Module Identifier EC31410  
Academic Year 2001/2002  
Co-ordinator Professor John Cable  
Semester Semester 1  
Course delivery Lecture   10 Hours  
  Seminars / Tutorials   4 Hours  
Assessment Exam   1.5 Hours   100%  

Brief description

An exploration of the role of markets, firms and economic institutions in the coordination of economic activity.

Learning outcomes

On completion of the course students will understand the role of markets and firms as alternative co-ordinating mechanisms; strategic choice when decisions interdepend; the behaviour of the firm as a coalition of members; principal-agent relationships within the firm; auction theory and evidence; and the role of transaction costs in economic organisation.


1. Markets and Organisations
The Resource Allocation Problem: Division of labour and specialization. The co-ordination problem. Markets vs organizations. Transaction costs.

Besanko, et al, Ch 1
Douma and Schreuder, Chs 1, 3 and 4
Milgrom and Roberts, Ch 2.

2. Firm Boundaries: Traditional Views
Single production firms: horizontal boundaries ( economies of scale, market power);
Multi-product firms: economies of scope; diversification and vertical integration (technology, risk-pooling)

Besanko, et al, Chs 2 and 3

3. Transaction Cost Economics
Comparative institutions. Technology vs organisation. Economising. Details. Prediction. Vertical market structures and diversification again.

Besanko, et al, Chs 4, 5 and 6
Douma and Schreuder, Ch 8
O E Williamson, Transaction Cost Economics: The Governance of Contractual Relationships, in P J Buckley and J Michie, Firms, Organisations and Contracts, OUP 1996, Ch 6
Klein, B, Vertical Integration as Organisational Ownership: The Fisher Body-General Motors Relationship Revisited, in O E Williamson and S Winter (eds) The Nature of the Firm: Origins, Evolution and Development, OUP 1991
Teece, Towards an Explanation of the Multi-product firm. Journal of Economic Behaviour and Organisation

4. Agency
Principals and agents. Ownership and control. Incentive contracts.

Besanko, et al, Ch 15
Douma and Schreuder, Ch 7
G Stewart, Economics of the Firm, Ch 2 in J R Cable (ed) Current Issues in Industrial Economics, Macmillan, 1993
J McMillan, Games, Strategies and Managers, Chs 8-10

5.   Auction Markets and Bidding for Contracts
English, Dutch and sealed bid (first and second price) auctions. Bidding strategies, revenue equivalence. The winner's curse. Empirical evidence.

J McMillan, Games, Strategies and Managers, Chs 11, 12
D E Campbell, Incentives: Motivation and the Economics of Information, Ch 3, section 2
R H Thaler, The Winner's Curse, Ch 5

6. Behavioural Theory
Organisational goals. Organisational search. Organisational choice. Evidence and applications

Douma and Schreuder, Ch 6
R M Cyert and J G March, A Behavioural Theory of the Firm, Second edition, 1992 (First edition 1963)

Reading Lists

S Douma and H Schreuder. (1998) Economic Approaches to Organisations. 2nd. Prentice Hall
P Milgrom and J Roberts. (1992) Economics Organisation and Management. Prentice Hall
A Dixit and B Nalebuff. (1991) Thinking Strategically. Norton
P J Buckley and J Michie. (1996) Firms, Organisations and Contracts. Oxford University Press
D Besanko, D Dranove and M Shanley. (2000) Economics of Strategy. Wiley