Industrial Economics, Slides of Economics

Download Industrial Economics and more Slides Economics in PDF only on Docsity! INDUSTRIAL ECONOMICS 1 Industrial Economics Lecturer: Alexis V.Belianin Class teacher: Olga V. Rozanova Course description Industrial Economics or Economics of Industry, is a one-year course which is one of ‘further units’ of the external programme of the University of London (UoL). IO is one of the main ‘special’ economics courses which applies microe- conomic and econometric techniques to the study of firms as organizations, market structures, strategic interaction, market efficiency and industrial pol- icy. An undergraduate IO course at ICEF is based on students’ knowledge of Intermediate Microeconomics and the first course of Econometrics. Inasmuch as many topics in modern IO require extensive use of game-theoretic tools, a few introductory classes will be used to review the relevant techniques and applications. Further reviews of specific topics will be included in the course curriculum whenever necessary. The programme of this course mostly follows the requirements of the Uni- versity of London external programme as covered by the Study Guide, with some thematic extensions. The course consists of three major parts. The first part constitutes a methodological and theoretical introduction into the tools, methods and approaches used all over the course. It provides a quick review of game theoretic concepts, followed by the discussion of the nature of markets, the firm and the agency relations within business organizations. The second part constitutes the core of the course, and covers imperfect competition in static and dynamic settings, theoretical and empirical studies of collusion, entry and accommodation, product differentiation, monopolistic behaviour, vertical inte- gration and determinants of market structure. The third part is devoted to industrial policy and efficiency analysis, including government regulation and natural monopolies reforms with examples and applications. Teaching objectives • Give a simple yet thorough introduction into the main methods of eco- nomic analysis of industry structure and firm behaviour under various conditions of technology, competition, and organization; • Elaborate students’ skills and abilities to use modern theoretical and em- pirical tools to formulate and solve economic problems; • Explore in details how economists approach and answer specific empirical questions, such as whether a particular industry is vertically integrated, 2 whether there are is evidence of price collusion, or whether the industry has features of natural monopoly; • Provide the students with a sound intuition into the specific features of particular markets, including those of contemporary Russia. Teaching methods The following methods and forms of study are used in the course: • lectures • classes • home assignments (to be submitted before class) • self-study. Timetable of lectures and classes will be announced in due course. Given the limited number of contact hours, regular self study is crucial for successful completion of the course, including external examination. Assessment Two examinations: the winter examination at the end of the Autumn semester, and the final examination at the end of the Spring semester (this latter covers all course material). Besides, there will be one control work in the middle of the Autumn semester. Home assignments are to be handled regularly, and also contribute to the final grade for the course. External examination at the University of London takes place in May-June; its results do not count towards the final grade for the course at SU-HSE. IO is an integral part of the separately graded State Graduate Examination for the Russian degree programme (to be held in June 2007); this examination will consist of the same type of questions as those in the other papers. Grade determination Course grades are determined as follows: Autumn semester: • Home assignments — 15% • Midterm control work — 25% • Winter examination — 60% INDUSTRIAL ECONOMICS 5 * [SG], ch.1 * Williamson O. Transaction cost economics. In: [HB], ch.3, илиWilliamson O. Economic institutions of capitalism. Free press, 1985, ch.2-3 (рус.