Oregon State University

Department of Economics

Econ 460/560                                                                                                              Winter 2006

Industrial Organization Theory and Policy                                                   V. Tremblay

                                                                       

Instructor:                        Professor V. Tremblay                                                                               

Time & Class Location:   T&R, 3:00-4:50 pm, Ballard Hall 118

Office & Office Hours:     Ballard Hall 319A; Mon 3:00-4:00 pm; Fri 2-4 pm

Email:                                V.Tremblay@OregonState.edu  

Web Page:                        http://oregonstate.edu/~tremblav/

Teaching Assistant:          Yasushi Kudo, kudoy@onid.orst.edu

 

Prerequisites: A working understanding of intermediate microeconomic theory and calculus (460 students will not be required to use calculus on exams).    

 

Required Textbook:

[C&P] Carlton and Perloff, Modern Industrial Organization, Addison-Wesley, 2005, ISBN 0321180232.

 

Supplementary Books:                                  

[S] Oz Shy, Industrial Organization: Theory and Applications, MIT Press, 1995, ISBN 026291795.  Econ 560 students and undergraduate students who are interested in pursuing a graduate degree in economics are encouraged to also read the Shy textbook.

[T&T] Victor J. Tremblay and Carol Horton Tremblay, The U.S. Brewing Industry: Data and Economic Analysis, MIT Press, 2005, ISBN 0-262-20151-8.

John Sutton, Sunk Costs and Market Structure, MIT Press, 1992, ISBN 0-262-19305-1.

James Brock and Walter Adams, Structure of American Industry, Prentice Hall, 2004, ISBN: 0131432737. 

 

Course Objectives and Student Learning Outcomes: Students will demonstrate mastery of the models of competition, monopoly, and oligopoly.  Students will learn and demonstrate knowledge of the main theories of market structure, firm strategy, and economic performance. Students will be expected to explain how theory and evidence shape U.S. antitrust law and government regulation. 

                             

Grading: Your course grade will depend on class participation and your performance on homework, two midterm examinations, and a comprehensive final examination.  The weights are as follows:

      Class Participation           5%

      Homework                        -     Although the homework will not be graded, please answer all

                                                       questions.  You may see them on future exams.

      Term Paper Abstract       5%   Due by beginning of class on Thursday of the 2nd week of classes.

      Exam 1                         30%   Thursday of the 5th week of classes.

      Term Paper                        30%   Due by the beginning of class on Thursday of the 8th week of classes.

            Final Exam                    30%   Please check date/time in the schedule of classes.                        

You may not use books, notes, or electronic devices during the exams.

 

Make-Up and Extra Credit Policy: There is no extra credit available for this class.  Make-up exams will be considered for legitimate and verified reasons only.  Please notify the instructor as soon as possible if a make-up exam is warranted.  Otherwise, you will receive a zero score.

 

University Guidelines: The university requires that I inform you of the following.  (1) Academic Dishonesty: Plagiarism, fabrication, cheating, and facilitating academic dishonesty of others are serious offenses and may be punished by failure on the exam or project, failure in the course, and/or expulsion from the university.  For further information refer to the Schedule of Classes and http://osu.orst.edu/admin/stucon/plag.htm.  (2) Disruptive Behavior: Behaviors that are disruptive to teaching or learning will not be tolerated and will be referred to the Student Conduct Program for disciplinary action. Behaviors that create a hostile, offensive or intimidating environment based on gender, race, ethnicity, color, religion, age, disability, marital status or sexual orientation will be referred to the Affirmative Action Office.  (3) Disabilities: If you have a documented disability which requires special arrangements, please inform me the first week of classes.  To obtain university documentation for your disability, contact Services for Students with Disabilities at 541-737-4098 or Tracy.Bentley@orst.edu.

 

 

 

 


Course Outline and Readings

(*Required Readings)

 

1.  Introduction

      A.  Schools of Thought in Industrial Organization

            *[C&P] Ch. 1; [S] Ch. 1

      B.  An Econometrics Review

 

2.  Economic Organization

      A.  The Organization Problem

            F.A. Hayek, “The Use of Knowledge in Society,” American Economic Review, September 1945.

      B. Property Rights and Organization

            H. Demsetz, “Toward a Theory of Property Rights,” American Economic Review, May 1967.

      C. The Organization of the Firm

            *[C&P] pp. 11-26, 139

            R. Coase, “The Nature of the Firm,” Economica, November 1937.

 

3. Basic Demand and Cost Conditions

      *[C&P] pp. 88-93; [S] Ch. 3, or the demand chapter in any intermediate microeconomics book.

      L. Philips, Applied Consumer Analysis, North-Holland, 1974.

            A. Deaton and J. Muellbauer, Economics of Consumer Behavior, Cambridge University Press, 1980.

            S. Anderson, A. de Palma, and J. Thisse, Product Choice Theory of Product Differentiation, MIT Press, 1992.

 

4. Micro-Foundations of Product Markets

      A. A Review of Perfect Competition, Monopoly, and Cartel Theory              

            *[C&P] Chs. 3, 4, 5; [S] Chs. 4 and 5

      B. Game Theory and Oligopoly

            Introduction, Dominant Strategies, and the Nash Equilibrium

                  *[C&P] pp. 159-161; [S] pp. 11-22

            Duopoly: Cournot and Bertrand

                  *[C&P] pp. 161-176; [S] Ch. 6

            Mixed Strategies

                  [S] pp. 33-37

            Dynamic Games

                  *[C&P] pp. 176-191; [S] pp. 22-33

            Supermodular Games                            

                  E. Rasmusen, Games and Information, Blackwell, 1994, pp. 325-330.

                        P. Milgrom and M. Roberts, “Rationalizability, Learning, and Equilibrium in Games with Strategic Compelementarities,” Econometrica, November 1990.

