Industrial Organization

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Concepts: Price discrimination, price strategies

Background: When Assane was a teenager, Claire needed a violin for her recital. To rent a violin for one day, it would cost 350 francs, or 1,500 francs for one week.

Question: Why is the owner offering to rent the violin for a week for less than 2,450 francs (350 x 7 )?

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Concepts: Cartel, oligopolies, regional monopoly

Background: Pablo Escobar calls a meeting with all local kingpins to urge them to form a coalition. Escobar offers to retain control of day-to-day activities. The other kingpins provide funding while receiving profits and security.

Question: How do you call such formal collusive behavior? Explain the reasons why Escobar and other kingpins agreed to market sharing.

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Concepts: Shift of supply curve, inelastic demand, monopsony power

Background: With the help of US resources and intel, the Colombian military police destroyed cocaine labs all over the country, burning coca farms and seizing over a billion dollars in cocaine.

Question: Use a supply and demand diagram to explain why the US and Colombian governments sought to destroy labs and crops. Discuss the effectiveness of governments’ interventions.

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Concepts: Price ceiling, shortage, price elasticity

Background: Player 111, a doctor, agreed to remove transplant organs from deceased players so that staff members could sell them on the black market. As in many other countries, selling transplant organs is illegal in South Korea. Instead, organs are typically donated by live donors when possible or by families after a relative passed away. Such a prohibition is equivalent to a price ceiling of 0 won on human organs. In 2019, there were 32,560 potential organ recipients on Korean waiting lists Data from the Korean Network for Organ Sharing. Of these, only 1,612 patients received an organ donation.

Question: Using a supply and demand diagram, describe the effects of a price ceiling on the market for human organs available for transplant. Is the demand curve perfectly inelastic? Analyze the effects of legalizing the purchase and sale of human organs. Include ethical considerations into your analysis.

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Concepts: Recession, unemployment

Background: While a fight breaks out between players, Gi-hun ties this violence to his past as an autoworker. The flashback scene depicts the injustice faced by labor workers in the aftermath of the 2008 global financial crisis. This scene was inspired by a real-life event when SsangYong Motors filed for bankruptcy in 2009 and laid off hundreds of autoworkers.

Question: How did the global financial crisis affect the automotive industry? Research the automotive industry crisis of 2008-2010. Find South Korea's GDP growth rate in 2009 https://fred.stlouisfed.org/series/MKTGDPKRA646NWDB#0. Compare its unemployment rate in 2009 to the United States https://data.oecd.org/unemp/unemployment-rate.htm. Did South Korea experience a recession in 2009? Define the concept.

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Concepts: Monopsony power.

Background: Many young teenagers dream of becoming soccer stars. However, very few have the chance to even try. To become professional soccer players, young teenagers must join a development academy. Still, very few spots are available, and only the most talented are selected, which creates extreme competition between the teenagers and adds additional pressure on them.

Question: Describe the competitive process among teenagers willing to join development academies.

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Concepts: Revenue, Cost, Profit.

Background: The bounty receipt provides us with some information about Spike and Jet's revenue but also some of their costs. While the reward for this capture was relatively high (the revenue), the costs were far from negligible. Spike and Jet receive a tiny amount of money when including all the direct costs kept by the authorities. However, those were not the only cost. They still have to cover their own expenses, which ultimately leave them no profit. As the quote from the clip exemplifies, it "barely covers fuel and nevermind food."

Question: Explain the difference between revenue and profit. Can we determine the heist crew bounty’s profitability just by observing their revenue?”

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Concepts: Shortage, price elasticity of demand, arbitrage possibility, black market.

Background: Jet wants to offer his daughter a rare and expensive doll. However, stocks are minimal, and the doll is available in only a few stores. Besides, the doll is not available in any stores where Jet currently is. However, an illegal reseller has one for sale for five times the price. Given how important the doll is for Jet's daughter, he purchases the doll from the illegal reseller.

Question 1: From this situation, explain why the doll's market is not at equilibrium and instead exemplifies a shortage. Could shortage encourage the development of a black market economy?

Question 2: After defining the concept of price elasticity of demand, draw two demand curves that represent the demand for this rare doll and the demand for a regular doll.

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Concepts: Preferences, product differentiation, imperfect substitutes

Background: A newspaper comprises a collection of articles dedicated to informing readers. However, not all articles that journalists work on or wish to work on are published. Harriet discusses her next article with her editor. She wants to write a piece about politics, but he requires her to write a portrait instead.

Question: What type of articles do you like to read? Compare your answer with people nearby in the classroom (give a couple of minutes to students to figure out they have different preferences, ask a few students to share the discussions they had, then ask the next question). How do you think editors are affected by the fact that people have different preferences over the articles they like or want to read?

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Concepts: Rent control, price ceiling, shortage

Background: Sacred Games was shot in Mumbai, and several scenes show different views of the city. For several decades after 1947, existing rents were frozen. In 1999, the Maharashtra Rent Control Act was passed, allowing landlords to increase rent by 4% per year. Rent remained extremely low compared to market value. Sacred games exposes some of Mumbai’s slums.

Question 1: Is rent control an example of a price ceiling or price floor? Explain the concepts. What are the unintended consequences of rent control that you may have noticed in Sacred Games? Are these similar to the ones predicted by economic theory?

Question 2: Use the supply and demand analysis to explain how rent control led to a shortage of dwelling units, which in turn resulted in the growing number of slums. Research population growth in Mumbai and discuss its impact on the shortage issue[1].

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Course Classification: Microeconomics, Industrial Organization.

Concepts: Price elasticities, supply and demand, First-degree price discrimination.

Background: Sergey needs a ride out from the quarantine zone after getting his family in Moscow. He only has one option. It is to convince the truck driver to stay and wait 15 minutes.

Question: Draw a supply and demand graph representing this situation, and explain the shape of the supply and demand curves in words. Discuss why Sergey ends up giving all the money he has.

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Concepts: Asymmetric information, Adverse selection.

Course Classification: Microeconomics, Industrial Organization

Background: Tomohe was asked to observe Himura. The stated goal is to detect his weaknesses. However, she was not aware of the real objective of her mission.

Question: Is Tomohe affected by not knowing the real goals of her mission? Did lying to Tomohe help the mission succeed? Explain the consequences of such information asymmetry.

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Concepts: Patent, monopoly, inelastic demand, fixed cost.

Background: Mia and Niklas discuss Jasper's situation. He must work ridiculously long hours to access his experimental treatment for his Huntington's Disease. They also discuss the cost of such a treatment for other patients.

Question: Why are drugs for rare and lethal diseases often very expensive? Discuss the economic mechanisms that aggravate the problem.