пер: О.Уильямсон, Экономические институты капитализма, СПб, 1997; THESIS, 1993, #3, c.39-49. * Hart O. Firms, contracts and financial structure. OUP, 1995, ch.1-3. * Monteverde, Kirk, and David J.Teece. Supplier Switching Costs and Vertical Integration in the Automobile Industry. The Bell Journal of Economics, Vol. 13, No. 1 (Spring, 1982), pp. 206-213 * Joskow, Paul L. Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets. The American Economic Review, Vol. 77, No. 1 (Mar., 1987), pp. 168-185 • [CP], ch. 2 • Grossman, Sanford, and Oliver Hart. The Costs and Benefits of Owner- ship: A Theory of Vertical and Lateral Integration. Journal of Political Economy (1986) 94(4): 691-719. • Hart, Oliver, and John Moore. Property rights and the nature of the firm. Journal of Political Economy, 1990, v.98, p.1119-1158. • Klein, Benjamin; Robert G. Crawford; Armen A. Alchian. Vertical Inte- gration, Appropriable Rents, and the Competitive Contracting Process. Journal of Law and Economics, Vol. 21, No. 2 (Oct., 1978), pp. 297-326. • Klein, Benjamin, and Kevin M. Murphy. Vertical Restraints as Contract Enforcement Mechanisms. Journal of Law and Economics, Vol. 31, No. 2 (Oct., 1988), pp. 265-297. 4. Agency theory, ownership and control * [Tir], The theory of the firm (Introductory chapter) * [SG], ch.2 * Nickell, Stephen J. Competition and Corporate Performance The Journal of Political Economy, Vol. 104, No. 4 (Aug., 1996), pp. 724-746 • Holmstrom, Bengt and Jean Tirole. The theory of the firm. In: [HB], ch.2 • [CP], ch.2 6 • Laffont, Jean-Jacques and Ramon Martimort. The Principal-Agent the- ory. PUP, 2002. • Hart, Oliver, Jean Tirole, Dennis Carlton, Oliver Williamson. Vertical in- tegration and market foreclosure. Brookings papers on economic activity, 1990, p.205-286. • Salanie, Bertrand. Contract theory: a primer. MIT Press, 1997. • Gibbons, R. Incentives between firms (and within). Management Science, v.51 , No.1, 2005, p. 2-17. • Nickell S., Nocolitsas D., Dryden N. What makes firms perform well? European Economic Review, 1996, v.41, p.783-796. 5. Static price competition in oligopoly models * [Tir], ch.5 * [SG], ch.3 • [CP], ch.7 • [Shy], ch.6 • [Mar], ch.5 • Chapiro, Carl. Theory of oligopoly behavior. In: [HB], ch.6 • Kreps, David M., and Jose Scheinkman. Quantity precommitment and Bertrand competition yield Cournot outcomes. Bell Journal of Eco- nomics, vol.14, no.3, Autumn 1983, p.326-337. • Bresnahan, Timothy F. Duopoly Models with Consistent Conjectures. The American Economic Review, Vol. 71, No. 5 (Dec., 1981), pp. 934- 945 6. Dynamic price competition * [Tir], ch.6 * [SG], ch.4 * [CP], ch.6-7 * Porter, Robert H. Study of Cartel Stability: The Joint Executive Com- mittee, 1880-1886. The Bell Journal of Economics, Vol. 14, No. 2 (Au- tumn, 1983), pp. 301-314 INDUSTRIAL ECONOMICS 7 * Green, Edward J., and Robert Porter. Noncooperative Collusion under Imperfect Price Information. Econometrica, 1984, vol. 52, p.87-100. * Rotemberg, Julio J., and Garth Saloner. A Supergame-Theoretic Model of Price Wars during Booms. The American Economic Review, Vol. 76, No. 3 (Jun., 1986), pp. 390-407. * Slade, Margaret E. Strategic pricing models and interpretation of price- war data. European Economic Review, 1990, v.31 p.524-537. • Ellison, Glenn. Theories of Cartel Stability and the Joint Executive Com- mittee. The RAND Journal of Economics, Vol. 25, No. 1 (Spring, 1994), pp. 37-57 • Sherer and Ross, 1990, Ch. 7-8. • [Shy], ch.6 • Levenstein, Margaret C. Price Wars and the Stability of Collusion: A Study of the Pre-World War I Bromine Industry. The Journal of Indus- trial Economics, Vol. 45, No. 2 (Jun., 1997), pp. 117-137. • Slade, Margaret E. Interfirm Rivalry in a Repeated Game: An Empirical Test of Tacit Collusion. The Journal of Industrial Economics, Vol. 35, No. 4, The Empirical Renaissance in Industrial Economics (Jun., 1987), pp. 499-516 • Slade, Margaret E. Vancouver’s Gasoline Price Wars: An Empirical Ex- ercise in Uncovering Supergame Strategies. Review of Economic Studies, 1987, vol.59, no.2, p.257-276. 