Econ 171

Econ 171. INDUSTRIAL ORGANIZATION: THEORY & TACTICS

Instructors: Professor Rachel Griffith and Professor Phillip Leslie

Summary

This class investigates how firms compete. It combines theory with investigations of individual industries. The central issues concern firms' choice of price, quantity, and quality in markets where the assumptions behind perfect competition do not hold. These questions apply to a wide range of disciplines other than economics, most immediately to antitrust/law and economics, and business strategy.

Topic to be covered include: monopoly pricing, price discrimination, oligopoly behaviour, product differentiation, collusion and cartels, asymmetric information, firm entry and barriers to entry, exogenous and endogenous sunk costs, technology, innovation and patents, and vertical and horizontal integration.

Classes will be a mixture of theory and case studies with an emphasis on the theory.

Prerequisites

Intermediate microeconomics is a prerequisite. You must also be comfortable enough with calculus so that you can differentiate fairly simple functions.

		Topic	Reading
1	4 April	Introduction, firm costs	CP 50-76
2	6 April	Perfect competition, monopoly	CP 86-107, 132-157, PRN 18-25
3*	11 April	Price discrimination	CP 431-454, PRN 119-142
4	13 April	Oligopoly I	CP 229-244, PRN 223-253
5*	18 April	Oligopoly II	CP 244-269, PRN 254-262
6	20 April	Product differentiation	CP 281-317, PRN 254-272
7*	25 April	Horizontal integration	CP 19-28, PRN 402-432
8	27 April	The multinational firm	Caves article in reader
9*	2 May	Collusion and cartels	CP 175-211, PRN 343-396
10	4 May	MIDTERM EXAM
11	9 May	Industry structure, firm entry, barriers to entry	PRN 61-67, 70-105, 525-583, CP 74-81, 236-272, 601-615
12	11 May	Exogenous and endogenous sunk costs	Sutton in reader
13*	16 May	Technology and innovation	CP 532-542, PRN 584599, 627-641
14	18 May	Patents and RJVs	CP 501-531, PRN 600-627
15*	23 May	Vertical integration	CP 377-375, PRN 433-446, Chisolm article in reader
16	25 May	Vertical relations	CP 396-410, PRN 468-482
17*	30 May	Industry study: Microsoft case	Klein article in reader
18	1 June	Information	CP 554-572
19*	6 June	Industry study: internet	Smith, Bailey and Brynjolfsson article in reader
20	8 June	Review	All of the above
		FINAL EXAM

* Problem sets due to be handed in during class. Problem sets will NOT be accepted late.

There is a required reader, available from Course Reader Materials (1141 Westwood Bvd) it contains:

Caves, R. (1996) Multinational enterprise and economic analysis, 2^nd edition, Cambridge University Press, pp. 1-23

Sutton, J. (1991) Sunk costs and Market Structure, MIT Press, pp. 1-26

Chisholm, D. (1993) "Asset specificity and long-term contracts: the case of the motion picture industry" Eastern Economic Journal, Vol. 19, No. 2, pp143-155

Klein, B. (1999) "An economic analysis of Microsoft’s conduct" Antitrust, Fall 1999

Smith, M., J. Bailey and E. Brynjolfsson (1999) "Understanding Digital Markets: Review and Assessment" in Brynjolfsson and Kahin (eds) Understanding the Digital Economy, MIT Press

There are two recommended textbooks:

CP: Carlton and Perloff, Modern Industrial Organization, 3rd ed., Harper Collins, 1999;

PRN: Pepall, Richards and Norman, Industrial Organization: Contemporary Theory and Practice, South-Western College Publishing, 1999.

Classes will be a mix of contemporary industrial organization theory and industry studies. Students should realize the theory lectures will be the majority of the course, with the industry examples intended to provide reinforcement and some extensions to the theory.

Grading

There will be eight short problem sets (one a week except for week five and ten), a mid-term in-class exam and a final exam. Resits for the mid-term and final exams will NOT be allowed unless you have a note from a doctor or equivalent. Grades will be allocated in the following proportions.

Problem sets (8)	20%
Mid-term exam	20%
Final exam	60%

Regrading

The ground rules with respect to grading are these: We accept applications for regrades on the following conditions. First, applications must be made to either Professor (but to only one) and must be made in writing. Second, they can be made any time between one and seven days after the assignment or exam is returned. NOT the day you receive them. NOT two months after. Third, if you apply for a regrade, we regrade the entire examination, not just the individual problems you believe were misgraded. Your grade can go up or down.

These rules do not apply to clerical errors such as adding up your score wrong. If a clerical mistake occurs, please let me know as soon as possible.