Econ 8757: Industrial Organization
Spring 2004
Yongmin Chen
Office: Econ 112
Tel. (303)492-8736
Office Hours: 11:00-12:00 p.m. on Tue. and Thur.?
If you need to talk to me at other times, you are also
welcome.?
Course Description: ?This
is a graduate course in industrial organization. Industrial organization
studies the functioning of markets. It is concerned with business behavior and
strategy, as well as their implications for economic efficiency. It also
studies the role of public policies in promoting efficiency.?The topics that we intend to cover are
listed below in the course schedule.?
The textbook is The Theory of
Industrial Organization by Jean Tirole.
I will indicate the required readings below and in my lectures.?I have also selected some articles that I
recommend you to read, and more will be added as we proceed.?It will also be very useful if you read the
relevant chapters in the Handbook of Industrial Organization (I think there is
a copy in the department library.)
Grading: Grades are based on homework and class
participation (20%); a take-home midterm exam (30%), and a term paper (50%).?You are encouraged to form study groups to
discuss homework and lecture materials, but not to discuss the take-home
exam.?The detailed requirements for the
project will be announced later.
Note: Students with disabilities who may need
academic accommodations should discuss options with me during the first two
weeks of class.
?The course
materials are arranged by topics (the topics are listed below), and each topic
is usually covered over several classes.?
When homework is assigned for a topic, it is usually due at the
beginning of the first class for the next topic.?You can start working on some problems in an assignment before I
have finished the topic, but for some questions you may want to wait until I
have completed lecturing on the topic.
?A tentative
course schedule is attached.?There can
be changes to this schedule during the semester, which will be announced in
classes.?It is your responsibility to
update your information about the course according to announcements made in
classes.
Course Schedule:
1. Introduction and Theories of Firms and Contracts
Tirole, 1-50.
- Coase,
R., “The Nature of the Firm,?span style="mso-spacerun: yes">?
Economica (1937), 386-405.
- Alchian,
A and H. Demsetz, “Production, Information Costs, and Economic
Organization? AER (1972), 777-795.
- Grossman,
S. and O. Hart, “The Costs and Benefits of Ownership? JPE (1986),
691-719.
- Hart,
O., “The Market Mechanism as an Incentive Mechanism? BELL (1983),
366-382.
- Lucas,
R., “On the Size Distribution of Business Firms? BELL (1978),?508-523.
- Bagwell,
K., G. Ramey, and D. Spulber, “Dynamic Retail Pricing and Investment
Competition? RAND (1997).
- Kreps,
David, “Corporate culture and economic theory?
- Tirole,
Jean, “A theory of collective reputations? RES (1996).
- Hart
and Moore, “Foundations of Incomplete Contracts,?RES (1999).
- Tirole,
Jean, “Incomplete Contracts: Where Do We Stand??Econometrica, July 1999, pp. 741-781.
- Chen,
Y., “Promises, Trust, and Contracts,?JLEO (2000).
- Segal,
I., “Contracting with Externalities? QJE, 2000?
Homework 1. Write two-page comments/discussions on two of
the papers.
You can either read the papers listed here or find a paper
of interest by yourself.
2. Monopoly Pricing
Tirole, 65-72; 134-162
- Varian,
H., “Price Discrimination and Social Welfare? AER (1985), 870-875.
- Fudenburg
and Tirole, “Upgrades, Trade-ins, and Buybacks ?RAND (1998).
- Maskin,
E., and J. Riley, “Monopoly with Incomplete Information? RAND (1984),
171-196.
- Bagwell
and Riordan, “High and declining prices signal product quality? AER,
1991.
- McAfee,
McMillan, and Whinston, “Multiproduct Monopoly, Commodity Bundling, and
Correlation of Values? QJE (1989), 371-384.
- Armstrong,
Mark, “Price discrimination by a multiproduct firm? RES, 1999. 151-168.
- Segal,
I., “Learning Demand …” AER 2003.
Homework 2. Ex 1.1, 1.6, Ex. 3.2, 3.3, 3.6; read at least
one paper and write a two-page comment/discussion on it.
3. Static Models of Oligopoly
Some of the topics to be discussed: nature of strategic
interactions; incentives for mergers; product differentiation; oligopoly price
discrimination.
Tirole, 209-226.
- Bulow,
Jeremy, John Geanakoplos, and Paul Klemperer (1985), “Multimarket
Oligopoly: Strategic Substitutes and Complements,?JPE, 488-511.
- Deneckere
and Davidson, “Incentives to form coaliations with Bertrand competition,?