7. Econometric methods for applied work with application to price collusion * Brensahan, Timothy. The Oligopolistic Solution Concept is Identified. Economic Letters (1982), 87-92. * Nevo, Aviv. Identification of the Oligopoly Solution Concept in a Differ- entiated Products Industry. Economic Letters, 59:3 (1998) • Bresnahan, Timothy. Empirical Studies of Industries with Market Power, in [HB], Vol. 2. • Verbeek, Martin. A guide of modern econometrics. OUP, 1999. 8. Entry deterrence and entry accommodation 10 • Verboven, Frank. International Price Discrimination in the European Car Market. The RAND Journal of Economics, Vol. 27, No. 2 (Summer, 1996), pp. 240-268 • Graddy, Kathyn. Testing for imperfect price competition at the Fulton fish market. The RAND Journal of Economics, 1995, Vol.26, no.1, p.75- 92. 12. Вертикальная интеграция и вертикальные ограничения * [Tir], ch.4 * [SG], ch.8 * [Mar], ch.17 * Mathewson, G.Frank, and Ralph A. Winter. An Economic Theory of Vertical Restraints. The RAND Journal of Economics, Vol. 15, No. 1 (Spring, 1984), pp. 27-38. * Mathewson, G.Frank, and Ralph A. Winter. On Vertical Restraints and the Law: A Reply. The RAND Journal of Economics, Vol. 19, No. 2 (Summer, 1988), pp. 298-301. * Mathewson, G.Frank, and Ralph A. Winter. The Competitive Effects of Vertical Agreements: Comment. The American Economic Review, Vol. 77, No. 5 (Dec., 1987), pp. 1057-1062. • [CP], ch.13 • Sherer and Ross, ch.15 • Katz, M.L. Vertical contractual relations. In: [HB], ch.11 • Antitrust Cases: Monopolies and Mergers Commission (MMC) New Mo- tor Cars, Cm 1808 (London: H. M. S. O., 1992). • Rey, Patrick, and Joseph E. Stiglitz. The Role of Exclusive Territories in Producers’ Competition. The RAND Journal of Economics, Vol. 26, No. 3 (Autumn, 1995), pp. 431-451. 13. The determinants of market structure * Bain, Joe S. Economies of Scale, Concentration, and the Condition of Entry in Twenty Manufacturing Industries. The American Economic Re- view, Vol. 44, No. 1 (Mar., 1954), pp. 15-39 INDUSTRIAL ECONOMICS 11 * Sutton, John. Sunk cost and market structure. MIT Press, 1991 * Sutton, John. Game-theoretic models of market structure. In: Kreps D.M. and Wallis K.F., eds. Advances in economics and econometrics. The VIIIth world congress. v.1, CUP, 1997 * Sutton, John. Technology and market structure. European Economic Review, 1996, v.40, p.511-530. * [SG], ch.9 • [Mar], ch.8 • Sherer and Ross, ch.3-4 14. Competition and industrial policy * [Mar], various chapters. * [SG], ch.10 • [CP], ch.17, 20 • Sherer and Ross, ch.3-4. 15. Regulation and natural monopolies * Armstrong, Mark, Simon Cowan and John Vickers. Regulatory Reform: economic analysis and British experience. MIT Press, 1994. * [SG], ch.11 • Laffont J.J. and Tirole J. Theory of incentives for procurement and reg- ulation. MIT Press, 1999. • Winston, Clifford. US industry adjustment to economic deregulation. Journal of Economic Perspectives, 1998, v.12, no.3, p.89-110. • Christensen, Laurtis R., and William H, Greene. Economies of scale in US electric power generation. Journal of Political Economy, 1973, v.84, no.4, p.655-676. • Evans, David S. and James J.Heckman. A test for subadditivity of the cost function with an application to the Bell system. American Economic Review, 1984, vol.74, p.615-623. and (erratum) Distribution of hours 12 # Topic Total Contact hours Self hours Lectures Seminars study 1. Noncooperative games for ap- plied analysis 18 4 4 10 2. Introduction to Industrial Or- ganisation 14 2 2 10 3. Size and structure of the firm 26 4 6 16 4. Agency theory, ownership and control 14 2 2 10 5. Static price competition in oligopoly models 18 4 4 10 6. Dynamic price competition 28 6 6 16 7. Econometric methods for ap- plied work with application to price collusion 14 2 2 10 8. Entry deterrence and entry ac- commodation 18 4 4 10 9. Product differentiation 34 8 8 18 10. Advertising 18 4 4 10 11. Monopoly and price discrimi- nation 28 6 6 16 12. Vertical integration and verti- cal restraints 18 4 4 10 13. The determinants of market structure 30 6 6 18 14. Competition and industrial policy 14 2 2 10 15. Regulation and natural monop- olies 32 8 6 18 Total: 324 66 66 192