GradIOsyllabusSpring08

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Syllabus for Economics 384K Seminar in Industrial OrganizationSpring 2008 (Unique number 34025)

(Current at 9/1/08.)

Instructor: Randal Watson (http://www.eco.utexas.edu/~watson/)

Contact: [email protected], BRB 2.142Office hours: Mon 3:00pm-4:30pm, Thur 11:00am-12:00pm, or by appointment.

Class times and location: Mon/Wed, 12:30-2:00pm, BRB 1.120

Assessment criteria: See separate handout.

Course Content

This is the second course in a two-semester graduate-level field sequence in IndustrialOrganization. The course will take as given most of the content of the Fall-semester

course in IO run by Professor Hendricks. Familiarity with that content is thus a desirable

pre-requisite. However some material that may have been covered earlier (e.g., BLP)

will be revisited as necessary, so a previous field course in IO may not be essential forstudents who are willing to do some extra background reading.

The course readings are not designed as a comprehensive survey of all areas of activeresearch in IO, rather we will focus in detail on a group of more-or-less related papers

collected into six or seven topics. The emphasis is on active areas of empirical research,

although some theoretical issues will be covered.Criteria for assessment will be determined at the time of the first lecture: these may

include combinations of homework assignments, student research proposals, and a final

examination.

There is no prescribed text. (However the text by Tirole (see below) is a more-or-lessessential reference for anyone working in IO, and the book by Bolton & Dewatripont

would also be very useful for anyone working on theoretical topics.) In the lectures wewill concentrate on a set of required readings, indicated with asterisks in the followingreading list. These prescribed readings will be available in a photocopied packet from the

UT Copy Center in the McCombs Building. The list of readings is by no means

comprehensive: finite time will prevent us from doing complete justice to any giventopic. Additional topics may be covered in the (unlikely) event that we have time to

spare after covering all the areas listed below, e.g., durable goods, advertising, etc.

Reading List

Journals cited:

AER = American Economic Review. Bell = Bell J. of Economics (now RAND). CJE = Canadian J. ofEconomics. EconLetts = Economics Letters. EcmtricTh = Econometric Theory. EER = European

Economic Review.Emet= Econometrica. IER = International Economic Review.IJIO = Intl J. of

Industrial Organization.JAppEmet = J. of Applied Econometrics. JEmet= J. of Econometrics. JEMS= J.

of Economics and Management Strategy. JEP= J. of Economic Perspectives. JET= J. of Economic

Theory. JIndEcon = J. of Industrial Economics. JLEc = J. of Law and Economics. JLEO = J. of Law,

Economics, and Organization. JOB = J. of Business. JPE= J. of Political Economy. RAND = RAND J. of

Economics. REStud= Review of Economic Studies. SEJ= Southern Economic J.

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Books and surveys of general interest:

Ackerberg, D., C.L. Benkard, S. Berry & A. Pakes, Econometric tools for analyzing

market outcomes, chapter forthcoming in theHandbook of Econometrics, vol. 6.

Anderson, S., A. de Palma, and J.-F. Thisse (1992),Discrete choice theory of product

differentiation, MIT Press.Bolton, P., & M. Dewatripont (2005), Contract Theory, MIT Press.

Tirole, J. (1988), The Theory of Industrial Organization, MIT Press.

Vives, X. (1999), Oligopoly pricing: Old ideas and new tools, MIT Press.

1) Some preliminaries.

Empirical preliminaries, Part A: Datasets for empirical IO: Whats out there?

(Lecture notes.)

Empirical preliminaries, Part B: Basic notions of identification in cross-section models

(Lecture notes.)

Theoretical preliminaries: Existence of equilibrium in oligopoly log-concave

preferences and supermodular games.

Caplin, A, & B. Nalebuff (1991), Aggregation and imperfect competition: On the

existence of equilibrium,Emet, 59, 1, 25-59.

Anderson, de Palma & Thisse, op. cit., Ch. 6.3.1.

Amir, R. (2005), Supermodularity and complementarity in economics: An elementarysurvey, SEJ, 71, 3, 636-660.

Milgrom, P., & J. Roberts (1990), Rationalizability, learning, and equilibrium in games

with strategic complementarities,Emet, 58, 6, 1255-77.