RAND, 1985
- Farrell,
J. and C. Shapiro, “Horizontal Mergers: An Equilibrium Analysis? AER
(1990), 107-126.
- Rosenthal,
R., “A Model in which Increase in the Number of Sellers Leads to a Higher
Price? EM (1980), 1575-1579.
- Shaked
and Sutton, “Relaxing Price Competition through Product Differentiation?
RES (1982), 3-13.
- Shaked,
A. and J. Sutton, “Multiproduct Firms and Market Structure? RAND (1990),
pp. 45-62.
- Homes,
Thomas J., “The Effects of Third-Degree Price Discrimination in
Oligopoly? AER (1989)?244-250.
- Stole,
Lars, “Nonlinear Pricing and Oligopoly? JEMS (1995), 529-562.
- Chen,
Y. “Equilibrium Product Bundling? JB (1997), 85-103.
Homework 3. Ex. 5.3, 5.4, 5.5, 5.6, 5.7; write two-page
comments/discussions on two of the papers.
4. Dynamic Models of Oligopoly
Tirole, 239-262.
- Klemperer,
Paul, “Competition when Consumers Have Switching Costs: An Overview? RES
(1995), 515-539.
- Klemperer,
Paul, “The Competitiveness of Markets with Switching Costs? RAND (1987),
138-150.
- Klemperer
and Joseph Farrell, “Competition in Markets with Switching Costs and
Lock-In? forthcoming Chapter in IO Handbook 3.
- Chen,
Y. “Paying Customers to Switch? JEMS (1997), 877-897.
- Taylor,
Curtis, “Supplier Surfing: Competition and Consumer Behavior in
Subscription Markets,?RAND, 2003.
- Fudenberg,
D. and J. Tirole, “Customer Poaching and Brand Switching? RAND (2001),
634-657.
- Stole,
Lars, “Price Discrimination in imperfectly competitive markets.?
forthcoming Chapter in IO Handbook 3.
Homework 4. Ex. 6.4, 6.6; write two-page
comments/discussions on two of the papers.
5. Market Structure, Innovation, and Market Dominance
- Gilbert,
Richard and David Newbery , “Preemptive Patenting and the Persistence of
Monopoly,?AER (1982): 514-526.
- Kamien,
Morton and Zang Israel, “The Limits of Monopolization Through
Acquisition,?QJE (1990), 465-499.
- Krishna,
K., “Auctions with Endogenous Valuations: The Persistence of Monopoly
Revisited,?AER (1993) 147-60.
- Reinganum,
Jennifer, “Uncertain Innovation and the Persistence of Monopoly,?AER
(1983), 741-748.
- Chen,
Y., “Strategic Bidding by Potential Competitors: Will Monopoly Persist??
(JIE, 2000).
- Green,
J and S. Scotchmer, “ON the division of profit in sequential innovation?
RAND, 1995, 20-33.
- Scotchmer,
S., “Protecting early innovations: should second-generation products be
patentable?? RAND, 1996, 322-331
- ?/span>
Homework 5: Write two-page comments/discussions on two of
the papers.
Exam
6. Search, Price Distribution, and Advertising
Tirole, 289-295.
- Bagwell,
K. and G. Ramey, “Coordination Economies, Advertising, and Search Behavior
in Retail Markets? AER (1994),?
498-517.
- Bester,
H., “Bargaining, Search Costs and Equilibrium Price Distributions? RES
(1988), 201-214.
- Reinganum,
J., “A simple Model of Equilibrium Price Dispersion? JPE (1979), pp.
851-858.
- Salop,
S. and J. Stiglitz, “Bargains and Ripoffs: A Model of Monopolistically
Competitive Price Dispersion? RES (1977), pp. 493-510.
- Grossman
and Shapiro, “Informative Advertising with diffenentiated products? RES,
1984, 63-81.
- Chen,
Y. and R. Rosenthal, “On the Use of Ceiling-price Commitments by
Monopolists? RAND (1996), 207-220.
Homework 6:
Write two-page comments/discussions on two of the papers.
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7. Vertical Contractual Relations
Tirole. 169-186.
- Deneckere,
R., H. Marvel, and J. Peck, “Demand Uncertainty, Inventories, and Resale
Price Maintenance,?QJE (1996), pp. 885-913.
- Perry,
M. and R. Porter, “Can Resale Price Maintenance and Franchise Fees Correct
Sub-optimal Levels of Retail Service??span style="mso-spacerun: yes">?
IJIO (1990), pp. 115-141.
- Chen,
Y., “Oligopoly Price Discrimination and Resale Price Maintenance? RAND,
1999, 441-455.
