Department of Economics ECON 5301 F

Industrial Organization I Fall 2014

Instructor: Zhiqi Chen Office: D895 Loeb Building Phone: 520-2600 extension 7456 Email: zhiqi.chen@carleton.ca Office Hours: Wednesdays 3:00pm – 5:00pm Course Description An examination of theories pertaining to industrial organization and their application by way of empirical studies. Topics include oligopoly theory, product differentiation, and strategic behaviour. Text There is no required text for this course. Useful References Belleflamme, Paul and Martin Peitz, Industrial Organization: Markets and Strategies, Cambridge University Press 2010 Church, Jeffrey and Roger Ware, Industrial Organization: A Strategic Approach, Boston: Irwin McGraw-Hill 1999 (available online at http://homepages.ucalgary.ca/~jrchurch/page4/page4.html) Martin, Stephen, Advanced Industrial Economics, 2nd edition, Oxford: Blackwell Publishing, 2001 Tirole, Jean, Theory of Industrial Organization, Cambridge: MIT Press, 1988 Topics I. Introduction

Church and Ware Ch.1; Martin Ch.1

R. Schmalensee “Industrial economics: An overview,” The Economic Journal, 98 (September 1988), 643-81

II. Oligopoly Theory

Church and Ware Ch. 8 and 10; Martin Ch. 2 and 3; Belleflamme and Peitz Ch. 3 and 4

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III. Dominant Firm and Market Power

Church and Ware, Chapter 4

Berck, P. and J. Perloff (1988) “The dynamic annihilation of a rational competitive fringe by a low-cost dominant firm,” Journal of Economic Dynamics and Control, 12: 659 – 678

Chen, Z. (2003) “Dominant retailers and countervailing power hypothesis,” RAND Journal of Economics, 34: 612 - 625

IV. Horizontal Product Differentiation

Church and Ware Ch. 11; Martin 4.1 – 4.2; Tirole 7.1; Belleflamme and Peitz Ch. 5

Hotelling, H.H. “Stability in competition,” Economic Journal, 39 (1929), 41-57; reprinted in G. Stigler and K. Boulding (eds.) Readings in Price Theory, 1952

D’Aspremont, C., J.J. Gabszewicz, and J.-F. Thisse, “On Hotelling’s ‘stability in competition’,” Econometrica, 47 (1979): 1045 - 1050

V. Monopolistic Competition

Church and Ware 11.2; Tirole 7.2 Spence, M. “Product selection, fixed costs and monopolistic competition,” Review of Economic Studies, 43 (1976), 217-35

Dixit A. and J. Stiglitz “Monopolistic competition and optimum product diversity,” American Economic Review, 67 (1977), 297-308 Salop, S. (1979), “Monopolistic competition in with outside goods,” Bell Journal of Economics, 10: 141 - 156

VI. Vertical Product Differentiation

Church and Ware 11.6; Martin 4.3; Belleflamme and Peitz 5.3 Gabszewicz, J.J. and J.F. Thisse (1979) “Price competition, quality and income disparities,” Journal of Economic Theory, 20: 340 – 359

Shaked, A. and J. Sutton (1982) “Relaxing price competition through product differentiation,” Review of Economic Studies, 49: 3 – 13

Shaked, A. and J. Sutton (1983) “Natural Oligopolies,” Econometrica, 51: 1469 – 1484

VII. Entry Deterrence

Church and Ware Ch.14; Martin Ch. 8; Belleflamme and Peitz Ch. 16

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Spence, A.M., “Entry, capacity investment, oligopolistic pricing,” Bell Journal of Economics 8 (1977) 534-44 Dixit, A., “The role of investment in entry-deterrence,” Economic Journal, 90 (March 1980), 95-106

Klemperer, P.D., “Entry deterrence in markets with consumer switching costs,” Economic Journal, 97 (1987), 99 – 117 Rasmusen, E.B., J.M. Ramseyer and J.S. Wiley, Jr. (1991) “Naked Exclusion,” American Economic Review, 81: 1137 – 1145 Segal, I.R. and M.D. Whinston (2000) “Naked Exclusion: Comment,” American Economic Review, 90: 296 - 309

Chen, Z. and T. Ross, “Strategic alliances, shared facilities, and entry deterrence,” RAND Journal of Economics, 31 (Summer 2000), 326 - 344

VIII. Strategic Behaviour

Church and Ware Ch. 15 and 16; Martin Ch. 8

Fudenberg, D. and J. Tirole “The fact-cat effect, the puppy-dog ploy, and the lean and hungry look,” American Economic Review Papers and Proceedings, 74 (May 1984), 361 - 66

Bulow, J.I, J.D. Geanakoplos, P.D. Klemperer “Multimarket oligopoly: Strategic substitutes and complements,” Journal of Political Economy, 93 (June 1985), 488 – 511 Aghion, P. and P. Bolton (1987) “Contracts as Barriers to Entry,” American Economic Review, 77: 388 - 401

IX. Empirical Studies of Market Performance

Church and Ware Ch. 12; Martin Ch. 5, 6, 7 Nickell, S.J., “Competition and corporate performance,” Journal of Political Economy, 104 (1996), 724 – 746

Evaluation Midterm Examination: 40% (To be held in class on October 22) Final Examination: 40% (To be scheduled by Scheduling and Examination Services) Term Paper: 20% (Due on December 3) About the Term Paper: Each student will write a literature review on a topic related to industrial organization. Standing in a course is determined by the course instructor, subject to the approval of the Faculty Dean. This means that grades submitted by the instructor may be subject to revision. No grades are final until they have been approved by the Dean.

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Plagiarism Please be aware that plagiarism is serious offence at Carleton and should be recognized and avoided. The University Senate defines plagiarism as “presenting, whether intentionally or not, the ideas, expression of ideas or work of others as one’s own.” For further information, see “Pammett on Plagiarism and Paraphrasing” at www.carleton.ca/economics/courses/writing-preliminaries.

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