987)

       • Reading: Farrell and Rabin (1996)

12. Dynamic games with incomplete information July 13

    1. • [G] Ch.4.1; [NS] Ch.8

       • *Reading: Watson (2008), Ch.28

       • Assignment 3

• • TA (3): Assignment 2 July 13

13. Morel Hazard July 20

    1. • • [NS] Ch.18; [JR] Ch.8.2

14. Screening July 20

    1. • • [NS] Ch.18; [JR] Ch.8.1

       • *Reading: Bolton and Dewatripont (2004), Ch.2.1

       • TA (4): Assignment 3 July 22

15. Final exam July 27 120 minutes, 55 points

• • Files: exam (solution)

4. Textbooks

There are two main textbooks for this course:

[G] Robert Gibbons, Game Theory for Applied Economists, 1992

[NS] Walter Nicholson and Christopher Snyder, Microeconomic Theory: Basic Principles and Extensions, 10th edition, 2007

A useful text at roughly the same level as Gibbons, but contains variety of example is:

Martin Osborne, An Introduction to Game Theory, 2004

A useful textbook for game theoretical analyses on oligopoly markets is:

Luis Cabral, Introduction to Industrial Organization, 2000

Those who look for more lucid treatment than the above textbooks may consult with the following authoritative sources. The former incorporates game theoretical perspectives into microeconomics in depth, and the latter is as standard textbook most widely used in Economics Ph.D. microeconomics courses.

David Kreps, A Course in Microeconomic Theory, 1990

Andreu Mas-Colell, Michael Whinston and Jerry Green, Microeconomic Theory, 1995

5. Related Materials

• Kyle Bagwell and Asher Wolinsky (2002), "Game Theory and Industrial Organization," A chapter in Handbook of Game Theory with Economic Applications. SSRN

• Patrick Bolton and Mathias Dewatripont (2004), Contract Theory, MIT Press.

• Joseph Farrell and Matthew Rabin (1996), "Cheap Talk," Journal of Economic Perspectives, 6: 83-101. JSTOR

• Drew Fudenberg and Jean Tirole (1984), "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review (Papers and Proceedings), 74:361-366. JSTOR

• Martin Osborne and Ariel Rubinstein (1990), Bargaining and Markets, Academic Press.

• John Nash (1950), "The Bargaining Problem," Econometrica, 18: 155-162. JSTOR

  • Robert Gibbons (1997), "An Introduction to Applicable Game Theory," Journal of Economic Perspectives, 11: 127-149. JSTOR

• Paul Klemperer (2003), "Why Every Economist Should Learn Some Auction Theory," Chapter 2 in Advances in Economics and Econometrics, Volume 1, edited by Dewatripont, Hansen, and Turnovsky. Link to the final draft

• Preston McAfee and John McMillan (1987), "Auctions and Bidding," Journal of Economic Literature, 25: 699-738. JSTOR

• Joel Watson (2008), Strategy: An Introduction to Game Theory, W. W. Norton.

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