- Chen,
Y and K. Maskus, “Vertical Pricing and Parallel Imports? Working Paper,
Department of Economics, University of Colorado at Boulder, 2000, revised
2001.
- Aghion,
P. and P. Bolton, “Contracts as a Barrier to Entry,?AER, Vol. 77 (1987),
pp. 388-401
- Bernheim,
B.D. and M.D. Whinston, “Exclusive Dealing,?JPE, Vol. 106 (1998), pp.
64-103
- Besanko,
D and M. Perry, “Equilibrium Incentives for Exclusive Dealing in a
Differentiated Products Oligopoly,?RAND, Vol. 24 (1993), pp. 646-667.
- Martimort,
D., “Exclusive Dealing, Common Agency, and Multiprincipals Incentive
Theory,?RAND, Vol. 27 (1996), pp. 1-31.
- Marvel,
H.P., “Exclusive Dealing,?Journal of Law and Economics, Vol. 25 (1982),
pp. 1-25.
- McAfee,
Preston A. and M. Schwartz, “” AER
- O’Brian
and Shaffer, RAND.
- Ray
and Tirole, “A primer on foreclosure.?span style="mso-spacerun: yes">?
forthcoming chapter in IO Handbook 3
- Rasmusen,
E.B., Ramseyer, J.M., and Wiley, Jr. J.S., “Naked Exclusion,?AER, Vol. 81
(1991), pp. 1137-1145.
- Segal,
I.R. and M.D. Whinston, “Exclusive Contracts and Protection of
Investments,?RAND, Vol. 31 (2000), pp. 603-633.
- Spier,
K. and M.D. Whinston, “On the Efficiency of Privately Stipulated Damages
for Breach of Contract: Entry Barriers, Reliance, and Renegotiation,?
RAND, Vol. 26 (1995), pp. 180-202.
- Williamson,
O.E., The Economic Institutions of Capitalism, 1985, New York: Free Press.
Homework 7. Ex. 4.1, 4.3, 4.6; write two-page
comments/discussions on two of the papers.
8. Vertical Mergers and Vertical Organization of Industries
Chen, Y. “On Vertical Mergers and Their Competitive
Effects,?RAND, 2001.
Chen and Riordan, “Vertical integration, exclusive dealing,
and ex post cartelization? 2003
Choi, J.P. and S-S. Yi, “Vertical Foreclosure with the
Choice of Input Specification,?RAND, Vol. 31 (2000), pp. 717-743.
Hart and Tirole, “Vertical integration and market
foreclosure? Brookings Papers on Economic Activity, 1990.
Ordover, J.A., G. Saloner, and S. Salop, “Equilibrium
Vertical Foreclosure,?AER, Vol. 80 (1990), pp. 127-142.
Ray and Tirole, “A primer on foreclosure.?forthcoming
chapter in IO Handbook 3.
Riordan, M.H., “Anticompetitive Vertical Integration by A
Dominant Firm,?AER, 1998, 88, 1232-1248.
Riordan, M.H. and S.C. Salop, “Evaluating Vertical Mergers:
A Post-Chicago Approach,?Antitrust Law Journal, 1995, 63, 513-568.
Salinger, M.A., “Vertical Mergers and Market Foreclosure?
QJE, 1988, 103, 345-56.
Homework 8. write two-page comments/discussions on two of
the papers.
9. Additional Topics: Industrial Organization and
International Trade, etc
Feenstra, R. “Integration of trade and disintegration of
production in the global economy.?Journal of economic perspectives, 1998,
31-50.
Grossman and Helpman, “Outsourcing in a global economy.?
2002
Hanson, G. “Localization economics, vertical organization,
and trade? AER, 1996, 1266-1278.
McLaren, J. “Globalization and vertical structure.?AER,
2000, 1239-1254.
Deardorff, Alan, “Welfare effects of global patent
protection? Economica, 1992, 35-51.
Helpman, E. “Innovation, Imitation, and intellectual
property rights,?Econometrica, 1993, 1247-1280.
Presentation of Term Papers
Abbreviations for journals:
AER: ?American
Economic Review
EM: ?Econometrica
IJIO: ?International
Journal of Industrial Organization
JB: ?Journal of
Business
JEMS: Journal of Economics and Management Strategy
JIE: ?Journal of
Industrial Economics
JLEO:?Journal of Law,
Economics, and Organization
JPE: ?Journal of
Political Economy
QJE: Quarterly
Journal of Economics
RAND (BELL): Rand (Bell) Journal of Economics
RES: ?Review of
Economic Studies