University of Oregon Department of Economics ECN 607: SEMINAR IN INDUSTRIAL ORGANIZATION II Professor Bruce Blonigen Office: 511 PLC Office Hrs: Tu,W 2-3 Ph.#: 346-4680 Email: [email protected] SYLLABUS This course is one of two graduate seminars in industrial organization. We will focus on five main areas: 1) pricing and pricing strategies of firms, including price discrimination, limit pricing, and predatory pricing, 2) product differentiation, 3) incomplete contracts and theory of the firm, 4) innovation, patents, and research and development, and 5) merger analysis and antitrust regulation. We will cover both the theoretical and empirical sides of these issues, and most likely more about half the course will be devoted to the first two topics. In addition, I will point out the international applications of each topic, rather than treat international industrial organization as a separate focus area. The goal is to give you a solid understanding of literature in each area and a sense for which issues economists have deemed important and relevant. Along the way, you may pick up new tools and techniques for your tool box. We will have weekly or biweekly assignments and quizzes (20 % of your grade for Ph.D. students, 30% Master’s) and a midterm in the seventh week of the quarter (30 % Ph.D. and 35% Master’s). The ultimate goal in a field class is to get you working on and writing original research. To achieve this, a paper will be due at the end of the term (30 % Ph.D. and 35% Master’s) by 5 pm on Wednesday, June 14. There will be two options for the paper: 1) a 10-12 page literature review (with at least 15 cites), or 2) a paper that presents a new problem or issue and derives theoretical or empirical results (at least 10 pages). I actually recommend the first option, regardless of where you are at with your dissertation or thesis research. The topic needs to be decided in consultation with me by the second or third week of class. Finally, the Ph.D. students only will present an article to the class (20% Ph.D.) from their literature review in one of the final two weeks of class. Course readings for each topic will be announced a week in advance. We may or may not cover each of the articles listed below in a topic area. In addition, there are the following required and recommended text books. Required Text: Jean Tirole. The Theory of Industrial Organization. Cambridge, MA: The MIT Press, 1990. Stephen Martin. Advanced Industrial Economics. Cambridge, MA: Blackwell Publishers, 1993. Other Recommended Texts: Oz Shy. Industrial Organization. Cambridge, MA: The MIT Press, 1995. F. M. Scherer and David Ross. Industrial Market Structure and Economic Performance. Boston, MA: Houghton Mifflin, 1990 Dennis Carlton and Jeffrey Perloff. Modern Industrial Economics. NY: HarperCollins College Publishers, 1994.COURSE OUTLINE AND READINGS (* - indicates required reading) (Subject to change with notification during the quarter) I) Pricing Strategies - Price Discrimination *Tirole, chapter 3, pp. 133-168. *Oi, Walter. (1971). “A Disneyland Dilemma: Two-Part Tariffs for a Mickey Mouse Monopoly,” Quarterly Journal of Economics. Feb: 77-96. *Brander, James and Paul Krugman. (1983). “A ‘Reciprocal Dumping’ Model of International Trade,” Journal of International Economics. 15: 313-321. Klemperer, Paul. (1987). “Markets with Consumer Switching Costs, Quarterly Journal of Economics, 102(2): 375-94 Borenstein, Severin and Nancy L. Rose. (1994). “Competition and Price Dispersion in the U.S. Airline Industry,” Journal of Political Economy. 102(4): 653-83. Goldberg, Penelopi K, and Michael M. Knetter. (1997) “Goods Prices and Exchange Rates: What Have We Learned?” Journal of Economic Literature. 35(3): 1243-72. Ellison, Glenn. (2005). “A Model of Add-on Pricing,” Quarterly Journal of Economics, 120(2): 585-638. Blonigen, Bruce A., and Stephen E. Haynes. (2002) “Antidumping Investigations and the Pass-Through of Exchange Rates and Antidumping Duties,” American Economic Review, 92(4): 1044-1061. II) Pricing Strategies - Predatory Pricing and Limit Pricing *Tirole, chapter 9, pp. 361-388. *Martin, chapter 8, pp. 226-273. McGee, John S. (1958). “Predatory Price Cutting: The Standard Oil (N.J.) Case,” Journal of Law and Economics, 1: 137-69. *Burns, Malcolm R. (1986). “Predatory Pricing and the Acquisition Cost of Competitors,” Journal of Political Economy, 94(2): 266-296. *Isaac, R. Mark and Vernon L. Smith. (1985). “In Search of Predatory Pricing,” Journal of Political Economy, 93(2): 320-345.II) Pricing Strategies - Predatory Pricing and Limit Pricing continued Jung, Yun Joo, John H. Kagel, and Dan Levin. (1994) “On the Existence of Predatory Pricing – An Experimental-Study of Reputation and Entry Deterrence in the Chain-Store Game,” RAND Journal of Economics, 25(1): 72-93. Lerner, Josh. (1995) “Pricing and Financial Resources: An Analysis of the Disk Drive Industry, 1980-88,” Review of Economics and Statistics, 77(4): 585-598. III-A) Product Differentiation - Theory *Tirole, chapter, 7, pp. 277-304. *Martin, Chapters 3-4, pp. 41-116, Chapter 11, Section 4, pp. 356-360. Shy, chapter 7, pp. 133-168. Hotelling H. (1929). “Stability in Competition,” Economic Journal. 39: 41-57. Gabszewicz, J. and J.F. Thisse (1980). “Entry (and Exit) in a Differentiated Industry, Journal of Economic Theory. 22: 327-38. *Bonnano, G. (1987). “Location Choice, Product Differentiation, and Entry Deterrence,” Review of Economic Studies. 54: 37-45. *Schmalensee, R. (1978). “Entry Deterrence in the Ready-to-Eat Breakfast Cereal Industry,” Bell Journal of Economics. 9: 305-27. *Klemperer, Paul. (1992). “Equilibrium Product Lines: Competing Head-to-Head May Be Less Competitive,” American Economic Review. 82: 740-755. III-B) Product Differentiation - Empirical *Berry, Steven T. (1994). “Estimating Discrete-Choice Models of Product Differentiation,” RAND Journal of Economics. 25(2): 242-262. *Irwin, Douglas A. and Nina Pavcnik. (2004). “Airbus versus Boeing Revisited: International Competition in the Aircraft Market,”Journal of International Economics. 64(2): 223-45. *Berry, Steven T. and Joel Waldfogel. (2001). “Do Mergers Increase Product Variety? Evidence from Radio Broadcasting,” Quarterly Journal of Economics.