RES-ECON 732: Graduate Industrial Organization I

Syllabus

Example syllabus only – exact content subject to change. Please see your instructor’s syllabus for the current term for your specific course’s guidelines

This course introduces students to the recent empirical literature of industrial organization. The goal of this course is that, at the end of the semester, students have a good idea of how to take an industrial organization theory to data or vice versa. Specifically, the class consists of four themes: pricing and contracting; cartels, collusion and merger reviews; demand estimation; and information economics. Each theme will cover a range of regulated and unregulated industries, along with relevant government interventions such as antitrust, consumer protection, data laws, and innovation policies.

Each theme of this course will cover around three lectures. In the lectures, we will focus on a series of research papers and discuss their research question, related theory, data, identification strategies, estimation techniques and policy implications. In each lecture, students will present one working paper for a topic that is related to the theme but not yet covered in the lectures. The topic and papers are listed in the course outline.

Course Format

We will meet once a week. Most lectures will have a combination of lecture material and one student-lead paper discussion. The lectures will contain the technical material I expect you to remember. Each week I will expect you to have read the papers that we will discuss in class in advance.

There is no textbook. Reading list is provided in the course outline. For the papers to be discussed in lecture (required reading), I will provide an electronic copy on Canvas. The papers listed as useful

readings are for your information and won’t be discussed in details during the lecture. You should be able to find them at JSTOR (www.jstor.org), NBER working papers (http://www.nber.org), SSRN working paper (www.ssrn.org), the UMass electronic journal list, or the authors' websites.

IO Theory

We no longer have a dedicated IO theory class, so for each required paper, I will summarize the theory that I believe all IO economists should know for the focal topic. The theory will be taught at “Academic Masters” level (i.e., it will be theory-for-empirical people, not theory-for theorists). Most universities do not have IO theory courses so there is nothing unusual about this.

The following reference books could be helpful for IO theorist:

  • Jean Tirole: The Theory of Industrial Organization, 1988.
  • Luis M.B. Cabral (edited): Readings in Industrial Organization, 2000.
  • Mark Armstrong and Robert Porter (edited): The Handbook of Industrial Organization, Volume 3, 2007.
  • Paul Belleflamme and Martin Peitz: Industrial Organization: Markets and Strategies, Cambridge University Press, second edition 2015.
  • Paul Belleflamme and Martin Peitz: The Economics of Platforms, Cambridge University Press, 2022.

Grading and Projects

Grading:  
Paper Summary (Before Class):20% 
Paper Presentation:30% 
Research Proposal50%Last Day of Classes

There will be no midterm or final exams. Details of each assignment is given below:

Paper Summary (Due Before Class)

To maximize class understanding and engagement, for each required paper, each student needs to do the following preparation before class:

  1. highlight the research question and literature contribution
  2. describe the data’s pros and cons for the main question addressed by the paper
  3. describe the methodology of the paper; explain how it compares to alternative methods
  4. points out at least one new research direction that could build upon the focal paper. The new direction could ask a related question using the same data or using different data in another empirical setting. The writing should reflect some detailed thoughts into the new research question, why it is important, and how it would contribute to the literature.

These assignments are one-page written summary, due the night before paper’s discussion in class.

Below are some useful advice on how best to approach a paper.

Strategies for Reading Papers: An important skill is to read papers effectively. My recommendation is as follows. First time round, just try to identify the economic question, the setting (data), the main innovation and the headline result. These are the highlights that you should try to remember in a year’s time. Then think about how you might approach the question and what you think you would need to do. And also ask why this is an interesting question.* The next time through, read the paper for details, and try to understand the choices that the authors make, especially if they are different from the ones that you thought you would make. For an empirical paper, ask yourself if you believe the results and their interpretation. For a methodological paper, ask yourself if the method seems useful beyond the toy examples that the authors present? For a job market paper, ask what is good/bad about the paper from a job market and future publication perspective.

*I sometimes find this useful if I take a quick break before doing the detailed read through, in order to think through these questions.

Paper Presentation

Each student is required to perform three class-presentations throughout the semester:

  1. present 2 working papers on 2 topics from class
  2. present your original research proposal at the end of the semester

The end-of-topic papers are often empirical papers on a similar topic. Depending on the number of class attendants, student presenters within the same theme may coordinate on how they would like to comment on the relationship between the two papers (similarities, differences, match/mismatch, etc).