 

5. Industry Structure

      A. Meaning, Measurement, and Extent of Industry Concentration in the U.S.

            *[C&P] pp. 225-259; [S] pp. 169-173

      B. Causes of High Concentration: Barriers to Entry and Sunk Costs

            *[C&P] pp. 268-272; [S] 182-206

            J. Sutton, Sunk Costs and Market Structure, MIT Press, 1992.

      C. Empirical Evidence

            *[C&P] pp. 272-274

            [T&T] Ch. 3

                       

6. Price and Non-Price Strategies

      A. Price Wars, Trigger Strategies, and Non-Linear Pricing

            *[C&P] pp. 142-146 and 336-338; [S] Ch. 13

            [T&T] pp. 157-171

      B. Product Differentiation

            *[C&P] pp. 200-206, 214-215, 220-230; [S] pp. 133-135 and Ch. 12

                  R. Schmalensee,“Product Differentiation Advantages of Pioneering Brands,” AER, June 1982.

      C. Brand Proliferation

                  R. Schmalensee, “Entry Deterrence in the Ready-to-Eat Breakfast Cereal Industry,” BJ, Spring 1978.

            [T&T] Ch. 6

      D. Advertising

            [C&P] Ch. 13

            *[C&P] Ch. 14; [S] Ch. 11

            K. Bagwell, “The Economic Analysis of Advertising,” mimeo, Columbia University, 2003.

                  D. Akerberg, “Empirically Distinguishing Informative and Prestige Effects of Advertising,” RJ, Summer 2001.

                  U. Doraszelski and S. Markovich, “Goodwill and Awareness Advertising: Implications for Industry Dynamics,” mimeo, Harvard University, 2005.

            [T&T] pp. 171-187

      E. Mergers

            *[C&P] pp. 20-29; [S] 173-182

            [T&T] pp. 187-203

 

7. Market Structure and Economic Performance

      A. Measurement Issues

            [C&P] pp. 244-254, 274-279

T. Bresnahan, “Empirical Studies of Industries with Market Power,” in R. Schmalensee and R. Willig, editors, Handbook of Industrial Organization, Ch. 17, North-Holland, 1989.

                  P. Peterson, “Event Studies: A Review of the Issues and Methodologies,” QREB, Summer 1989.

      B. Efficiency

            *[C&P] pp. 70-73, 92-94

            [T&T] pp. 212-224

                  K. Clay and W. Troesken, “Further Tests of Static Oligopoly Models: Whiskey, 1882-1898,” JIE, June 2003.

      C. Technological Change

            *[C&P] Ch. 16; [S] Ch. 9

      D. Equity and Social Responsibility

            *[T&T] pp. 207-212

                  W. Comanor and R. Smiley, “Monopoly Power and the Distribution of Wealth,” QJE, May 1975.

           

8. Antitrust and Government Regulation 

      [C&P] Chs. 19 and 20

 

 

 

Term Paper Requirements

Econ 460/560, Industrial Organization

V. Tremblay, Winter 2006

 

1.  Term Paper Topics: Please select one of the following topics. 

            A.  Industry Concentration:  Provide a brief summary of the main theories that explain industry concentration.  Based on your review of recent empirical evidence, what are the main sources of high concentration in real industries? 

            B.  Non-Price Competition:  Provide a brief summary of the theoretical relationship between market price and another strategic variable (e.g., advertising, research and development, brand proliferation, etc.).  Based on your review of recent empirical evidence, does more of this strategic variable lead to higher or lower prices in real markets?

            C.  Industry Study:  Select a single U.S. industry and discuss how concentration has changed, reasons for that change, and how the level of concentration has affected some aspect of firm behavior or industry performance.  The books by T&T, Sutton, and Brock and Adams listed on the first page of the syllabus may be of help with this topic.

            D.  Your Own Topic:  You may select your own topic, but it must be an industrial organization topic.  You will need instructor permission by the second week of the term to choose your own topic.

 

2.  Term Paper Requirements:  Your papers should be professionally done.  That is, they should be free from errors in logic, spelling, and grammar.

      A.  Length: Quality is more important than length, but here are my recommendations.

            Econ 460: Approximately 4-8 typed pages of double-spaced text.

            Econ 560: Approximately 6-12 typed pages of double-spaced text.

           B.  References:  You must reference at least 5 journal articles in economics or a related field (not business magazines) unless the analysis is primarily your own.  Please use an EconLit search to identify relevant literature from economics and business journals.  You can get help with this from an OSU librarian or go to http://osulibrary.orst.edu/research.php/db.php.    

            C.  Style:  Write your paper in the style of a journal article.  The Rand Journal, the Journal of Industrial Economics, and the Review of Industrial Organization are good examples.

                  1) Divide your paper into sections (i.e., I. Introduction, II. Literature Review (or Research Results)... , and VI. Conclusion).  Be sure to include a cover page.

            2)  Include a complete set of references.

                  3) Use footnotes to reference the sources of a fact, statistic, or idea that is not your own and to reference the source of a direct "quote".  Note that plagiarism is using another person's words (or ideas) with the intent of claiming them as your own.

 

3.  Deadlines:

            A.  Abstract: Please turn in a one-paragraph abstract that explains what you plan to do.  This is due by the beginning of class on the Thursday of the 2nd week of classes.  If you plan to choose your own topic, please get topic approval before writing up your abstract.

      B.  Paper: The paper is due by the beginning of class on the Thursday of the 8th week of classes.