Graduate Industrial Organization

PDF file: PhD-IndOrg

Course Objective

The purpose of this course is to prepare students to do research in industrial organization.

While there will some presentation and discussion of important theoretical papers, the

primary emphasis will be on empirical work. We will discuss papers, paying particular

attention to the modeling approach, data requirements, and estimation techniques used.

This should help improve a student’s ability to conduct interesting empirical research in

industrial organization.


• 40% – Empirical Research Paper Proposal. You will be asked to write a 5 to 10 page

paper proposal. In this proposal, you will develop an econometric model to address

an interesting research question. You will also need to discuss the data requirements

and your possible estimation strategies. (more details to follow)

• 30% – Final Exam

• 20% – Homework Assignments (problem sets and a referee report)

• 10% – Class participation

Course Reading List

We will not be following any particular text. The following texts are suggested as

references and background reading.

Anderson, Simon P., Andre de Palma, and Jacques-Francois Thisse, Discrete Choice

Theory of Product Differentiation, Cambridge, MA: The MIT Press, 1992.

Tirole, Jean, The Theory of Industrial Organization, Cambridge, MA: The MIT Press,


Carlton, Dennis W. and Jeffrey M. Perloff, Modern Industrial Organization, Fourth

edition, Addison Wesley, 2005.

Schmalensee, Richard and Robert D. Willig, Handbook of Industrial Organization,

Amsterdam: North-Holland, 1989.

Below, you will find a list of the relevant papers for each section of the course. While

there are more papers listed than we have time for, this list is far from exhaustive. For a

more thorough list, please print Aviv Nevo’s empirical IO syllabus (Northwestern). I will

tell you each week which papers to focus on for the following week.

The Demand for Differentiated Products (Theory and Empirical)

Anderson, Simon P., Andre de Palma, and Jacques-Francois Thisse (1992): Discrete Choice Theory of

Product Differentiation, Cambridge, MA: The MIT Press.

*Berry, Steve (1994): “Estimating Discrete-Choice Models of Product Differentiation,” RAND Journal

of Economics, 25, 242-262.

*Berry, Steve, James Levinsohn, and Ariel Pakes (1995): “Automobile Prices in Market Equilibrium,”

Econometrica, 63, 841-890.

Goldberg, Pinelopi Koujianou (1995): “Product Differentiation and Oligopoly in International

Markets: The Case of the U.S. Automobile Industry,” Econometrica, 63, 891-951.

*Hausman, Jerry A. (1997): “Valuation of New Goods Under Perfect and Imperfect Competition,” The

Economics of New Goods, ed. T. Bresnahan and R. Gordon.

*Nevo, Aviv (2000): “A Practitioner’s Guide to Estimation of Random Coefficients Logit Models of

Demand,” Journal of Economics & Management Strategy, 9, 513-548.

*—– (2001): “Measuring Market Power in the Ready-to-Eat Cereal Industry,” Econometrica, 69, 307-


Petrin, Amil (2002): “Quantifying the Benefits of New Products: the Case of the Minivan,” Journal of

Political Economy, 110, 705-729.

Tirole, Jean (1988): The Theory of Industrial Organization, Chapter 7.

Price Discrimination

*Besanko, David, Jean-Pierre Dube, and Sachin Gupta (2003): “Competitive Price Discrimination

Strategies in a Vertical Channel with Aggregate Data, Management Science, 49, 9, 1121-1138.

*McManus, Brian (2004): “Nonlinear Pricing in an Oligopoly Market: The Case of Specialty Coffee,”

Washington University working paper.

*Nevo, Aviv and Catherine Wolfram (2002): “Why Do Manufacturers Issue Coupons? An Empirical

Analysis of Breakfast Cereals,” RAND Journal of Economics, 33, 2, 319-339.

*Shepard, Andrea (1991): “Price Discrimination and Retail Configuration,” Journal of Political

Economy, 99, 1, 30-53.

Tirole, Jean (1988): The Theory of Industrial Organization, Chapter 3.

Antitrust Economics (and competitive issues)

*Ellison, Glenn (1994): “Theories of Cartel Stability and the Joint Executive Committee,” RAND

Journal of Economics, 25, 1, 37-57.

Froeb, Luke M., Gregory J. Werden, and Timothy J. Tardiff (1996): “The Use of the Logit Model in

Applied Industrial Organization,” International Journal of the Economics of Business, 3, 1, 83-


Nevo, Aviv (2000): “Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal

Industry,” RAND Journal of Economics, 31, 3, 395-421.

*Porter, Robert H. (1983): “A Study of Cartel Stability: The Joint Executive Committee, 1880-1886,”

Bell Journal of Economics, 14, 2, 301-314.

—– and J. Douglas Zona (1999): “Ohio School Milk Markets: An Analysis of Bidding,” RAND

Journal of Economics, 30, 2, 263-288.

*Whinston, Michael D. (2003): Lectures on Antitrust Economics, The Center for the Study of

Industrial Organization (at Northwestern University).

Models of Entry & Industry Structure

*Bresnahan, Tim and Peter Reiss (1990): “Entry in Monopoly Markets,” Review of Economic Studies,

57, 531-553.

