ECON 4697-001 INDUSTRIAL ORGANIZATION & REGULATION

Fall 2004, Department of Economics

University of Colorado at Boulder

 

Instructor: Scott Savage, Assistant Professor

Office: ECON 9

Email: scott.savage@colorado.edu

Phone: (303) 735-1165

Office hours: MW 10.30-12:00 or by appointment

Class time and location: TR 12:30-1:45pm, ECON 119

Class website: http://webctcolorado.edu

 

Course Description

 

Industrial Organization and Regulation studies industry structure, and how firms behave in markets where the assumptions of perfect competition do not hold. The main focus is on the firm's choice of price, quantity and quality, market entry and exit, and how public policy is used to promote competitive outcomes and control market power. The course comprises five parts. Part I reviews microeconomics principles and introduces some basic game-theoretic concepts. Part II examines monopoly markets and regulation. Oligopoly behavior is studied in Part III, while Part IV investigates firm's price and non-price strategies. Finally, Part V examines firm entry, exit and entry deterrence.

 

Objectives

 

Use the economic tools learned in ECON 3070 Intermediate Microeconomic Theory to understand the economics of firms and markets, and optimal decision making by firms and policy makers under conditions of imperfect competition.

 

Become comfortable using algebra, calculus, diagrams and logic and to model different kinds of firm interactions in an applied setting.

 

Develop critical thinking, and oral and written communication skills with class room interaction, homework questions and examinations.

 

Prerequisites

 

Available to students who have completed ECON 3070 Intermediate Microeconomic Theory. Students should be familiar with microeconomic principles, algebra, calculus and statistics covered in prerequisite classes.

 

Textbook and class readings

 

The required textbook is Introduction to Industrial Organization by Luis Cabral, 2000, MIT Press, ISBN# 0-262-03286-4. Your textbook from ECON 3070 Intermediate Microeconomic Theory may be useful for revising several of the introductory topics.

References to other appropriate readings will be indicated during lectures as the course progresses (note: you will be asked to read several journal articles that can be downloaded from the web or physically accessed at the Norlin Library).

 

Class requirements

 

The class meets each Tuesday and Thursday from 12:30-1:45pm. Try to select a regular seat in class so it is easier for me get to know you. Although there is no grade for attendance, attendance and class participation will be duly noted. To receive a passing grade, you are required to attend a minimum of 80 percent of the lectures. A sign-in sheet will be circulated during each class, and it is your responsibility to make sure that you have signed in by the end of class. Please be aware that the critical thinking required for successful completion of this course may not come naturally for many students. Class exposure to model building, applied problems and solutions is the best way to become proficient at analyzing the economics of firms and markets.

 

Feel free to form study groups to review and discuss lecture/reading material, homework questions, etc., but you must submit individual work for grading (hint: if you work with a study group or individual class mates on homework, please list the names of these persons on the front page of your submitted homework).

 

Students should:

 

a) attend two 75 minute classes per week;

b) read assigned readings;

c) review and augment notes after lectures;

d) submit at least five of the six homework assignments;

e) complete one mid-term examination; and

f) complete one final examination

 

Students are also expected to be punctual, polite and prepared to engage in discussion with the instructor and class mates. See http://colorado.edu/policies/classbehavior.html for University of Colorado polices on student classroom and course-related behavior.

 

Grading

 

There will be six homework assignments (with the lowest score dropped from the overall grade), one mid-term examination, and one final examination. The weightings for these assessments are:

 

Homework assignments

(5´10%)

50 %

Mid-term exam

(1´20%)

20 %

Final exam

(1´30%)

30 %

 

 

 

Homework assignments will comprise of problems that require students to use diagrammatic, mathematical and written skills to prove their answers. The mid-term and final examination will consist of problem solving questions, similar to homework assignments and class applications. The mid-term examination will be held in class on October 21, and the final examination will be held on December 11 from 7:30 to 10:00pm.

