ECON 407—INDUSTRIAL ORGANIZATION
FALL SEMESTER 2015
Prof. Jeffrey Wagner
Rochester Institute of Technology
Department of Economics
Bldg 1 - Room 1351
Office hours: MWF 9-10am, and by appointment.
E-mail: [email protected]
Departmental web page: http://www.rit.edu/cla/economics/people/wagner
Phone: 475-5289
Required Texts: Modern Industrial Organization, Dennis W. Carlton and Jeffrey M.
Perloff, Fourth Edition (2005) and The Economic Structure of Intellectual Property Law,
William M. Landes and Richard A. Posner (2003).
Greetings, and welcome to Industrial Organization! This course focuses upon the nature
of firms and industries (groups of firms), as organizations of each society’s factors of
production. We begin our study with a discussion of the history of market structures and
their evaluation, including the history of capitalism and industrial revolution. This
background will enable us to assess the relative strengths and weaknesses of any firm’s
situation, and enable us to understand the extent to which the government needs to be
involved in helping firms and industries produce according to our efficiency criteria. I
am also interested in our reflections upon each firm’s relationship with the community
and with the natural environment, and the philosophical and economic aspects of
innovation and evolution of our standards of living. In greater generality, enhanced
awareness of the nature of industrial organization enables each of us to better understand
the contributions we intend to make to a firm and an industry, and the dollar value the
market will place upon those contributions. I look forward to teaching this course, and I
welcome you to call upon me any time you feel I could be helpful; my goal is to be
considered among the most accessible instructors on campus. Bon voyage!
RIT is committed to providing reasonable accommodations to students with disabilities. If
you would like to request accommodations such as special seating or testing
modifications due to a disability, please contact the Disability Services Office. It is
located in the Student Alumni Union, Room 1150; the Web site is www.rit.edu/dso. After
you receive accommodation approval, it is imperative that you see me during office hours
so that we can work out whatever arrangement is necessary.
Course Requirements:
Exam #1
Exam #2
Exam #3
Term Paper
Exam #4 (final)
20%
20%
20%
20%
20%
100%
Examinations:
We will have three midterm exams, a term paper, and a final exam. The first exam will
be given in class on Monday, September 21; the second exam will be given in class on
Wednesday, October 21; and the third exam will be given in class on Friday,
November 20. The final exam is scheduled by the Institute for Friday, December 18, 810am in our regular classroom. The second and third exams will not be cumulative;
however, the final exam will be cumulative. You may only bring a “$10” calculator to
the examinations. I intend to discuss materials in Carlton and Perloff Chapters 1-11, 19,
and 16; Landes and Posner Chapters 1-3, 11, 13 and 14; and multiple research journal
articles listed below in the “References beyond the Text”. The examinations will
comprise essays and problems, and will strictly span the materials we discuss in class.
Thus, it is crucial to have a complete set of lecture notes. I strongly encourage you to
exchange greetings and contact information soon with at least one other person in this
class (before the end of the first week of classes), so that you may call upon that person
for a copy of the lecture notes, should you need to miss a class for any reason. Please
note that while I am eager to discuss your questions regarding the exam materials, my
deadline for discussing exam materials is 5PM the evening before each exam. Sample
exam questions will be posted at https://mycourses.rit.edu/index.asp, our course website.
Lastly, please note that if we determine that a make-up exam is appropriate, that exam
will almost surely be an oral exam.
Course Grades:
Course grades will be determined as follows:
Percentage
93-100
90-92.99
85-89.99
80-84.99
75-79.99
70-74.99
65-69.99
60-64.99
50-59.99
<50
Plus/Minus
Equivalent
A
AB+
B
BC+
C
CD
F
Term Paper:
In order to provide an opportunity for independent study and for real-world application of
the materials we shall study together, I would like for you to explore the most recent
Form 10-K filing of a firm in which you are strongly interested. Firms with publicly
traded shares must file an annual report of their activities with the Securities and
Exchange Commission. Each firm’s 10-K is accessible free of charge at the SEC’s
website, http://www.sec.gov/edgar.shtml. In addition, most firms post their Form 10-K
reports on their websites, under “Investor Relations” or a similar heading. Once you
select a firm, please prepare a paper regarding what you perceive as the three most
important industrial organization aspects of the firm’s situation. Two of the aspects must
be promising, while one of the aspects must be of concern, based upon the materials we
studied together in this course. A useful guideline is to contemplate specifically how you
are reading the firm’s 10-K report differently today than before you enrolled in this
course. The papers must be exactly five pages in length and exhibit double-spacing,
twelve point font, default margins, laser printing, and a cover page. Please submit the
cover page of the firm’s 10-K and the term paper in a nice, two-pocket folder.
