Empirical Industrial Organization
- The main purpose of the course is that students get the first idea of what imperfect markets are.
- Students should acquire a deeper understanding of the process of market functioning, aims, objectives and the role of the government in market regulations.
- Demand, welfare and demand estimationWe discuss the two competing ways of modeling demand used in industrial organization: the representative-consumer model and the discrete choice model. Within the representative consumer model, we derive the linear demand system and cover the standard issues of linear demand estimation. To stress how it helps in policy evaluation, we pay special attention to the consumer surplus and welfare issues. Within the discrete-choice setting, we explain the basics of the multinomial logit model of consumer choice (Anderson et al., 1992) and show how to apply it for demand estimation using micro-level consumption data (Train, 2003).
- Market structuresWe study the standard bundle of market structures, including pure monopoly, Cournot and Bertrand oligopoly,monopolistic competition. We discuss the concept of market power and the ways of its measurement. We also study the consequences of endogenous firm entry, and show how to estimate general-equilibrium models with entry (based on Berry et al., 1995). The role of business-stealing effect in creating a tendency to over-entry in equilibrium will be considered based on Mankiw and Whinston (1986). Finally, we show how to use conjectural variations to quantify strategic interactions and assess market power.
- Product differentiationHere we plunge deeper into product differentiation issues. We use the Hotel-ling’s (1929) linear city model to explain the minimum differentiation principle. Furthermore, we show why a discontinuity in demand in theHotelling model is problematic and why the shape of transport costs matters (based on d’Aspremont et al, 1979). We proceed by showing how differentiated product oligopoly models are estimated using the discrete-choice toolkit (Goldberg, 1995). Finally, we discuss vertical product differentiation and its role in formation of natural monopolies and natural oligopolies (Gabs-zewicz and Thisse, 1979) and show an example of an empirical analysis of a vertically differentiated market (Smith and Brynjolfsson, 2001).
- Price discriminationWe discuss three types of price discrimination: personalized pricing, group pricing and menu pricing (Shapiro and Varian, 1999), and derive empirically testable implications of these types of behavior.
- Interim assessment (4 module)0.2 * Coursework + 0.5 * Final written exam + 0.3 * Intermediate written exam
- Victor J. Tremblay, & Carol Horton Tremblay. (2012). New Perspectives on Industrial Organization. Springer. Retrieved from https://link.springer.com/book/10.1007/978-1-4614-3241-8
- Berry, S., Levinsohn, J., & Pakes, A. (1995). Automobile Prices in Market Equilibrium. Econometrica, (4), 841. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.ecm.emetrp.v63y1995i4p841.90
- Smith, M. D., & Brynjolfsson, E. (2001). Consumer Decision-Making at an Internet Shopbot: Brand Still Matters. Journal of Industrial Economics, (4), 541. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.bla.jindec.v49y2001i4p541.58
- Zhelobodko, E., Kokovin, S., Parenti, M., & Thisse, J.-F. (2012). Monopolistic competition: beyond the constant elasticity of substitution. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.9302983D