**Vives, op. cit., Ch. 2.2 thru 2.5.

2) Recent developments in modeling differentiated-products industries

Berry, S., J. Levinsohn & A. Pakes (1995), Automobile prices in market equilibrium,

Emet, 63, 4, 841-90.

Berry, S., J. Levinsohn & A. Pakes (2004), Differentiated products demand systems

from a combination of micro and macro data: The new car market, JPE, 112, 1, 68-105.

Davis, Peter (2005), Spatial competition in retail markets: movie theaters,RAND, 37,964-82.

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Dube, Jean-Pierre (2005), Product differentiation and mergers in the carbonated soft

drink industry,JEMS, 14, 4, 879-904.

Goolsbee, Austan & Amil Petrin (2004), "The Consumer Gains from Direct Broadcast

Satellites and the Competition with Cable TV,"Emet, 72, 2, 351-81.

Hendel, I. (1999), Estimating multiple-discrete choice models: An application tocomputerization returns,REStud, 66, 2, 423-46.

Hortacsu, Ali, & Chad Syverson (2004), Product differentiation, search costs, and

competition in the mutual fund industry: A case study of S&P 500 index, QJE, 119, 2,403-56.

Nevo, A. (1998), A research assistants guide to random coefficients discrete choice

models of demand, NBER wp #0221.

**Nevo, A. (2001), Measuring market power in the ready-to-eat cereal industry, Emet,

69, 2, 307-42.

**Petrin, A. (2002), "Quantifying the Benefits of New Products: The Case of the

Minivan,"JPE, 110, 705-729.

Thomadsen, Raphael (2002), The effect of ownership structure on prices in

geographically differentiated industries,RAND, 36, 4, 908-29.

3) Empirical models of entry and product selection static cases

Andrews, D., S. Berry & P. Jia (2004), Confidence regions for parameters in discretegames with multiple equilibria ... , mimeo., Yale Economics.

Aradillas-Lopez, A. (2007), Semiparametric estimation of a simultaneous game withincomplete information, mimeo., Princeton Economics.

Aradillas-Lopez, A. (2007), Pairwise-difference estimation of incomplete-informationgames, mimeo., Princeton Economics.

Bajari, P., H. Hong, J. Krainer & D. Nekipelov (2005), Estimating static models of

strategic interactions, mimeo., Minnesota Economics.

Bajari, P., H. Hong and S. Ryan (2006), Identification and estimation of a discrete game

of complete information, mimeo., Minnesota Economics.

**Berry, S. T. (1992), Estimation of a model of entry in the airline industry,Emet, 60,4, 889-917.

Berry, S. T. & J. Waldfogel (1999), Free entry and social inefficiency in radio

broadcasting,RAND, 30, 3, 397-420.

Bresnahan, T. F. & P. C. Reiss (1990), Entry in monopoly markets,REStud, 57, 4, 531-53.

Bresnahan, T. F. & P. C. Reiss (1991), Entry and competition in concentrated markets,

JPE, 99, 977-1009.

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Bresnahan, T. F. & P. C. Reiss (1991), Empirical models of discrete games,JEmet, 48,

57-81.

**Ciliberto, Federico, & Elie Tamer (2003), Market Structure and Multiple Equilibria in

Airline Markets, unpublished mimeo., Northwestern Economics.

Cohen, Andrew, & Mark Manuszak (2005), Endogenous market structure with discreteproduct differentiation and multiple equilibria: An empirical analysis of competition

between banks and thrifts, mimeo., Federal Reserve Board of Governors.

Danis, M. (2003), A discrete-choice approach to measuring competition in equity optionmarkets, OFHEO w.p. 03-5, Office of Federal Housing Enterprise Oversight.

Einav, L. (2003), Not all rivals look alike: Estimating an equilibrium model of the

release date timing game, mimeo., Stanford Economics.

**Ho, Katherine (2007), Insurer-provider networks in the medical care market,

mimeo., Columbia Economics.

**Jia, Panle (2006), What happens when Walmart comes to town: An empirical

analysis of the discount retailing industry, mimeo., MIT Economics.

**Mazzeo, M. J. (2002), Product choice and oligopoly market structure, RAND, 33,

221-42.

Reiss, P. C. & P. T. Spiller (1989) Competition and entry in small airline markets,JLEc, 32, 2, S179-202.