Please note that I cannot accept late papers. If you are unable to submit your paper in
class on Monday, December 7, I am pleased to accept your paper (or paper-in-progress
for partial credit) either in my office before Noon (to include delivery by a friend,
neighbor or family member; if I am not in my office, please slide the paper under my
office door), by email (as a PC Word or PDF attachment, by Noon), by fax (by 4:30PM to
585-475-2510) or by snail mail (if postmarked on or before the due date). Note that if the
email or fax options are necessary, I must reduce the grade by 3%.
In addition to our textbook materials, please plan to read as many of the following
documents as time permits. At a minimum, please read the documents indicated with
stars. The documents are listed in the approximate order of their appearance in our class
discussions; each journal article is available on-line at the Wallace Library website.
The Nature of the Firm (Carlton and Perloff, Chapter 2):
*Kahneman Daniel, Jack L. Knetsch and Richard Thaler (1986). “Fairness as a
Constraint on Profit Seeking: Entitlements in the Market,” American Economic Review
76(4): 728-741.
*David, Paul (1985). “Clio and the Economics of QWERTY,” American Economic
Review (Papers and Proceedings) 75(2): 332-337.
Coase, Ronald (1937). “The Nature of the Firm,” Economica 4(16): 386-405.
Putterman, Louis (1995). “Markets, Hierarchies, and Information: On a Paradox in the
Economics of Organization,” Journal of Economic Behavior and Organization 26(3):
373-390.
*Holmström, Bengt and John Roberts (1998). “The Boundaries of the Firm Revisited,”
Journal of Economic Perspectives 12(4): 73-94.
Lafontaine, Francine and Margaret Slade (2007). “Vertical Integration and Firm
Boundaries,” Journal of Economic Literature 45(3): 629-685.
*Plato (380 BC). Republic, Book II. http://classics.mit.edu/Plato/republic.3.ii.html.
Wagner, Jeffrey (2007). “Plato’s Republic and Liberal Economic Education for the
Twenty-First Century,” Economics Bulletin 1(2): 1-10.
http://www.accessecon.com/pubs/EB/2007/Volume1/EB-07A20004A.pdf
*Smith, Adam (1776). Wealth of Nations, Chapters 1 and 2.
http://www.econlib.org/library/Smith/smWN.html.
Jones, Ronald W. (2001). “Globalization and Fragmentation of Production,” Seoul
Journal of Economics 14(1): 1-13.
Buchanan, James M., and Yong J. Yoon (2002). “Globalization as Framed by the Two
Logics of Trade,” Independent Review 6(3): 399-406.
Bennett, H. S. (1937). Life on the English Manor: A Study of Peasant Conditions, 11501400, Cambridge University Press, reprinted in 1971. (RIT Library Shelves, HC254.3.B4
1971, 4th floor).
Coulton, G. G. (1944). Medieval Panorama: The English Scene from Conquest to
Reformation, Cambridge University Press. (RIT Library shelves, DA185.C865 1944, 4th
floor)
Clanchy, M. T. (1979). From Memory to Written Record, England, 1066-1307,
Cambridge: Harvard University Press. (RIT Library shelves, DA185.C52, 4th floor)
*Magna Carta of 1297, http://www.archives.gov/press/press-kits/magna-carta/magna-cartatranslation.pdf.
Thurow, Lester (1999). Building Wealth: The New Rules for Individuals, Companies,
and Nations in a Knowledge-Based Economy, New York: Harper-Collins. (RIT Library
Shelves, HC110.S3 T47 1999, 4th floor)
*Humphries, Jane (1990). “Enclosures, Common Rights, and Women: The
Proletarianization of Families in the Late Eighteenth and Early Nineteenth Centuries,”
The Journal of Economic History 50(1): 17-42.
Shaw-Taylor, Leigh (2001). “Parliamentary Enclosure and the Emergence of an English
Agricultural Proletariat,” The Journal of Economic History 61(3): 640-662.
Karwatka, Dennis (1997). “Johann Gutenberg,” Tech Directions 57(2): 14.
Eisenstein, Elizabeth (1968). “Some Conjectures about the Impact of Printing on
Western Society and Thought: A Preliminary Report,” Journal of Modern History 40(1):
1-56.
Focarelli, Dario and Fabio Panetta (2003). “Are Mergers Beneficial to Consumers?
Evidence from the Market for Bank Deposits,” American Economic Review 93(4): 11521172.
Ashenfelter, O., Hosken, D. (2010). “The Effect of Mergers on Consumer Prices:
Evidence from Five Mergers on the Enforcement Margin,” Journal of Law & Economics
53(3): 417-466.
Ringleb, Al H. and Steven N. Wiggins (1990). “Liability and Large-Scale, Long-Term
Hazards,” Journal of Political Economy 98(3): 574-595.
Benston, George J. (1973). “Required Disclosure and the Stock Market: An Evaluation of
the Securities and Exchange Act of 1934,” American Economic Review 63(1): 132-155.