—– (1991): “Entry and Competition in Concentrated Markets,” Journal of Political Economy, 99,


*Berry, Steve (1992): “Estimation of a Model of Entry in the Airline Industry,” Econometrica, 60,


*Berry, Steve and Joel Waldfogel (1999): “Free Entry and Social Inefficiency in Radio Broadcasting,”

RAND Journal of Economics, 30, 397-420.

Scott Morton, Fiona (1999): “Entry Decisions in the Generic Pharmaceutical Industry,” RAND Journal

of Economics, 30, 421-440.

Tirole, Jean (1988): The Theory of Industrial Organization: Chapters 8-9.

Production, Costs, and Technology

Benkard, Lanier (2000): “Learning and Forgetting: The Dynamics of Aircraft Production,” American

Economic Review, 90, 1034-1054.

*Christensen, Laurits R. and William H. Greene (1976): “Economies of Scale in U.S. Electric Power

Generation,” Journal of Political Economy, 84, 4, 655-676.

Griliches, Zvi and Jacques Mairesse (1995): “Production Functions: The Search for Identification,”

NBER Working Paper No. w5067.

*Levinsohn, Jim and Amil Petrin (2000): “Estimating Production Functions Using Inputs to Control

for Unobservables,” Review of Economic Studies, 70, 317-342.

*Olley, Steve and Ariel Pakes (1996): “The Dynamics of Productivity in the Telecommunications

Industry,” Econometrica, 64, 1263-1297.

*Reiss, Peter C. and Frank A. Wolak, (2004): “Structural Econometric Modeling: Rationales and

Examples from Industrial Organization,” Handbook of Econometrics, Vol. 5.

Dynamic Models with Single Agents

Erdem, Tulin and Michael Keane (1996): “Decision-Making Under Uncertainty: Capturing Dynamic

Brand Choice Processes in Turbulent Consumer Goods Markets,” Marketing Science, 15, 1-20.

Hotz, Joe and Bob Miller (1993): “Conditional Choice Probabilities and the Estimation of Dynamic

Models,” Review of Economic Studies, 60, 497-529.

Pakes, Ariel (1986): “Patents as Options: Some Estimates of the Value of Holding European Patent

Stocks,” Econometrica, 54, 755-784.

Rust, John (1987): “Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold

Zurcher,” Econometrica, 55, 999-1033.

—— (1996): “Numerical Dynamic Programming in Economics,” in H. Amman, D. Kendrick, and J.

Rust (eds.), Handbook of Computational Economics, 1, 619-729.

Time permitting…

Dynamic Models with Multiple Agents

Hopenhayn, Hugo (1992): “Entry, Exit and Firm Dynamics in Long Run Equilibrium,” Econometrica,

60, 1127-1150.

Ericson, Richard and Ariel Pakes (1995): “Markov-Perfect Industry Dynamics: A Framework for

Empirical Work,” Review of Economic Studies, 62, 53-82.

Pakes, Ariel (2000): “A Framework for Applied Dynamic Analysis in I.O.,” NBER Working Paper

No. 8024.

Pakes, Ariel and Paul McGuire (1994): “Computing Markov-perfect Nash Equilibria: Numerical

Implications of a Dynamic Differentiated Product Model,” RAND Journal of Economics, 25, 555-


Dynamic Oligopoly

Borenstein, Severin and Andrea Shepard (1996): “Dynamic Pricing in Retail Gasoline Markets,”

RAND Journal of Economics, 27, 429-451.

Chevalier, Judy, Anil Kashyap and Peter Rossi (2000): “Why Don’t Prices Rise During Periods of

Peak Demand? Evidence from Scanner Data,” NBER Working Paper No. 7981.

Ellison, Glenn (1994): “Theories of Cartel Stability and the Joint Executive Committee,” RAND

Journal of Economics, 25, 37-57.

Porter, Robert (1983): “A Study of Cartel Stability: The Joint Executive Committee, 1880-1886,” Bell

Journal of Economics, 14, 301-314.

Advertising (Theory and Empirical)

Ackerberg, Dan (2001): “Empirically Distinguishing Informative and Prestige Effects of Advertising,”

RAND Journal of Economics, 32, 316-333.

—– (2003): “Advertising, Learning, and Consumer Choice in Experience Good Markets: A Structural

Examination,” International Economic Review, 44, 1007-1040.

Dixit, Avinash and Victor Norman (1978): “Advertising and Welfare,” Bell Journal of Economics, 9,


Goeree, Michelle (2004): “Advertising in the US Personal Computer Industry,” mimeo.

Grossman, Gene M. and Carl Shapiro (1984): “Informative Advertising and Differentiated Products,”

Review of Economic Studies, 51, 63-81.

Milyo, Jeffrey and Joel Waldfogel (1999): “The Effect of Price Advertising on Prices: Evidence in the

Wake of 44 Liquormart,” American Economic Review, 89, 1081-1096.

Sauer, Raymond and Keith Leffler (1990): “Did the Federal Trade Commission’s Advertising

Substantiation Program Promote More Credible Advertising?,” American Economic Review, 191-



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