**Seim, K. (2006), An empirical model of firm entry with endogenous product-type

choices,RAND, 37, 619-40.

Schmidt-Dengler, P. (2006), The timing of new technology adoption: The case of MRI,

mimeo., LSE Economics.

**Sutton, J. (1997), One Smart Agent,RAND, 28, 605-28.

**Tamer, E. (2003), Incomplete simultaneous discrete-response model with multipleequilibria,REStud, 70, 147-67.

Toivanen, O., & M. Waterson (2005), Market structure and entry: Wheres the beef?,RAND, 36, 3, 680-99.

4) Approaches to dynamic oligopoly

General contributions:**Dunne, T., M. Roberts, & L. Samuelson (1988), Patterns of firm entry and exit in US

manufacturing,RAND, 19, 4, 495-515.

Hopenhayn, H. (1992), Entry, exit and firm dynamics in long-run equilibrium,Emet

60, 1127-1150.

Jovanovic, B. (1982), Selection and the evolution of industry,Emet50, 649-70

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Jovanovic , B. & G. M. MacDonald (1994), The life cycle of a competitive industry,JPE, 102, 322-347.

Klepper S., (2002), Firm survival and the evolution of oligopoly,RAND 33, 37-61.

Pakes, A. & R. Ericson, (1998), Empirical implications of alternative models of firm

dynamics,JET, 79, 1-45Rust, J. (1987), Optimal replacement of GMC bus engines: an empirical model of

Harold Zurcher,Emet, 55, 5, 999-1033.

Computational issues:

**Doraszelski, U., & K. Judd (2007), Avoiding the curse of dimensionality in dynamicstochastic games, mimeo., Harvard Economics.

Doraszelski, U., & M. Satterthwaite (2005), Foundations of Markov-perfect industry

dynamics: Existence, purification and multiplicity, mimeo., Harvard Economics.

Ericson, R., & A. Pakes (1995), Markov-perfect industry dynamics: A framework forempirical work,REStud, 62, 1, 53-82.

Gowrisankaran, G. (1999), A dynamic model of endogenous horizontal mergers,RAND, 30, 1, 56-83.

Doraszelski, U., and A. Pakes (2000), A framework for applied dynamic analysis in

I.O., in M. Armstrong and R. Porter (eds.),Handbook of Industrial Organization, vol. 3,

Elsevier.

**Pakes, A. & P. McGuire (1994), Computing Markov-Perfect Nash equilibria:Numerical implications of a dynamic differentiated-product model,RAND, 25, 555-89.

Pakes, A. & P. McGuire (2001), Stochastic algorithms, symmetric Markov-perfectequilibrium, and the Curse of dimensionality,Emet, 69, 5, 1261-81.

Weintraub, G., L. Benkard & B. Van Roy (2005), Markov perfect industry dynamicswith many firms, NBER w.p. #11900.

Estimation of dynamic games:

Aguirregabiria, V. (2002), Another look at the identification of dynamic discrete

decision processes, mimeo., Boston Univ.

Aguirregabiria, V. & P. Mira (2007), Sequential estimation of dynamic discrete games,

Emet, 75, 1-53.**Bajari, P., C. L. Benkard, & J. Levin (2007), Estimating dynamic models of imperfect

competition,Emet, 75, 1331-70.

Bajari, P., & H. Hong (2005), Semiparametric estimation of a dynamic game of

incomplete information, mimeo., Minnesota Economics.

Benkard, L. (2000), Learning and forgetting: the dynamics of aircraft production,AER,90, 1034-54.

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Benkard, Lanier (2004), A dynamic analysis of the market for wide-bodied commercial

aircraft,REStud, 71, 3, 581-611.

Berry, S., & A. Pakes (2000), Estimation from the optimality conditions for dynamic

controls, mimeo.

Collard-Wexler, Allan (2005), Demand fluctuations and plant turnover in the ready-mixconcrete industry, mimeo., NYU.

**Jofre-Bonet, M. & M. Pesendorfer (2003), Estimation of a dynamic auction game,Emet, 71, 5, 1443-89.

Pakes, A., M. Ostrovsky, & S. Berry (2007), Simple estimators for the parameters ofdiscrete dynamic games (with entry/exit examples),RAND, 38, 373-99.

