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Department of Economics ECON 5301 W

Industrial Organization I Winter 2013

Instructor: Zhiqi Chen Office: D895 Loeb Building Phone: 613-520-2600 extension 7456 Email: z_chen@ carleton.ca Office Hours: Mondays 11:00 – 12:00, and Tuesdays 11:00 – 12:00 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 Martin, Stephen, Advanced Industrial Economics, 2nd edition, Oxford: Blackwell Publishing, 2001 Other Useful References 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) Tirole, Jean, Theory of Industrial Organization, Cambridge: MIT, 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

Dixit, A. “Comparative statics for oligopoly,” International Economic Review, 27 (February 1986), 107-22

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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 and Monopolistic Competition

Church and Ware Ch. 11; Martin Ch. 4; Tirole Ch. 7

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

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

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

Salop, S. (1979), “Monopolistic competition in with outside goods,” Bell Journal of Economics, 10: 141 - 156

V. Vertical Product Differentiation

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

VI. Entry Deterrence

Church and Ware Ch.14; Martin Ch. 8

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

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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

VII. 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

VIII. 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 I: 40% (To be held in class on February 5) Midterm Examination II: 40% (To be held in class on March 19) Term Paper: 20% (Due on April 9) 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. Plagiarism is defined as “passing off as one’s own idea, or product, work of another without expressly giving credit to another.” For further information, see “Pammett on Plagiarism and Paraphrasing” at www.carleton.ca/economics/courses/writing-preliminaries.

Academic Accommodation You may need special arrangements to meet your academic obligations during the term. For an accommodation request the processes are as follows:

Pregnancy obligation: write to me with any requests for academic accommodation during the first two weeks of class, or as soon as possible after the need for accommodation is known to exist. For more details visit the Equity Services website http://www2.carleton.ca/equity

Religious obligation: write to me with any requests for academic accommodation during the first two weeks of class, or as soon as possible after the need for accommodation is known to exist. For more details visit the Equity Services website http://www2.carleton.ca/equity Academic accommodations for students with disabilities: The Paul Menton Centre for Students with Disabilities (PMC) provides services to students with Learning Disabilities (LD), psychiatric/mental health disabilities, Attention Deficit Hyperactivity Disorder (ADHD), Autism Spectrum Disorders (ASD), chronic medical conditions, and impairments in mobility, hearing, and vision. If you have a disability requiring academic accommodations in this course, please contact PMC at 613-520-6608 or pmc@carleton.ca for a formal evaluation. If you are already registered with the PMC, contact your PMC coordinator to send me your Letter of Accommodation at the beginning of the term, and no later than two weeks before the first in-class scheduled test or exam requiring accommodation (if applicable). After requesting accommodation from PMC, meet with me to ensure accommodation arrangements are made. Please consult the PMC website for the deadline to request accommodations for the formally-scheduled exam (if applicable) at http://www2.carleton.ca/pmc/new-and-current-students/dates-and-deadlines/ You can visit the Equity Services website to view the policies and to obtain more detailed information on academic accommodation at http://www2.carleton.ca/equity/