Econ 664  Empirical Studies in Industrial Organization

Spring 2008

Tues. & Thur. 12:30pm -1:45pm Woods Hall 1127
Class presentation assignment and grades available online.

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: Appointment by email

Overview
This course introduces students to the recent empirical literature of industrial organization. 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. Specifically, the class consists of five themes: price discrimination, cartels and collusion, demand estimation, entry and market structure, and information economics. Each theme covers 4-5 lectures, plus one or two classes for student representation. In the lectures, we will focus on a series of resesarch papers and discuss their research question, related theory, data, identification strategies, estimation techniques and policy implications. At the end of each theme, students will present a literature review for a topic that is related to the theme but not yet covered in the lectures. The potential topic choices will be available at the beginning of each theme.
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 the second course in the second year graduate sequence in industrial organization, so it is required for those taking industrial organization as a field. Other students are welcome.
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 Unpublished papers usually have the latest version at the authors' websites.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 a copy of Jean Tirole's The Theory of Industrial Organization or Luis M.B. Cabral edited Readings in Industrial Organization 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.
(45) Class Presentation
You are required to perform 2 class presentations throughout the class. One is to summarize the literature of one student-presentation topic at the end of a theme, and the other is a mid-term report on a potential idea for your own research proposal.
(40) 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 15-minute slot in the last class meeting The written proposal is due on May 17.
Course Outline
Theme 1: Pricing

Jan. 29-Feb. 7: Lectures covering:

Severin Borenstein, " Selling Costs and Switching Costs: Explaining Retail Gas Margins," Rand Journal of Economics, Autumn 1991, 354-369.
Andrew Shepard, "Price Discrimination and Retail Configuration, " Journal of Political Economy, Spring 1991, 30-53.
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.
John List, "The Nature and Extent of Discrimination in the Marketplace: Evidence from the Field" The Quarterly Journal of Economics, Feb. 2004, 49-89.
Alan Sorensen " Equilibrium Price Dispersion in Retail Markets for Prescriptions Drugs" The Journal of Political Economy, Aug. 2000.
Chad Syverson and Ali Hortacsu : "Product Differentiation, Search Costs and Competition in the Mutual Fund Industry: A Case Study of S&P 500 Index Funds ", Quarterly Journal of Economics , v.119, May 2004.
Yao Huang, Isabelle M. Perrigne and Quang Vuong: "Nonlinear Pricing in Yellow Pages" (working paper).
Feb. 12: Student presentation on Theme 1: Bundling
Sean Chu, Phillip Leslie, and Alan Sorensen : " Nearly Optimal Pricing for Multi-Product Firms" (working paper).
Gregory Crawford: "The Discriminary Incentives to Bundle in the Cable Television Industry" forthcoming Quantitative Marketing and Economics.
Theme 2: Cartel and Collusion

Feb. 14-Feb. 28: Lectures covering:

Robert Porter: "A Study of Cartel Stability: The Joint Executive Committee, 1880-1886", Bell Journal of Economics 14 (Autumn 1983), 301-314.
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.
Chris Knittel and Victor Stango: "Price Ceilings as Focal Points for Tacit Collusion: Evidence from Credit Cards" American Economic Review, Dec. 2003.
Interesting readings about credit cards:
Sumit Agarwal, John C. Driscoll, Xavier Gabaix and David Laibson "Learning in the Credit Card Market" (Feb 2008) working paper.
Larry Ausubel "The Failure of Competition in the Credit Card Market" American Economic Review 81(1): pp 50-81 March 1991.
Larry Ausubel "Adverse Selection in the Credit Card Market" (June 1999) working paper.
Haiyan Shui and Larry Ausubel "Time Inconsistency in the Credit Card Market" May 2004 working paper, SSRN #586622.
Robert Porter and J. Douglas Zona "Detection of Bid Rigging in Procurement Auctions" Journal of Political Economy 101(3): 518-538, June. 1993.
Laura H. Baldwin, Robert C. Marshall and J.F. Richard " Bidder Collusion at Forest Service Timber Sales " Journal of Political Economy, 105(4): 657-699, Aug. 1997.
Robert Porter and J. Douglas Zona "Ohio School Milk Markets: An Analysis of Bidding" RAND Journal of Economics, 30(2): 263-288, Summer 1999.
Patrick Bajari and Lixin Ye " Deciding Between Competition and Collusion " Review of Economics and Statistics, 2003, 85(4), 971-989.