Pesendorfer, M., & P. Schmidt-Dengler (2003), Identification and estimation of

dynamic games, NBER wp #9726.

Ryan, Stephen (2005), The costs of environmental regulation in a concentrated

industry, mimeo., MIT.

5) Tests of contract theory and mechanism design (other than auctions and

nonlinear pricing)

Ackerberg, D.A., & M. Botticini (2002), Endogenous matching and the empirical

determinants of contract form,JPE, 110, 564-91.

Chiappori, P.-A., & B. Salanie (2003), Testing contract theory: a survey of some recentwork, in Dewatripont, Hansen, & Turnovsky (eds.)Advances in Economics andEconometrics Theory and Applications, Eighth World Congress, Cambridge U.P.

Cambridge, 115-49.

**Chiappori, P.-A., & B. Salanie (2000), Testing for asymmetric information ininsurance markets,JPE, 108, 56-78.

Chiappori, Pierre-Andre, B. Jullien, B. Salanie, & F. Salanie (2002), Asymmetric

information in insurance: some testable implications, mimeo., Chicago.

**Corts, K. (2001), The strategic effects of vertical market structure: Common agencyand divisionalization in the US motion picture industry,JEMS, 10, 4, 509-28.

Hubbard, T. N. (1998), An empirical examination of moral hazard in the vehicle

inspection market,RAND, 29, 2, 406-26.

Iizuka, Toshiaki (2003), Experts agency problems: Evidence from the prescription drug

market in Japan, mimeo., Vanderbilt.

Joskow, P. L. (1987), Contract duration and relationship-specific investments: empiricalevidence from coal markets,AER, 77, 1, 168-85.

Joskow, P. L. (1988), Asset specificity and the structure of vertical relationships:

empirical evidence,JLEO, 4, 1, 95-117.

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Monteverde, K. & D. J. Teece (1982), Supplier switching costs and vertical integration

in the automobile industry,Bell, 13, 1, 206-13.

Muris, T., & P. Spiller (1992), Strategy and transaction costs: The organization of

distribution in the carbonated soft-drink industry,JEMS, 1, 83-128.

**Shepard, A. (1993), Contractual form, retail price and asset characteristics in gasolineretailing,RAND, 24, 58-77.

6)Selected papers on network effects and two-sided markets

Ackerberg, D.A., & G. Gowrisankaran (2006), Quantifying equilibrium networkexternalities in the ACH banking industry,RAND, 37, 738-61.

Ambrus, A., & R. Argenziano (2006), Asymmetric networks in two-sided markets,

mimeo., Harvard.

Armstrong, M. (2006), Competition in two-sided markets,RAND, 37, 668-91.

Augereau, A., S. Greenstein & M. Rysman (2006), Coordination versus differentiation

in a standards war: 56K modems,RAND, 37, 887-909.

Clements, M., & H. Ohashi (2005), Indirect network effects and the product cycle: videogames in the U.S., 1994-2002,JIndEcon, 53, 515-42.

Economides, N. (1996), The economics of networks,IJIO, 14, 6, 673-99.

Gandal, N., M. Kende, & R. Rob (2000), The dynamics of technological adoption in

hardware/software systems,RAND, 31, 1, 43-61.

Hagiu, A. (2006), Pricing and commitment by two-sided platforms,RAND, 37, 720-37.

**Ishii, J. (2005), Compatibility, competition, and investment in network industries:ATM networks in the banking industry, mimeo., Stanford GSB.

Katz, M.L., & C. Shapiro (1985), Network externalities, competition, and

compatibility,AER, 75, 424-40.

Laffont, J.-J., P. Rey & J. Tirole (1998), Network competition I & Networkcompetiton II,RAND, 29, 1-37 & 38-56.

Ohashi, H. (2003), The role of network effects in the U.S. VCR market, 1978-86,

JEMS, 12, 447-94.

Rochet, J.-C. & J. Tirole (2006), Two-sided markets: a progress report,RAND, 37,

645-67.

**Ryan, Stephen, & Catherine Tucker, Heterogeneity and the dynamics of technologyadoption, mimeo., MIT.

**Rysman, M. (2004), Competition between networks: A study of the market for

Yellow Pages,REStud, 71, 483-512.

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