Sugata Bag  ::  Course 608 : Economics of Regulation

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Reading & Lecture Notes


Winter Semester 2017-18

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Instructor: Sugata Bag, email:

Time and Location: Tuesdays 11:40 -12:50, and Fridays 9:10-10:20 Room No.  Opposite to AMEX

Description of the Course:

The objective of this course is to introduce you to the role of government in altering market outcomes when either competitive forces are weak or competitive equilibrium fails. It draws from areas such as welfare economics, public economics, and industrial organization. The focus is on monopolies, especially natural monopolies and potentially monopolised markets, where market mechanisms are unlikely to produce outcomes that benefit consumers more than the alternatives involving costly government intervention. The two main areas examined are competition policy and economic regulation. Competition policy refers to laws that define certain market behavior as illegal because it is harmful to competition or fails to provide consumer benefits that justify its costs to consumers. Economic regulation refers to policies in which government controls prices and/or decides the terms and conditions under which firms can participate in a market. A growing area of study and policy design is the introduction of market mechanisms into formerly regulated industries such as: telecommunications, electricity, airlines, railroads, postal delivery services and environmental regulation.

The course is roughly organized as follows. First few lectures will be devoted to competition policy issues, which introduce the economic mechanisms that cause the market failures used to justify economic regulation. Private vs. Private enterprises. The course will then turn to the study of economic regulation and the introduction of market mechanisms into regulated industries. In this part the focus will be on optimal regulation under various a/symmetrical informational situations prevailing between regulator and regulated firm/s. Regulation of innovation and patenting. Lastly, certain case studies will be taken up – regulation of energy market (e.g. electricity, crude oil, natural gas), railways privatisation.

Texts for the course: (in order of importance)

  1. [VVH]. W. Kip Viscusi, John M. Vernon, and Joseph E. Harrington, “Economics of Regulation and Antitrust, 4th Edition“, (Cambridge, MA: MIT Press, 2005).
  2. [JOS] Joskow, Paul, 2006, “Regulation of Natural Monopolies”, Handbook of Law and Economics.
  3. [AS-03]. Armstrong, Mark and David Sappington, “Recent Developments in the Theory of Regulation”, 2003. (Only Sections: Pages. 1-24 (till 2.2.2); Section 3 (upto 3.1.3) pp. 41-48.)
  4. [MM] Motta, M., “Competition Policy: Theory and Practice”, 2004, Cambridge University Press, Cambridge, MA. (First three chapters)
  5. [RS] Sherman, Roger, “Regulation of Monopoly”, 1989, Cambridge University Press, 2004, Cambridge, MA. (Intermittently used, mainly for reference.)           

      These texts would be supplemented by other readings (especially papers) will be posted time to time in the course website under reading tab.

Grading & Exams:

There will be one midterm examination AND one term paper and presentation ((max 2 in a group) depending upon the class size)].
Term Paper: You should start looking for a topic (list below) for the term paper at the very onset (which should be done in consultation with me) on a prominent competition policy, an important regulatory policy, or industry re-structuring issue. Students should identify their paper topic with a one-page written proposal due February 15, 2018. Final papers will be due at the towards end of lectures. Presentations of the term papers may happen towards the end of semester. Please refer to chapters 16, 17 and 18 of VVH and last 4 four chapters of Sherman in this regard.

The midterm will be given in class and is scheduled for End of Feb. The final exam is scheduled during the regular examination period. All the exams would be closed book. There would be NO MAKE-UP test in any circumstances. Grading will be based on the examinations and term paper presentation as follows:

                                   * Midterm                                             15%
                                        Term paper+Presentation                15%
                                     * Final                                                    70%.