Econ 664  Empirical Studies in Industrial Organization

Fall 2005

updated schedule!

Regular: 2:00pm-3:15pm Key 0124

Makeup: Tydings 3100

Contact Information

Ginger Z. Jin
3115 H Tydings Hall
Department of Economics
Phone:          (301) 405-3484
E-mail:         jin@econ.umd.edu
Web site:      http://www.glue.umd.edu/~ginger/, click on "Econ 664"

Office Hour: by appointment

Overview
This course introduces students to the recent empirical literature of industrial organization. We will cover a variety of topics including price discrimination, cartels and collusion, entry and market structure, information and competition, technological change, auctions and firm organization. Every 1-2 weeks, we focus on a particular topic and review 3-4  recent empirical papers on that topic.  For each paper, we will discuss in detail the research question, related theories, the data, the identification strategies, estimation techniques and policy implications. My goal is that, at the end of the semester, students have a good idea of how to take an industrial organization theory to data or vice versa.
Prerequisite
You are assumed to be familiar with econometrics and microeconomics theory, including game theory. Therefore, first year graduate courses in these areas are regarded  as prerequisite. This course is also one of the three courses in the second year graduate IO sequence, so it is required for those taking IO as a field.  Beside the regular econometric sequences, ECON625 and ECON626 are highly complimentary to this course. 
Readings
There is no text book. Reading list is provided in course outline.  Most papers are electronically available at JSTOR  (www.jstor.org), NBER working papers (www.nber.org) , or the UMD electonic journal list (www.lib.umd.edu). Unpublished papers usually have the latest version at the authors' websites. For papers that I could not provide a web link, copies will be available from my office a couple of days in advance.

Each student is recommended to obtain one of the following books

Jean Tirole's The Theory of Industrial Organization 1988
Luis M.B. Cabral edited Readings in Industrial Organization 2000
R. Schmalensee & R.D. Willig edited Handbook of Industrial Organization 1989

as a reference for the theoretical literature related to the topics we cover in class.

Assignments
You are required to fulfill the following assignments, with grading weights in parentheses. There is no mid-term or final.
(15) Class Performance
You are expected to read each paper before the class and actively participate in discussion during the class. The value of discussion will be maximized if you prepare well, listen to the others' comments and offer insights to your peers (and your professor). It is a good idea if you can review a list of questions while reading each paper before the class meeting.
(15) Seminar Summary
You are required to submit a one page summary for each regular IO seminar in industrial organization. If it is an empirical study, you are required to answer questions on List A. If it is a theoretical study, you are required to answer questions on List B. The summary is due in the Thursday class meeting one week after the seminar. My grading for seminar summary is only a head count, but writing a good summary for other people's work is a necessary start of your own research. Attention: you should express the author's and your own ideas in your own language, not copy and paste from the original paper. 
(20) Referee Report
On Nov. 1, you are expected to turn in a referee report for an unpublished empirical paper. The referee report shall include the paper's contribution to the literature, key weakness, and recommendations for future improvement. The report should be no longer than 5 pages double space, with all you points clearly presented, not a restatement of what the author has written. Also, the report should reflect your own thoughts, with no interactions with the author(s). 
(50) Research Proposal
You are expected to assemble a research proposal at the end of the semester, describing a research question that you would like to answer in the area of empirical IO, the data you would like to use and the identification strategy you are going to adopt assuming the availability of perfect data. To facilitate feedback, each student is required to present his/her research proposal in a 10-minute slot during the last class meeting The written proposal is due on Dec. 20. 
Course Outline
Topic 1: Price Discrimination

Sept. 1:

Introduction to Empirical IO
Severin Borenstein, "Selling Costs and Switching Costs: Explaining Retail Gas Margins," Rand Journal of Economics, Autumn 1991, 354-369.

Sept. 6: (the one with **** is the key reading)
Ian Ayres and Peter Siegelman, "Race and Gender Discrimination in Bargaining for a New Car" American Economic Review, 85(3), June. 1995.

**** Pinelopi K. Goldberg, "Dealer Price Discrimination in New Car Purchases: Evidence from the Consumer Expenditure Survey, ", Journal of Political Economy    104 (June 1996), 622-654.

