Industrial Economics [I.E.] is an advanced economic unit, normally pursued by people on the straight Economics or the Economics and Management pathways (although it is an option available on the Accounting, Banking and Management pathways, as well).

It is a very technical paper, and requires a high degree of algebraic agility. Warning: DO NOT SELECT THIS SUBJECT UNLESS YOU ARE GOOD AT MATHEMATIICS, AND YOU ENJOYED THE ALGEBRAIC MANIPULATIONS OF MANAGERIAL ECONOMICS.

Students coming to I.E. will have already encountered the Bertrand equilibrium in Managerial Economics. This so-called equilibrium is, of course, paradoxical: that there be a small or limited number of firms within an industry and yet they compete on price down to marginal cost, making zero or minor supra-normal profit, is illogical. If the entire syllabus of I.E. could be summed up in one key sentence, that sentence would be: The Resolution of the Bertrand Paradox.

The core of the course – 75% of the syllabus and 75% of a typical examination paper – look at the main ways that the Bertrand Paradox is overcome, by means of repeated interaction between firms; by means of competition when there exist capacity constraints (where unique Nash equilibria exist for Price > Marginal Cost – even though competition is on price); and by means of elaborate product differentiation.

Many issues which were just touched upon within Managerial Economics are now examined in far greater depth: successive marginalisation and the vertical restraints used to overcome such problems; first degree price discrimination within third degree price discrimination in the face of fringe competition; linear and non-linear positioning problems where firms can compete on quality (as well as on quantity and price); brand proliferation as a means of entry deterrence; etc. etc.

The subject is demanding, but immensely satisfying to some. By the time the May examination looms, students in recent years have fallen into only two categories: (a) those for whom I.E. has become their favourite subject, by far, of their entire degree, and (b) those who wish they had heeded advice about enjoying algebraic manipulation, and had avoided I.E. like the plague.