School of Economics
Academic Year 2014-15
Term 1
ECON 218 Empirical Industrial Economics Instructor : Jungwon Yeo Office : SOE/SOSS Level 5, 5067 Tel : 6828‐0945 Email : [email protected] Office hours: by appointment only. To make an appointment, email the instructor at least 2‐3 days before your preferred meeting time. COURSE DESCRIPTION This course concerns empirical analysis of firms and markets. Both empirical findings on the major issues
in industrial economics and empirical methods are discussed. Such issues include, but not limited to, the
relationship between market structure and firm profitability, product differentiation, entry and market
structure, innovation, and mergers. It also introduces empirical methods such as Structure-ConductPerformance regression, estimation of demand for differentiated products, and production function
estimation.
Empirical IO courses offered in most universities have been almost exclusively at the doctorate level,
mainly, due to the complexity of the techniques (especially those recently developed) used in the literature
and the highly applied nature. This course attempts to bring it to the undergraduate level by putting more
emphasis on analytical skills, rather than complex estimation techniques, demonstrated in the research
papers that are relatively easy, but highly regarded in the literature.
LEARNING OBJECTIVES The course is designed to demonstrate skills to combine economic theory, empirical methods, and realworld data to study various industrial economic issues, through highly influential studies in the literature.
At the end of the course, successful students will be equipped with basic empirical (modeling and
estimation) skills required to conduct empirical research in industrial economics and quantities marketing.
CLASS SESSIONS We meet once a week for 3 hours, 12:00 to 3:15 Tuesdays.
RECOMMENDED TEXT AND READINGS There is no required textbook per se. The course will be based on a list of journal articles and book
chapters in empirical IO given at the end of this course outline. You are expected to have access to a
(undergraduate level) Industrial Organization and Econometrics textbook for reference. The
following text books will be especially excellent references and the weekly lesson plan refers to these
books:
[1] A. Belleflamme and M. Peitz, “Industrial Organization: Markets and Strategies,” Cambridge University
Press, 2010
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[2] Dennis W. Carlton and Jeffrey M. Perloff, “Modern Industrial Organization,” 4th edition, Pearson
[3] James H. Stock and Mark M. Watson, “Introduction to Econometrics,” 3rd edition, Pearson
I will post lecture notes on the course webpage. It is strongly recommended that you read the each
week’s lecture note before you come to the class. Although the lecture notes will be self-contained,
they are summary of the recommended reading materials, so you may feel they are somewhat
compartmented. You will find it very helpful to read recommended readings to put things together.
ASSESSMENT METHODS In‐class presentation Class participation/attendance Homework assignment Final examination Total 20%
20%
35%
25%
100%
In‐class presentation: Students’ in‐class presentations of assigned readings followed by peer discussion are an important part of the course. Students will form a group of 2 to 5 students (the desired size of a group will be announced later) to read and present an assigned paper. One hour will be given for each presentation. The group must also submit a written review report of 3‐5 pages. Class participation/attendance: Every student is expected to read the papers to be discussed before each class session and come prepared to actively participate in discussions. To further facilitate in‐class discussions, a discussion panel will be assigned to each paper. The discussion panel must read the paper and submit a written review report of 2‐3 pages before we discuss the paper in the class. Also, each student in the panel is expected to ask intellectual questions about or comment on the paper during or after the presentation/lecture. Homework Assignments: There will be 3 (or 4) homework assignments. The first 1 (or 2) assignments will be problem sets on basic IO theory. The other two HW assignments will be on conducting basic empirical research using real world data, provided by the instructor, and some of the empirical methods taught in the class. Examination: There will one final exam only. The final exam is scheduled at 8:30 AM on the 3rd of December for 3 hours. The exam will be open‐book. ACADEMIC INTEGRITY
All acts of academic dishonesty (including, but not limited to, plagiarism, cheating, fabrication,
facilitation of acts of academic dishonesty by others, unauthorized possession of exam questions, or
tampering with the academic work of other students) are serious offences.
All work (whether oral or written) submitted for purposes of assessment must be the student’s own
work. Penalties for violation of the policy range from zero marks for the component assessment to
expulsion, depending on the nature of the offense.