Mar. 4: Student Presentation on asymmetric bidding: #2

Ken Hendricks and Robert Porter: "An Empirical Study of an Auction with Asymmetric Information, " American Economic Review Dec 1988, 865-883.
Robert Porter "The Role of Information in U.S. Offshore Oil and Gas Lease Auctions" Econometrica 63(1): 1-27, Jan. 1995.
Theme 3: Demand Estimation and Oligopolistic Competition in Differentiated Products Markets

Mar. 6 - Mar. 25: Lectures covering:

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

Pinelopi K. Goldberg, "Product Differentiation and Oligopoly in International Markets: The Case of The U.S. Automobile Industry", Econometrica 63 (July 1995).
Steve Berry, "Estimating Discrete Choice Models of Product Differentiation" RAND Journal of Economics 25 (Summer 1994) 242-262.

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.

Steve Berry, James Levinsohn and Ariel Pakes: " Automobile Prices in Market Equilibrium", Econometrica 63 (July 1995), 841-890.
Amil Petrin: "Quantifying the Benefits of New Products: The Case of the Mnivan" Journal of Political Economy 110(4), August 2002.
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.
Philipp Schmidt-Dengler "The Timing of New Technology Adoption: The Case of MRI" working paper.

Mar. 27: student presentation on demand for durable goods: #1, #2

Marc Rysman and Gautam Gowrisankaran: "Dynamics of Consumer Demand for New Durable Goods" (working paper).
Matthew Shum and Susanna Esteban "Durable Goods Oligopoly with Secondary Markets: the Case of Automobiles" forthcoming RAND Journal of Economics.

Theme 4: Information Issues

Apr. 1-Apr. 10: Lectures covering:

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" International Economic Review, Aug 2003, 1007-1040.
Useful readings: Kyle Bagwell "The Economic Analysis of Advertising." Book chapter in progress.
Pradeep Chintagunta, Renna Jiang and Ginger Jin "Information, Learning, and Drug Diffusion: the Case of Cox-2 Inhibitors" (working paper).
Ginger Zhe Jin and Phillip Leslie "The Effects of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards" Quarterly Journal of Economics, May 2003, 118(2), 409-51.
David Dranove,Den Kessler, Mark McClellan and Mark Satterthwaite (2003) "Is More INformation Better? The Effects of 'Report Cards' on Health Care Providers" Journal of Political Economy, June 2003, 111(3):555-588.
Gary Gorton "Reputation Formation in Early Bank Note Markets" The Journal of Political Economy, Vol. 63, No. 1, Jan. 1996.
Ginger Zhe Jin and Phillip Leslie "Reputation Incentives For Restaurant Hygiene", accepted by American Economic Journal (Microeconomics).
David Genesove, "Adverse Selection in the Wholesale Used Car Market, " Journal of Political Economy 101 (August 1993), 644-665.
Ginger Zhe Jin and Andrew Kato " Dividing Online and Offline: A Case Study" Review of Economic Studies 74(3), 981-1004, July 2007.

Apr. 15: Guest lecture by Joe Mulholland on the impact of theory developments on government policies, with applications in the FTC's consumer protection program.

Apr. 17: Student Presentation on Moral Hazard

Judith Chevalier and Glenn Ellison "Risk Taking by Mutual Funds as a Response to Incentives" Journal of Political Economy, 105(6): 1167-1200, Dec. 1997.
William Adams, Liran Einav and Jonathan Levin "Liquidity Constraints and Imperfect Information in Subprime Lending" (working paper).
Canice Prendergast "The Motivation and Bias of Bureaucrats" American Economic Review, 2007, 97(1), pp. 180-96. (this is an interesting theory about moral hazard.).
Theme 5: Entry and other Long-run Decisions:

Apr. 22-May 6: Lectures covering:

Tim Bresnahan and Peter Reiss: "Entry and Competition in Concentrated Markets," Journal of Political Economy 99 (Oct. 1991), 977-1009
John Sutton Sunk Costs and Market Structure: Price Competition, Advertising, and the Evolution of Concentration, 1991, The MIT Press, Book Review by Tim Bresnahan in RAND (Spring 1992) 137-152.
Steve Berry, "Estimation of a Model of Entry in the Airline Industry, " Econometrica, 60(4), 889-918.
Steve Berry and Joel Waldfogel: " Free Entry and Social Inefficiency in Radio Broadcasting ", Rand Journal of Economics 30 (Autumn 1999), 397-420.
Katja Seim "An Emirical Model of Firm Entry with Endogenous Product-Type Choices", Forthcoming RAND Journal of Economics.
Olley and Ariel Pakes: " The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, November 1996, 1263-97.
May 8: Student presentation on Predation
Austin Goolsbee and Chad Syverson: "How do incumbents respond to the threat of entry? Evidence from the major airlines" working paper.
Wei Tan and Yutian Chen "Predatory Advertising: Theory and Evidence in the Pharmaceutical Industry" (working paper).
May 13: Student Presentation of research proposal