THE UNIVERSITY OF TEXAS AT DALLAS

INDUSTRIAL ORGANIZATION – MECO 6360

SPRING 2009

Instructor: Octavian Carare, carare@utd.edu, Tel: 972 883 4770

Office Hours: SOM 3.214, by appointment
Class meets: Mon 8:30-11:15 SOM 2.802 (subject to change)
Prerequisites: Advanced Microeconomics (MECO6345 or equivalent) and
Econometrics

The course is a graduate-level presentation of various topics – many of them of recent

interest -- in Industrial Organization. We will discuss both theoretical models and
empirical applications. I will assume that students are familiar with fundamentals of
microeconomic theory, game theory and econometrics. The main text for the course is
Jean Tirole, The Theory of Industrial Organization, (Cambridge: MIT Press, 1988). In
addition to the text, a number of journal articles are assigned each week. The grade in this
course will be assigned on the basis of a final exam and in-class presentations.

READINGS

Read carefully the articles in bold before each class meeting!!! You may skim through
the other articles, but it is best if you also read them carefully.

PRESENTATIONS

Each student will be responsible for preparing three or four 30-40 minute presentations of
papers from the reading list.

Journals:

HIO = Handbook of IO, RJE = Rand Journal of Economics, ECON = Econometrica,

JPE = Journal of Political Economy, AER = American Economic Review, BJE =
Bell Journal of Economics (currently RJE), JET = Journal of Economic Theory,
REStud = Review of Economic Studies, JIE = Journal of Industrial Economics, QJE
= Quarterly Journal of Economics, IJIO = Int’l Journal of IO, EL = Economics
Letters, REStat = Review of Economics and Statistics, JEMS = Journal of
Economics and Management Strategy, JMR = Journal of Marketing Research

Class schedule

Week 1. Theory of the Firm

• Tirole, Introduction and The Theory of the Firm.

• S. Grossman and O. Hart, "The Costs and Benefits of Ownership: A Theory
of Vertical and Lateral Integration" JPE 94, pp. 691-796.
 • P. Joskow, "Contract Duration and Relationship-Specific Investments:
Empirical Evidence from Coal Markets" AER 77, pp. 168- 185.
• A. Shepard, "Contractual Form, Retail Pricing and Asset Characteristics in
Gasoline Retailing" RJE 24, pp. 58-77.

Week 2. Monopoly Pricing and Durable Goods

• Tirole, Ch. 1
• F. Gul, H. Sonnenschein, and R. Wilson, "Foundations of Dynamic
Monopoly and the Coase Conjecture," JET 39, pp. 155-190. (Not available
online, but I’ll have a hard copy ready one week before class)
• D. Fudenberg and J. Tirole, "Upgrades, Trade-ins, and Buybacks," RJE 29,
pp. 235-258.

Week 3. Price Discrimination

• Tirole, Ch. 3
• K. Corts, "Third Degree Price Discrimination in Oligopoly: All-Out
Competition and Strategic Commitment," RJE 29, pp. 306-323.
• M. Perry, "Forward Integration by ALCOA: 1888-1930," JIE 29, pp. 37-53.
• E. Maskin and J. Riley, "Monopoly with Incomplete Information," RJE 15,
pp. 171-96.
• RP McAfee, J. McMillan, and M. Whinston, "Multiproduct Monopoly,
Commodity Bundling, and Correlation of Values," QJE 104, pp. 371-83.
• S. Borenstein and N. Rose, "Competition and Price Dispersion in the U.S.
Airline Industry," JPE 102, pp. 653-683.
• A. Shepard, "Price Discrimination and Retail Configuration," JPE 99, pp. 30-53.
• K. Graddy, "Testing for Imperfect Competition at the Fulton Fish Market,"
RJE 26, pp. 75-91.

Week 4. Static Competition and Models of Differentiation

• Tirole, Section 2.1 and Chapter 5.
• M. Baye and J. Morgan, "Price Dispersion in the Lab and on the Internet:
Theory and Evidence" RJE
• D. Fudenberg and J. Tirole, "Customer Poaching and Brand Switching"
RJE, 31, pp. 634-657.
• T. Bresnahan, "Competition and Collusion in the American Automobile
Industry: The 1955 Price War" JIE 35, 457-482.
Week 5. Search
• D. Stahl, "Oligopolistic Pricing with Heterogeneous Consumer Search" IJIO
14, pp. 243-268. Download (not a stable link)
• A. Sorensen, "Equilibrium Price Dispersion in Retail Markets for
Prescription Drugs" JPE 108, pp. 833-850.

Week 6. Dynamic Competition

• Tirole, Chapter 6.
• J. Rotemberg and G. Saloner, "A Supergame-Theoretic Model of Price Wars
During Booms" AER 76, 390-407.
• E. Green and R. Porter, "Non-cooperative Collusion Under Imperfect Price
Information" ECON 52, pp. 87-100.
• C. Fershtman and A. Pakes, "A Dynamic Oligopoly with Collusion and Price
Wars" RJE 31, pp. 207-236.
• R. Porter, "A Study of Cartel Stability: The Joint Economic Committee,
1880-1886" BJE 14, pp. 301-314.
• G. Ellison, "Theories of Cartel Stability and the Joint Executive Committee"
RJE 25, pp. 37-57.

