Econ 649 Steve Puller ([email protected]) Spring 2005 Office: Bush 3046 Office Hours: MW 10:30-12 or by appointment Econ 649: Industrial Organization I Overview: This course provides a graduate level introduction to Industrial Organization. The course will integrate theoretical models with empirical tests of the theory. The goal is to familiarize students with the major topics in IO, and in parallel, to illustrate methodological tools for conducting research. Required Text: Tirole, Jean. The Theory of Industrial Organization, MIT Press, 1988. Course Webpage: http://econweb.tamu.edu/puller/econ649.htm Recommended Texts for Broader Coverage: Carlton and Perloff. Modern Industrial Organization, Addison-Wesley, 2000. [Less math than Tirole] Scherer and Ross. Industrial Market Structure and Economic Performance, 3rd edition, Houghton Mifflin, 1990. [Good empirical and institutional detail] Vives, Xavier. Oligopoly Pricing: Old Ideas and New Tools, MIT Press, 1999. [Good compilation of literature] Fudenberg and Tirole. Game Theory, MIT Press, 1995. [Graduate game theory text] Viscusi, Vernon, and Harrington. Economics of Regulation and Antitrust, 3rd edition, MIT Press, 2000. [Theory and practice of regulation/antitrust] Evaluation: Grades will be based upon: (i) problem sets and class participation (20%), (ii) an in-class presentation of an article from the reading list (20%), (iii) a final exam (30%), and (iv) a research paper proposal (30%). Students may audit the course, but auditors will be required to make an in-class presentation. Problem Sets. I encourage you to work on the problem sets in small groups, but each of you must turn in your own set of answers. Please write the names of your group members on the each assignment.Presentation. In order to get practice presenting work in “seminar-like” settings, you will present one of the daggered (†) articles on the syllabus to the class. You should prepare a 20-30 minute presentation of the paper (with overhead slides) that will occur during one of our lecture periods when we are discussing the subject of the paper. You should choose one of the daggered articles and inform me of the choice by January 31 (Monday of the third week of class). The papers will be allocated on a first come, first served basis. I design the syllabus so that about half of the daggered articles are theoretical and half are empirical. Final Exam. The final exam will be based upon the assignments, material presented in class, and the textbook. Paper. Each student will begin a research paper addressing a topic in IO. Students should view the paper as impetus to start (or continue) dissertation research. This paper may be written in conjunction with the paper for the second course in the graduate IO sequence taught by Steve Wiggins. More details will be given in class. A one-page description of the topic and data/models you will use should be turned in by Monday, March 21. The paper is due Monday, May 2. Required Disclaimers for all course syllabi: The Americans with Disabilities Act (ADA) is a federal anti-discrimination statute that provides comprehensive civil rights protection for persons with disabilities. Among other things, this legislation requires that all students with disabilities be guaranteed a learning environment that provides for reasonable accommodation of their disabilities. If you believe you have a disability requiring an accommodation, please contact Services for Students with Disabilities, Koldus 126, 845-1637. In addition, please tell the instructor as soon as possible. Aggie Honor Code: “An Aggie does not lie, cheat, or steal or tolerate those who do.” Upon accepting admission to Texas A&M University, a student immediately assumes a commitment to uphold the Honor Code, to accept responsibility for learning, and to follow the philosophy and rules of the Honor System, (see www.tamu.edu/aggiehonor). Students will be required to state their commitment on examinations, research papers, and other academic work. Ignorance of the rules does not exclude any member of the Texas A&M community from the requirements or the processes of the Honor System.I. THEORY OF THE FIRM *Tirole, Ch. 0 on Theory of the Firm (scan the chapter) Coase, “The Nature of the Firm” Economica, 4 (1937), 386-405 reprinted in Williamson and Winter (1993), eds., The Nature of the Firm: Origins, Evolution, and Development. *Grossman and Hart, “The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration”, Journal of Political Economy, 94 (August 1986), 691-719. Hart and Moore, “Incomplete Contracts and Renegotiation,” Econometrica, 56 (1988), 755-785. *Edlin and Reichelstein, “Holdups, Standard Breach Remedies, and Optimal Investment,” American Economic Review, 86 (June 1996), 478-501. *Joskow, “Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets”, American Economic Review, 77 (March 1987), 168-185. II. MONOPOLY *Tirole Ch. 1 & 2.2-2.3 (quality) Bulow, “Durable Goods Monopolists,” Journal of Political Economy, 90 (April 1992), 314-332. †Kuhn and Padilla, “Product Line Decisions and the Coase Conjecture,” Rand Journal of Economics, 27 (Summer 1996), 391-414. Shum and Crawford, “Monopoly Quality Degradation and Regulation in Cable Television”, mimeo, Johns Hopkins, September 2004. III. PRICE DISCRIMINATION *Tirole Ch. 3 *Varian, “Price Discrimination and Social Welfare,” American Economic Review, 75 (Sept 1985), 870-875. *Maskin and Riley, “Monopoly with Incomplete Information,” Rand Journal of Economics, 15 (Summer 1984), 171-196. †McAfee, McMillan, and Whinston, “Multiproduct Monopoly, Commodity Bundling, and Correlation of Values,” Quarterly Journal of Economics, 104 (May 1989), 371-383. *Shepard, “Price Discrimination and Retail Configuration,” Journal of Political Economy, 99 (February 1991), 30-53. Goldberg, “Dealer Price Discrimination in New Car Purchases: Evidence from the Consumer Expenditure Survey,” Journal of Political Economy, 104 (June 1996), 622-654. Ayres and Siegelman, “Race and Gender Discrimination in Bargaining for a New Car,” American Economic Review, 85 (June 1995), 304-321.†Graddy, “Testing for Imperfect Competition at the Fulton Fish Market,” Rand Journal of Economics, 26 (Spring 1995), 75-62. IV. STATIC MODELS OF