Research Proposal

You are expected to assemble a research proposal at the end of the semester, describing a research question that you would like to answer in the area of empirical IO or related area, the data you would like to use and the identification strategy you are going to adopt assuming the availability of perfect data. To facilitate feedback, each student is required to present his/her research proposal in a 25-30 minutes slot in the last class meeting. The written proposal is due on the final exam date set for this course by the university. I would encourage you to discuss your preliminary idea(s) with me or your fellow students throughout the semester, so that you can screen out bad ideas and end up with something feasible to work on for your research proposal.

Course Outline

Topic 1: Cartel, Collusion, and Merger Reviews

Required Reading

  • Robert Porter: “A Study of Cartel Stability: The Joint Executive Committee, 1880-1886”, Bell Journal of Economics 14 (Autumn 1983), 301-314.
  • Chris Knittel and Victor Stango: “Price Ceilings as Focal Points for Tacit Collusion: Evidence from Credit Cards”, American Economic Review, Dec. 2003.
  • John Asker: “A Study of the Internal Organisation of a Bidding Cartel”, American Economic Review, v100(3), 724-762, 2010.
  • David P. Byrne and Nicolas de Roos: “Learning to Coordinate: A Study in Retail Gasoline”, American Economic Review, 2019, 190(2): 591-619.
  • Colleen Cunningham, Florian Ederer and Song Ma: “Killer Acquisitions”, Journal of Political Economy, 2021.

Useful Reading

  • David Genesove and Wallace P. Mullin “Rules, Communication, and Collusion: Narrative Evidence from the Sugar Institute Case,” The American Economic Review, June 2001, 379-398.
  • Glenn Ellison: “Theories of Cartel Stability and the Joint Executive Committee,” RAND Journal of Economics 25 (Spring 1994), 37-57.
  • Emilio Calvano, Giacomo Calzolari, Vincenzo Denicolo, Sergio Pastorello: “Artificial Intelligence, Algorithmic Pricing, and Collusion” American Economic Review, 2020, 110(10): 3267-97.
  • Thomas G. Wollmann: “Stealth Consolidation: Evidence from an Amendment to the Hart-Scott- Rodino Act”, American Economic Review: Insights 2019, 1(1),77-94.
  • Thomas G. Wollmann: “How to Get Away with Merger: Stealth Consolidation and Its Effects on US Healthcare” Working paper, 2021.

Student Presentations:

  • Emilio Calvano, Giacomo Calzolari, Vincenzo Denicolo and Sergio Pastorello: “Artificial Intelligence, Algorithmic Pricing, and Collusion” American Economic Review 2020, 110(10): 3267-3297.
  • Amanda Starc and Thomas Wollmann “Does entry remedy collusion? Evidence from the generic prescription drug cartel” NBER Working paper #29886.

 

Topic 2: Demand Estimation & Oligopolistic Competition in Differentiated Products Markets

Required Reading

  • Steve Berry: “Estimating Discrete-Choice Models of Product Differentiation,” RAND Journal of Economics, 25(2) (1994) 242-262.
  • Steve Berry, James Levinsohn and Ariel Pakes: “Voluntary Export Restraints on Automobiles: Evaluating a Strategic Trade Policy,” American Economic Review 89(3) (1999) 400-430.
  • Gautam Gowrisankaran and Marc Rysman: “Dynamics of Consumer Demand for New Durable Goods,” Journal of Political Economy, 2012, Volume 120, 1173-1219.
  • Emily Wang: “The Impact of Soda Taxes on Consumer Welfare: Implications of Storability and Taste Heterogeneity, RAND Journal of Economics,” Vol. 46(2) (2015), pp. 409-441.
  • Nikhil Agarwal and Paulo Somain: “Demand Analysis using Strategic Reports: An Application to a School Choice Mechanism”, Econometrica, March 2018.

