Lectures

Advising

Public Policy

Home
 


















 

 

 

Economics 520: Industrial Organization

In this course, we will study the basic theories of industrial organization along with many recent developments in the field. Industrial organization (IO) is primarily concerned with market structures (e.g., monopoly, competition, oligopoly) and the conduct that these market structures imply, particularly in terms of pricing policies. In the United States much of the research conducted by IO economists is closely tied to the Antitrust laws and Antitrust litigation. IO is also concerned with regulated industries such as electric utilities. In this class I will cover the material traditionally covered in IO classes, but I also intend to cover IO issues from an international perspective by focusing on  industrial policy.

Grading and attendance: Grades in the class will be determined by two midterm examinations, a final exam, either a class presentation from an assigned article or a synopsis of the readings (see below), and class participation. Attendance is considered an important part of participation (if you don't attend you're not participating). The grade breakdown is as follows:

2 Midterm Exams 20% each
Final Exam 30%
Class Presentation or Synopses 20%
Class Participation 10%
Total 100%

Text and reading: The main text is Industrial Organization, by Waldman and Jensen (hereafter referred to as WJ).  In addition, I am requiring Deregulation of Network Industries, by Peltzman and Winston (hereafter referred to as DNI).  Additional readings are available on the web and can be accessed through the hyperlinks below.  Most of the articles below are composed as Adobe Acrobat PDF files.  In order to read these files you must download the FREE adobe acrobat reader.  I would suggest you do this at night or when you have some time--it will take some time to download the software (do it while making dinner or doing homework or whatever).  I also strongly suggest not waiting until the last minute (e.g., the night before an exam) to download  the readings.  The server may be overloaded with your fellow classmates trying to download the same material.   You can read these articles on-screen or print them out.  (I suggest the latter.)  One Final note:  If an article is no longer available on the web, you are not responsible for it, BUT  if you wait until the last minute and find you cannot download the article because everyone else is--I warned you.

Class presentations/Readings synopsis: Everyone is expected either to give a short class presentation or to write a short (4-5 paragraph) synopsis of each of the class presentations. First choice for presentations will be given to students who get an A on the first midterm. If you decide to give a presentation, you may be able to do it with a partner. The presentations should be short and to the point: roughly 15 minutes long.  I expect about 10-15 presentations will be given.

If you have any questions, feel free to e-mail me.

Syllabus

I. Introduction

a) Reading: WJ, ch. 1

II. Basic Microeconomic Theory of the Firm and Market structure

  1. Economic costs and the optimal size of the firm
  2. The theory of perfect competition
  3. Monopoly and aspects of monopoly theory
  4. Oligopoly and monopolistic competition
  5. The theory of contestable markets and potential competition

Reading: WJ ch. 2, 3

III. Further Topics in the Theory of the Firm

  1. The Social costs of monopoly: Deadweight losses and Posner losses
  2. Concentration
  3. Entry and Exit

Reading: WJ, ch. 4, 5

IV. Oligopoly Theory and Collusion

  1. Overview of the Antitrust laws of the U.S.
  2. Collusion and the Prisoner’s Dilemma
  3. The Cournot Model
  4. Price fixing and Collusion (Sherman section 1)
  5. Per se v Rule of reason [Cases: Trenton Potteries, Appalachian Coal, Socony Vacuum]
  6. Exchanges of information [Cases: The plywood conspiracies]
  7. Tacit vs. explicit collusion [Case: The great electrical conspiracy; Coke and Pepsi]
  8. Price fixing and the professions [Cases: Goldfarb]
  9. Resale Price Maintenance
  10. International Cartels: Can there be another OPEC [Case study: The IBA]

Reading: WJ, ch. 6-9

Sherman Act, Section 1

Sherman Act, Section 2

V. Market power and the problem of monopolization (Sherman section 2)

  1. Limit Pricing
  2. Predatory Pricing
  3. Empirical evidence of monopolization
  4. Cases: What is monopolization [Cases: Std Oil, Alcoa, IBM, Microsoft]
  5. Cases: Predatory pricing [Cases: Std. Oil, Realemon, Utah Pie, Matsushita]
  6. Cases: Exclusive dealing [Cases: US machinery, IBM, AMD v. Intel, Kodak v. Berkey Photo]
  7. Price discrimination and Robinson Patman {Case study: Utah Pie]
  8. The Microsoft case

Reading: WJ, ch. 10, 11, 14, 17, 18; DNI ch. 3

Summary of Schmalensee's Testimony for Microsoft

Technology, Market Changes, and Antitrust Enforcement

Testimony of Franklin Fisher for USDOJ

Testimony of Frederick R. Warren-Boulton for USDOJ

Assessment of Proposed Remedies in Microsoft Case by Professor Economides

DOJ's Complaint against American Airlines

If you have an extreme case of insomnia, you could try the DOJ's 800+ page "Findings of Fact" submitted in the summer of 1999.

VI. Mergers (Clayton section 7)

  1. Horizontal mergers [DOJ guidelines; Cases: Brown shoe, Tasty cake, Clorox]
  2. Vertical mergers
  3. Conglomerate mergers and corporate takeovers
  4. Corporate takeovers and market efficiency

Reading: WJ, ch. Ch.20

HOW DO YOU KNOW AN OFFICE SUPERSTORE?: STAPLES AND OFFICE DEPOT  by Frederick R. Warren-Boulton and Serdar Dalkir

US DOJ's Horizontal Merger Guidelines

V. Regulation and Deregulation

  1. The theory of natural monopoly [Case study: The breakup of ATT]
  2. Pricing policies in a regulated industry: cream skimming, cross subsidization, price discrimination
  3. Deregulation [Case study: ATT and the airline industry]
  4. The regulation of safety [Case study: GM trucks]
  5. Cigarettes
  6. California's Electricity deregulation

Reading: WJ, ch. 20; DNI ch. 1, 4, 2, 5

California's Electricity Crisis  (You must use SFSU's service to download this paper.)

The Telecommunications Act of 1996

US Telecommunications Today

Ma lobbies for Baby Bell breakup

Public testimony on Competition in the Airline Industry,  US DOJ

Symposia on Airline Regulation from the Journal of Economic Perspectives  (Note: You must use the SFSU server for this link since it is a subscription service.)

The Tobacco Deal  by Bulow and Klemperer

Electricity Restructuring: deregulation or Reregulation? by Borenstein

The Deregulation of the Electricity Industry: A Primer   by Peter M. VanDoren
 

VI. Industrial Policy

  1. Should the US have an industrial policy?
  2. Industrial policies of Japan and Germany

Reading: see below:

Symposia: Is Japan's Trade Regime Different?  from the Journal of Economic Perspectives  (Note: You must use the SFSU server for this link since it is a subscription service.)

CARWARS: trying to make sense of U.S. - Japan trade frictions in the automobile and automobile parts market by  James Levinsohn

Free versus Fair Trade: The Dumping Issue, by Thomas Klitgaard and Karen Schiele