Week 7. Empirical Models of Demand

• D. Epple, "Hedonic Prices and Implicit Markets: Estimating Demand and
Supply Functions for Differentiated Products" JPE 95, pp. 59-80.
• R. Palmquist, "Estimating Demand for the Characteristics of Housing," REStat
66, pp. 394-404.
• S. Berry, "Estimating Discrete-Choice Models of Product Differentiation"
RJE 25 (2), pp. 242-262.
• S. Berry, J. Levinsohn, and A. Pakes, "Automobile Prices in Market
Equilibrium" ECON 63, pp. 841-890.
• A. Nevo, "A Practitioner’s Guide to Estimation of Random Coefficients Logit
Models for Demand” JEMS 9 (4), pp. 513-548.
• P. Goldberg, "Product Differentiation and Oligopoly in International Markets:
The Case of the U.S. Automobile Industry" ECON 63, pp. 891-952.

Weeks 8. Entry
• Tirole, 7.1-7.2.
• T. Bresnahan and P. Reiss, "Entry and Competition in Concentrated
Markets" JPE 99, pp. 977-1009.
• S. Berry and J. Waldfogel, "Free Entry and Social Inefficiency in Radio
Broadcasting" RJE 30, pp. 397-420.
• P. Golder and G. Tellis, "Pioneer Advantage: Marketing Logic or Marketing
Legend," JMR, 30, pp. 158-170.

Weeks 9-10. Empirical dynamic models

• J. Rust, “Optimal Replacement of GMC Bus Engines: An Empirical Model
of Harold Zurcher,” ECON 55 pp. 999-1033
 • V. Hotz, and R. A. Miller, “Conditional Choice Probabilities and the
Estimation of Dynamic Models,” REStud, 60 pp. 497-529.
• R. Ericson and A. Pakes, “Markov-Perfect Industry Dynamics: A
Framework for Applied Work,” REStud 62 pp. 53-82
• P. Bajari , L. Benkard and J. Levin, “Estimating Dynamic Models of
Imperfect Competition,” ECON 75, pp. 1331-1370
• M. Jofre-Bonet and M. Pesendorfer, “Estimation of a Dynamic Auction
Game,” ECON 71 pp. 1443-1489.
• V. Aguirregabiria and P. Mira “Swapping the Nested Fixed Point Algorithm:
A Class of Estimators for Discrete Markov Decision Models,” ECON 70 pp.
1519-1543.

Week 11. Strategic Investment

• Tirole Ch. 8
• K. Judd, "Credible Spatial Preemption" RJE 16, pp. 153-166.
• P. Aghion and P. Bolton, "Entry Prevention through Contracts with Customers,"
AER 77, pp. 388-401.
• J. Chevalier, "Capital Structure and Product Market Competition:
Empirical Evidence from the Supermarket Industry " AER 85 (3), pp. 415-
435.
• Kadiyali, V., "Entry, its Deterrence, and its Accommodation: A Study of the
U.S. Photographic Film Industry" RJE 27, pp. 452-478.
• R. Smiley, "Empirical Evidence on Strategic Entry Deterrence" IJIO 6, pp. 167-
180

Week 12. Asymmetric Information

• Tirole, Sections 9.0-9.7.
• J. Ordover and G. Saloner, "Predation, Monopolization and Antitrust," HIO
• P. Milgrom and J. Roberts, "Limit Pricing and Entry Under Incomplete
Information: An Equilibrium Analysis," ECON 50, pp. 443-460.
• M. Doyle and C. Snyder, "Information Sharing and Competition in the
Motor Vehicle Industry" JPE 107 (6) (December 1999), pp. 1326-1364.
• D. Genesove, "Adverse Selection in the Wholesale Used Car Market" JPE
101 (August 1993), pp. 644-665.
• T. Hubbard, "An Empirical Examination of Moral Hazard in the Vehicle
Inspection Market" RJE 29, pp. 406-426.

Week 13. Advertising

• Tirole, Sections 2.2-2.4, 7.3.
• G.S. Becker and K.M. Murphy, "A Simple Theory of Advertising as a Good
or Bad," QJE, Nov 1993, pp. 941-964.
• D. Ackerberg, "Empirically Distinguishing Informative and Prestige Effects
of Advertising" RJE 32, pp. 316-333.
Week 14. Auctions
• R.P. McAfee and J. McMillan, "Auctions and Bidding" JEL, Jun 1987, pp.
699-738.
• K. Hendricks and R. Porter, "An Empirical Study of an Auction with
Asymmetric Information" AER Dec 1988, pp. 865-83.
• J.-J. Laffont, H. Ossard, and Q. Vuong, "Econometrics of First Price
Auctions," ECON Jul 1995, pp. 953-80.

Material we may also cover:

Managerial Incentives
• Tirole, pp. 34-55.
• B. Holmstrom, "Managerial Incentive Problems--A Dynamic Perspective"
REStud 66, pp. 169-182.
• C. Fershtman and K. Judd, "Equilibrium Incentives in Oligopoly," AER 77,
pp. 927-940.
• R. Masson, "Executive Motivation, Earnings, and Consequent Equity
Performance," JPE 79, Dec 1971, pp. 1278-1292.
• J. Chevalier and G. Ellison, "Career Concerns of Mutual Fund Managers"
QJE 114, pp. 389-432.