Useful Reading

  • Dennis Epple, “Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for Differentiated Products,” Journal of Political Economy, 95(1), 1987, 59-80.
  • Steve Berry, “Estimating Discrete Choice Models of Product Differentiation,” RAND Journal of Economics 25 (Summer 1994) 242-262.
  • Aviv Nevo: “Measuring Market Power in the Ready-to-Eat Cereal Industry” Econometrica 2001, 69(2) 307-342.
  • Aviv Nevo: “A Research Assistant's Guide to Random Coefficients Discrete Choice Models of Demand,” NBER Technical Working Paper No. 221, 1998.
  • Daniel A. Ackerberg and Marc Rysman “Unobserved product differentiation in discrete-choice models: estimating price elasticities and welfare effects”, RAND Journal of Economics, 36(4): Winter 2005, 771-788.
  • Jean-Pierre Dube, Jeremy Fox and Che-Lin Su: BLP codes and “Improving the Numerical Performance of BLP Static and Dynamic Discrete Choice Random Coefficients Demand Estimation” Econometrica, Sept. 2012.
  • Chris Knittel and Konstantinos Metaxiglou: “Challenges in Merger Simulation Analysis” AER P&P May 2011.
  • Steve Berry, James Levinsohn and Ariel Pakes: “Differentiated Products Demand Systems from a Combination of Micro and Macro Data: The New Vehicle Market,” Journal of Political Economy, 2004, 112(1): 68-104.
  • Kyoo il Kim and Amil Petrin: “Tests for Price Endogeneity in Differentiated Product Models,” Journal of Econometric Methods, March 2014.
  • Thomas Wollmann: “Trucks without Bailouts: Equilibrium Product Characteristics for Commercial Vehicles”, American Economic Review 2018, 108(6): 1364-1406.

Student Presentations

  • Matthew Backus, Chris Conlon and Michael Sinkinson: 2021 “Common Ownership and Competition in the Ready-To-Eat Industry” working paper.
  • Hendrik Dopper, Alexander MacKay, Nathan H. Miller and Joel Stiebale: 2022 “Rising Markups and the Rolle of Consumer Preferences”, working paper.

 

Topic 3: Pricing and Contracting

Required Reading

  • Ian Ayres and Peter Siegelman: “Race and Gender Discrimination in Bargaining for a New Car,” American Economic Review, 85(3), June. 1995.
  • Pinelopi K. Goldberg, “Dealer Price Discrimination in New Car Purchases: Evidence from the Consumer Expenditure Survey,” Journal of Political Economy 104 (June 1996), 622-654.

Useful Reading

  • John List, “The Nature and Extent of Discrimination in the Marketplace: Evidence from the Field,” The Quarterly Journal of Economics, Feb. 2004, 49-89.
  • Ali Hortacsu and Chad Syverson: “Product Differentiation, Search Costs and Competition in the Mutual Fund Industry: A Case Study of S&P 500 Index Funds,” Quarterly Journal of Economics, v.119, May 2004.
  • Phillip Leslie and Alan Sorensen: “Resale and Rent-Seeking: An Application to Ticket Markets,” Review of Economic Studies, 2014, 81(1): 266-300.
  • Raluca M. Ursu: “The Power of Rankings: Quantifying the Effect of Rankings on Online Consumer Search and Purchase Decisions,” Marketing Science, 2018, 37(4): 530-552.
  • Tom Blake, Sarah Moshary, Kane Sweeney and Steve Tadelis: “Price Salience and Product Choice,” Marketing Science, 2021 July-August.
  • Amy Finkelstein, Nathaniel Hendren, and Mark Shepard: “Subsidizing Health Insurance for Low- Income Adults: Evidence from Massachusetts,” American Economic Review 2019, 109(4): 1530- 1567.

Student Presentations

  • Francesco Decarolis, “Medicare Part D: Are Insurers Gaming the Low Income Subsidy Design?” American Economic Review, 2015, 105(4): 1547-1580.
  • Kevin Williams: “The Welfare Effects of Dynamic Pricing: Evidence from Airline Markets”, Econometrica, March 2022, 90(2): 831-858.

 

Topic 4: Information Economics

Required Reading

  • Ken Hendricks and Robert Porter: “An Empirical Study of an Auction with Asymmetric Information,” American Economic Review, Dec 1988, 865-883.
  • Ben Handel: “Adverse Selection and Inertia in Health Insurance Markets: When Nudging Hurts,” American Economic Review, 2013, 103(7): 2643-2682.
  • Steve Tadelis and Florian Zettelmeyer: “Information Disclosure as a Matching Mechanism: Theory and Evidence from a Field Experiment,” American Economic Review 2015, 105(2): 886-905.
  • Weijia (Daisy) Dai, Ginger Jin, Jungmin Lee and Michael Luca: “Aggregation of Consumer Ratings: An Application to Yelp.com,” Quantitative Marketing and Economics, 2018.
  • Luis Aguiar & Joel Waldfogel: “Quality Predictability and the Welfare Benefits from New Products: Evidence from the Digitization of Recorded Music,” Journal of Political Economy, vol 126(2), pages 492-524.