David Harless and George Hoffer (2002): "Do Women Pay More for New Vehicles? Evidence from Transaction Price Data" American Economics Review, March 2002.
         Optional readings:
Sept. 8:
Fiona Scott Morton: "The Strategic Response by Pharmaceutical Firms to the Medicaid
Most-Favored-Consumer Rules," The RAND Journal of Economics, Vol. 28, No. 2,  269-290, 1997.

Optional reading: Fiona Scott Morton: "The Interaction between a most-favored-customer clause and price dispersion: an empirical examination of the Medicaid Rebate Rules of 1990" Journal of Economics & management Strategy, 6(1), Spring 1997.

Phillip Leslie: "Price Discrimination in Broadway Theatre," The RAND Journal of Economics, 35(3), 2004, 520-41.

Topic 2: Oligopolistic Competition in Differentiated Products Markets

Sept. 13:

Steve Berry, "Estimating Discrete Choice Models of Product Differentiation" RAND Journal of Economics 25 (Summer 1994) 242-262.

      [Optional reading:

Dennis Epple, " Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for Differentiated Products, " Journal of Political Economy, 95(1), 1987, 59-80.]
 
Sept. 15:

Steve Berry, James Levinsohn and Ariel Pakes: " Voluntary Export Restraints on Automobiles: Evaluating a Strategic Trade Policy",  American Economic Review 89(3) (1999) 400-430.

Optional reading: Steve Berry, James Levinsohn and Ariel Pakes: "Automobile Prices in Market Equilibrium", Econometrica 63 (July 1995), 841-890.

Pinelopi K. Goldberg, "Product Differentiation and Oligopoly in International Markets: The Case of The U.S. Automobile Industry", Econometrica 63 (July 1995).
 
Sept. 20:
Amil Petrin: "Quantifying the Benefits of New Products: The Case of the Mnivan" Journal of Political Economy 110(4), August 2002.


Topic 3: Collusion

Sept. 22:

Robert Porter: "A Study of Cartel Stability: The Joint Executive Committee, 1880-1886", Bell Journal of Economics 14 (Autumn 1983), 301-314.
Sept. 26, 3:30-4:45pm Tydings 3100:
Glenn Ellison: "Theories of Cartel Stability and the Joint Executive Committee, " Rand Journal of Economics 25 (Spring 1994), 37-57.

    [Useful readings:

    David Genesove and Wallace P. Mullin "Rules, Communication, and
    Collusion: Narrative Evidence from the Sugar Institute Case," The
    American Economic Review, June 2001, 379-398.]


Topic 4: Cost and Production Function

Sept. 27:

Christensen and Greene: "Economies of Scale in U.S. Electric Power Generation, " Journal of Political Economy 84(4), 1976, 655-676.
Evans and Heckman: "A Test of Subadditivity of the Cost Function with an Application to the Bell System, " American Economic Review, September 1984, 615-623.

Sept. 29:
Olley and Ariel Pakes: " The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, November 1996, 1263-97.

Oct. 4: 

Lanier Benkard "Learning and Forgetting: The Dynamics of Aircraft Production" American Economic Review, September 2000.


Topic 5: Entry and Market Structure

Oct. 6:

John Sutton: Sunk Costs and Market Struture: Price Competition, Advertising, and the Evolution of Concentration, MIT press, 1991, Chapter 3,

Timothy F. Bresnahan "Sutton's Sunk Costs and Market Structure: Price Competition, Advertising, and the Evolution of Concentration" RAND Journal of Economics, 23(1), spring 1992.

Oct. 11:

Steve Berry, "Estimation of a Model of Entry in the Airline Industry, " Econometrica, 60(4), 889-918.
Oct. 13:
Tim Bresnahan and Peter Reiss: "Entry and Competition in Concentrated Markets," Journal of Political Economy 99 (Oct. 1991), 977-1009
Oct. 17, 3:30-4:45pm Tydings 3100:
Steve Berry and Joel Waldfogel: "Free Entry and Social Inefficiency in Radio Broadcasting", Rand Journal of Economics 30 (Autumn 1999), 397-420.

    [Optional readings:

    T. Dunne, M. Roberts and L. Samuelson, "Patterns of Entry and Exit in
    U.S. Manufacturing Industries, " Rand Journal of Economics 19 (Winter
    1988), 495-515.]
Oct. 18:
Katja Seim "An Emirical Model of Firm Entry with Endogenous Product-Type Choices", mimeo.