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When in doubt, students should consult the instructors of the course. Details on the SMU Code of
Academic Integrity may be accessed at http://www.smuscd.org/resources.html.
WEEKLY LESSON PLAN (subject to adjustment) Papers with * will be covered in class by lecture and # by student presentation. Subjects Recommended Readings Wk IO topic Methodology topic 1 Review on theory on market structure [2] Ch.3, 4, 6
or
[1] Ch. 2, 3
2 Continued from week 1; Structure‐ Conduct –
Performance (S‐C‐P) approach [2] Ch. 8
3 Exemplary empirical study Review on Regression methods ([3] Ch. 6, 10, 12)
*Borenstein, S. (1989)
3 Exemplary empirical studies with the S‐C‐P approach #Wolfram, C (1999)
#Chevalier, Judith (1995)
4 Cartel/Collusion Introduction to Maximum Likelihood Estimator (MLE) *Porter, R. (1983)
*Glenn Ellison, G. (1994)
5 Continued from week 4 #Porter and Zona (1999)
6 Exclusive Dealing #Sass, T. (2005)
7 Innovation *#Aghion et al (2005)
8 Recess 9 Market Structure and Productivity *#Syverson, C. (2004)
(Section I & II by lecture, III &
IV by student presentation)
10 Entry *Bresnahan and Reiss (1991)
11 Competition and Product Differentiation Estimation methods for demand for differentiated products; Generalized Method of Moments (GMM) ([3] Ch. 11, 18.7)
[1] Ch. 5.4
*Berry, S. (1994)
*Berry, S., Levinsohn, J. and
Pakes, A. (1995)
12 Horizontal Mergers #Nevo, A. (2000)
13 Network Goods #Rysman, M. (2004)
14 Review Week 3
Reading List: *Borenstein, S. (1989) : “Hubs and High Fares: Dominance and Market Power in the U.S,” RAND
Journal of Economics, 20 (3): 344-365
#Wolfram, C. (1999): “Measuring Duopoly Power in the British Electricity Spot Market,” American
Economic Review, 89(3), 805-826
#Chevalier, Judith (1995): “Capital Structure and Product-Market Competition: Empirical Evidence from the
Supermarket Industry,” American Economic Review, 85(3): 415-435
*Porter, R. (1983) “A Study of Cartel Stability: The Joint Executive Committee 1880-1886,” Bell
Journal of Economics, 14(2), 301-314.
*Glenn Ellison, G. (1994): “Theories of Cartel Stability and the Joint Executive Committee” RAND
Journal of Economics, 25(1): 37-57
#Porter, R. and Zona, D. (1999): “Ohio School Milk Markets: An Analysis of Bidding,” RAND
Journal of Economics, 30(2): 263-288
*#Syverson, C. (2004): “Market Structure and Productivity: A Concrete Example,” Journal of Political
Economy, 112(6): 1181-1222
*Bresnahan, T. and Reiss, P. (1991): “Entry and Competition in Concentrated Markets,” The Journal
of Political Economy, 99(5):977-1009
#Sass, T, (2005): “The Competitive Effects of Exclusive Dealing: Evidence from the U.S. Beer
Industry,” International Journal of Industrial Organization, 23: 203-225.
*#Aghion, P., Bloom, N., Blundell, R., Griffith, R. and Howitt, P (2005): “Competition and
Innovation: An Inverted-U Relationship,” Quarterly Journal of Economics, 120(2): 701-728
*Berry, S. (1994): “Estimating Discrete Choice Models of Product Differentiation,” Rand Journal of
Economics, 25(2), 242-262.
*Berry, S., Levinsohn, J. and Pakes, A. (1995): “Automobile Prices in Market Equilibrium,”
Econometrica, 63(4):841-890
#Nevo, Aviv (2000): “Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal
Industry,” The RAND Journal of Economics, 31(3): 395-421
#Rysman, M. (2004): “Competition between Networks: A Study of the Market for Yellow Pages,” Review
of Economic Studies, 71 (2): 483-512.
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