 

There will be no make-up assignments or mid-term examination unless there is a proven emergency or other unusual circumstances that have been discussed with the instructor prior to submission/completion dates (or, immediately thereafter). If you aware of any problems that may hinder your performance in the class please discuss with the instructor sooner than later. Any student that misses the mid-term examination due to proven emergency or other circumstances may have their final examination weighted at 50 percent with instructor approval.

 

Important dates for assessment

Date

Assessment

Sep 7

Homework 1

Sep 21

Homework 2

Oct 5

Homework 3

Oct 21

Mid-term examination

Nov 2

Homework 4

Nov 16

Homework 5

Nov 30

Homework 6

Dec 11

Final examination

 

 

Tentative course outline

 

Proposed topics and dates are provided in Table 1. Class lectures will closely follow the presentation of topics by Cabral (2000). Additional examples and case studies will be provided by the instructor to enhance your understanding of concepts and models.

 

Please note the course outline is subject to change during the term depending on how fast we work through the proposed topics. All changes will be announced in class and online through webCT at http://webct.colorado.edu.

 

 

 

 

 

 

 

 

 

 

Table 1. Proposed course outline

Week

Date

Topic

Reading

 

 

Part I. Introduction & Review

 

1.

 

Aug 24

Aug 26

- Introduction

- What is industrial organization?

 

Ch 1

2.

 

Aug 31

Sep 2

- Microeconomic principles

- The firm

Ch 2

Ch 3

3.

 

Sep 7, 9

 

- Games

 

Ch 4

 

 

 

Part II. Monopoly & Regulation

 

4.

 

Sep 14

Sep 16

- Monopoly

- Dominant firm, competitive fringe

Ch 5

Ch 5

5.

 

Sep 21, 23

 

- Price regulation, ECPR

 

Ch 5

 

6.

Sep 28

Sep 30

- Partially deregulated markets

- No class, Fall break

Handout

 

7.

Oct 5, 7

Part III. Oligopoly

- Competition

 

Ch 7

8.

 

Oct 12, 14

 

- Collusive behavior

 

Ch 8

 

9.

 

Oct 19

Oct 21

- Collusive behavior, exam review

- Mid-semester exam

Ch 8

 

10.

 

Oct 26, 28

 

- Market structure & market power

 

Ch 9

 

 

 

Part IV. Price & Non-price behavior

 

11.

 

Nov 2

Nov 4

- Price discrimination

- Non-linear pricing

Ch 10

Ch 10

12.

 

Nov 9, 11

 

- Versioning, bundling, tie-in sales

 

Ch 10

Handout

13.

 

Nov 16

Nov 18

- Vertical relations

- Product differentiation

Ch 11

Ch 12

14.

 

Nov 23

 

- Product differentiation

 

Ch 12

 

 

 

Part V. Firm Entry & Exit

 

15.

Nov 30

Dec 2

- Entry costs

- Entry costs, entry deterrence

Ch 14

Ch 15

16.

Dec 7

Dec 9

- Entry deterrence

- Review lecture, last day of class

Ch 15

 

 

Dec 11

 

- Final examination

 

 

 

 

 

 

Religious observances

 

Campus policy states that every effort shall be made to reasonably and fairly deal with all students who, because of religious obligations, have conflicts with scheduled exams, assignments or required attendance. Students should notify the instructor of anticipated conflicts as early in the semester as possible so that there is adequate time to make necessary arrangements. The full text of the Boulder campus policy is available at http://www.colorado.edu/policies/fac_relig.html.

 

Honor code

 

The University has recently adopted a student Honor Code. Students should familiarize themselves with its tenets at http://www.colorado.edu/academics/honorcode/. Students will be asked to include this pledge on various assignments and tests: “On my honor, as a University of Colorado at Boulder student, I have neither given nor received unauthorized assistance on this work.”

 

Disability services

 

If you qualify for accommodations because of a disability please submit to me a letter from Disability Services in a timely manner so that your needs may be addressed. Disability Services determines accommodations based on documented disabilities (303-492-8671, Willard 322, www.colorado.edu/disabilityservices).