Topic 6: Auctions

Oct. 20:


Ken Hendricks and Robert Porter: "An Empirical Study of an Auction with Asymmetric Information, " American Economic Review Dec 1988, 865-883.
    [Optional reading:

    Ken Hendricks and Robert Porter: "Joint Bidding in Federal OCS Auctions"American Economic
    Review 82 (May 1992): 506-511.
Oct. 25:
Philip A. Haile: "Auctions with Resale Markets: An Application to U.S. Forest Service Timber Sales", The American Economic Review, June 2001.

    Optional reading:

    Laffont, Ossard and Vuong: "Econometrics of First-Price Auctions, " Econometrica 63 (Jul. 1995):
    953-980.

Referee Report  due Nov. 1

Topic 7: Organizational Forms and Vertical Controls

Oct. 27 class cancelled

Oct. 28, 2:00-3:15pm, Tydings 3100:

Paul Joskow, "Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets, " American Economic Review 77 (Mar. 1987) 168-185.
               Optional reading:
    Andrea Shepard, "Contractual Form, Retail Price, and Asset
    Characteristics in Gasoline Retailing, "Rand Journal of Economics 24
    (Spring 1993) 58-77.

Nov. 1:

George Baker and Thomas Hubbard: "Make versus Buy in Trucking: Asset Ownership, Job Design and Information" American Economic Review, June 2003.

    Optional reading:

    Thomas Hubbard "The Demand for Monitoring Technology: The Case of Trucking",
    Quarterly Journal of Economics, May 2000.

Nov. 3:

Brickley and Dark, "The Choice of Organizational Form: The Case of Franchising, " Journal of Financial Economics 18 (Jun. 1987) 401-420.
Francine Lafontaine, "Agency Theory and Franchising: Some Empirical Results, "Rand Journal of Economics 23 (Summer 1992): 263-283.

    Optional reading:
Lafontaine and Shaw "The Dynamics of Franchise Contracting: Evidence from Panel Data" The Journal of Political Economy 107(5): 1041-1080, Oct. 1999.


Topic 8: Technological Change and Innovation

Nov. 7, 3:30-4:45pm Tydings 3100:

Tim Bresnahan, Scott Stern and Manuel  Trajtenberg: "Market Segmentation and the Source of Rents from Innovation: Personal Computers in the Late 1980s," Rand Journal of Economics 28 (1997), 17-44.
Nov. 8:
Manuel Trajtenberg: "The Welfare Analysis of Product Innovations, with an Application to CAT Scanners, " Journal of Political Economy, Summer 1989, 444-479.

Nov. 10:
Phillip Schmidt-Dengler "The Timing of New Technology Adoption: The Case of MRI" mimeo. 

Topic 9: Network Effects

Nov. 15:

Mark Rysman "Competition Between Networks: A Study of the Market for Yellow Pages" Review of Economic Studies, 71(2) 2004.
            Optional reading:
Garth Saloner and Andrea Shepard "Adoption of Technologies with Network Effects: An Empirical Examination of the Adoption of Automated Teller Machines" The RAND Journal of Economics, 26(3): 479-501, Autumn, 1995.
Chris Mayer and Todd Sinai: "Network Effects, Congestion Externalities, and Air Traffic Delays: Or Why Not All Delays Are Evil," American Economic Review, Sept. 2003.

Topic 10: Information Imperfections

Nov. 17:

Daniel Ackerberg, "Empirically Distinguishing Informative and Prestige Effects of Advertising " Rand Journal of Economics, Summer 2001.
Daniel Ackerberg "Advertising, Learning, and Consumer Choice in Experience Good Markets: A Structural Empirical Examination" forthcoming International Economic Review.

Optional reading: Kyle Bagwell "The Economic Analysis of Advertising." Book chapter in progress.
Nov. 21, 3:30-4:45pm, Tydings 3100:
David Genesove, "Adverse Selection in the Wholesale Used Car Market, " Journal of Political Economy 101 (August 1993), 644-665.

Jin and Kato, "Dividing Online and Offline: A Case Study" mimeo.

Nov. 22:
Judith Chevalier and Glenn Ellison: "Risk Taking by Mutual Funds as a Response to Incentives", the Journal of Political Economy, December, 1997.

Nov. 29:  student presentation

Dec. 20: Final research report due.
 
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