Useful Reading

  • Liran Einav, Amy Finkelstein, and Mark Cullen: “Estimating Welfare in Insurance Markets Using Variation in Prices,” Quarterly Journal of Economics, 2010.
  • Daniel Ackerberg: “Empirically Distinguishing Informative and Prestige Effects of Advertising,” RAND Journal of Economics, Summer 2001.
  • Daniel Ackerberg: “Advertising, Learning, and Consumer Choice in Experience Good Markets: A Structural Empirical Examination,” International Economic Review, Aug 2003, 1007-1040.
  • Kyle Bagwell: “The Economic Analysis of Advertising,” Handbook of Industrial Organization, vol 3, 2007: 1701-1844.
  • Navdeep Sahni and Harikesh Nair: “Native Advertising, Sponsorship Disclosure and Consumer Deception: Evidence from Mobile Search-Ad Experiments,” Marketing Science, Jan-Feb, 39(1), pp. 5- 32.
  • Navdeep Sahni and Harikesh Nair: “Does Advertising Serve as a Signal? Evidence from Field Experiments in Mobile Search,” Review of Economic Studies, May, 87(3), pp. 1529-1564.
  • David Dranove and Ginger Zhe Jin: “Quality Disclosure and Certification: Theory and Practice,” Journal of Economic Literature 2010.
  • Ginger Zhe Jin and Phillip Leslie: “The Effects of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards,” Quarterly Journal of Economics, May 2003, 118(2), 409-51.
  • David Dranove, Dan Kessler, Mark McClellan and Mark Satterthwaite: “Is More Information Better? The Effects of 'Report Cards' on Health Care Providers,” Journal of Political Economy, June 2003, 111(3): 555-588.
  • Ginger Zhe Jin and Phillip Leslie: “Reputation Incentives For Restaurant Hygiene,” American Economic Journal: Microeconomics, Feb. 2009.
  • Ginger Jin, Michael Luca and Daniel Martin: “Complex Disclosure,” 2021, Management Science.

Student Presentations

  • Imke Reimers and Joel Waldfogel: “Digitalization and Pre-Purchase Information: The Causal and Welfare Impacts of Reviews and Crowd Ratings,” American Economic Review, 2021, 111(6): 1944- 1971.
  • Benjamin Vatter: “Quality Disclosure and Regulation: Scoring Design in Medicare Advantage,” working paper.

Other Resources for IO Economists

Here is a list of many useful books to review:

IO Theory

  • Jean Tirole, The Theory of Industrial Organization, MIT, 1987 (a book so good it killed the field of IO theory!)
  • Paul Belleflamme and Martin Peitz, Industrial Organization: Markets and Strategies, Cambridge University Press, second edition 2015 (useful for more recent IO theory)
  • Jean-Jacques Laffont and Jean Tirole, A Theory of Incentives in Procurement and Regulation, 1993

Structural IO

Antitrust

  • Peter Davis and Eliana Garces, Quantitative Techniques for Competition and Antitrust Analysis, Princeton, 2010 (an excellent guide to how economics and econometrics are used in the real- world, although becoming a little dated)
  • Mike Whinston, Lectures on Antitrust Economics, MIT Press, 2006 (good, but now dated)

Background on Computational Techniques

  • Ken Judd, Numerical Methods in Economics, 1998
  • Ken Train, Discrete Choice Methods with Simulation, available on his Berkeley website (especially useful for demand/single-agent choice models).
  • Mario Miranda and Paul Fackler, Applied Computational Economics and Finance, 2004 (note there is a computational economics toolbox for MATLAB that accompanies the book).
  • Harry Paarsch and Konstantin Golyaev, A Gentle Introduction to Effective Computing in Quantitative Research: What Every Research Assistant Should Know, 2016 (provides a useful introduction to R)
  • Gilli and Maninger, Numerical Methods and Optimization in Finance, 2019 (an accessible presentation of MATLAB and R programs)

Useful Handbook of Industrial Organization/Econometrics Chapters

  • T. Bresnahan, Empirical Methods for Industries with Market Power (which laid out the modern IO approach)
  • D. Ackerberg, L. Benkard, S. Berry and A. Pakes, Econometric Tools for Analyzing Market Outcomes
  • S. Berry and P. Reiss, Emprical Models of Entry and Market Structure
  • K. Hendricks and R. Porter, An Empirical Perspective on Auctions
  • J. Sutton, Market Structure: Theory and Evidence
  • U. Dorazelski and A. Pakes, A Framework for Applied Dynamic Analysis in IO
  • J. Rust, Numerical Dynamic Programming
  • P. Reiss and F.Wolak, Structural Econometric Modeling: Rationales and Examples from Industrial Organization

NBER Econometrics Lecture Series

Relevant University and Departmental Policies

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