Coates, John C. IV (2007). “The Goals and Promise of the Sarbanes-Oxley Act,” Journal
of Economic Perspectives 21(1): 91-116.
Kamar, Ehud, Pinar Karaca-Mandic, and Eric Talley (2009). “Going-Private Decisions
and the Sarbanes-Oxley Act of 2002: A Cross-Country Analysis,” Journal of Law,
Economics & Organization 25(1): 107-134.
Perfect Competition: Some references to early US legal/economic thought, with
implications for globalizing IO today and tomorrow (Chapter 3).
*Griswold, A. Whitney (1946). “The Agrarian Democracy of Thomas Jefferson,” The
American Political Science Review 40(4): 657-681.
Katz, Claudio J. (2003). “Thomas Jefferson’s Liberal Anticapitalism,” American Journal
of Political Science 47(1): 1-17.
Wagner, Jeffrey (2013). “American Georgics and Globalization: Literary and Economic
Co-Evolution in Three Enclosure Movements,” Interdisciplinary Studies in Literature
and Environment 20(1): 71-84.
*Agarwal, Rajshree and Michael Gort (2001). “First-Mover Advantage and the Speed of
Competitive Entry, 1887-1986,” Journal of Law and Economics 44(April): 161-177.
(LexisNexis Academic database).
Oligopoly (Chapter 6)
Kreps, David (1990). Game Theory and Economic Modeling, New York: Oxford
University Press. (RIT Library Shelves, HB144.K73 1990, 4th floor)
Bui, Linda T. M. (1998). “Gains from Trade and Strategic Interaction: Equilibrium Acid
Rain Abatement in the Eastern US and Canada,” American Economic Review 88(4): 9841001.
Borenstein, Severin, James Bushnell, and Steven Stoft (2000). “The Competitive Effects
of Transmission Capacity in a Deregulated Electricity Industry,” RAND Journal of
Economics 31(2): 294-325.
Barr, James and Francesco Saraceno (2005). “Cournot Competition, Organization and
Learning,” Journal of Economic Dynamics & Control 29(1-2): 277-295.
Industry Structure and Performance (Chapter 8)
White, Lawrence J. (2002). “Trends in Aggregate Concentration in the United States,”
Journal of Economic Perspectives 16(4): 137-160.
Strategic Behavior (Chapter 11, Appendix A): Tying, Bundling, and Network
Externalities
Dixit, Avinash (2003). “Clubs with Entrapment,” American Economic Review 93(5):
1824-1829.
Carlton, Dennis and Michael Waldman (2002). “The Strategic Use of Tying to Preserve
and Create Market Power in Evolving Industries,” RAND Journal of Economics 33(2):
194-220.
Choi, J. P. (2004). “Tying and Innovation: A Dynamic Analysis of Tying
Arrangements,” The Economic Journal 114(492): 83-101.
*Whinston, Michael D. (2001). “Exclusivity and Tying in US v. Microsoft: What We
Know, and Don’t Know,” Journal of Economic Perspectives 15(2): 63-80.
Gilbert, Richard J. and Michael L. Katz (2001). “An Economist's Guide to U.S. v.
Microsoft,” Journal of Economic Perspectives 15(2): 25-44.
Gans, Joshua S. (2011). “Remedies for Tying in Computer Applications,” International
Journal of Industrial Organization 29(5): 505-512.
Antitrust Laws and Policy (Chapter 19)
*Kovacic, William E. and Carl Shapiro (2000). “Antitrust Policy: A Century of
Economic and Legal Thinking,” Journal of Economic Perspectives 14(1): 43-60.
Carlton, Dennis (2007). “Does Antitrust Need to be Modernized?” Journal of Economic
Perspectives 21(3): 155-176.
Segal, Ilya and Michael D. Whinston (2007). “Antitrust in Innovative Industries,”
American Economic Review 97(5): 1703-1730.
Vickers, John (2010). “Competition Policy and Property Rights,” The Economic Journal
120(544): 375-392.
Patents and Technological Change (Chapter 16):
*Landes, William M. and Richard A. Posner (2003). The Economic Structure of
Intellectual Property Law, Cambridge, Massachusetts: Belknap Press of Harvard
University Press. Chapters 1-3, 11, 13 and 14 (RIT Library Shelves, 4th floor,
KF2979.L36 2003)
Hall, Bronwyn, Christian Hellmers, Mark Rogers, and Vania Sena (2014). “The Choice
between Formal and Informal Intellectual Property: A Review,” Journal of Economic
Literature 52(2): 375-423.
Jones, Charles I., and John C. Williams (1998). “Measuring the Social Return to R&D,”
Quarterly Journal of Economics 113: 1119-1135.
*Varian, Hal (2005). “Copying and Copyright,” Journal of Economic Perspectives 19(2):
121-138.
Chu, Angus (2011). “The Welfare Cost of One-Size-Fits-All Patent Protection,” Journal
of Economic Dynamics & Control 35(6): 876-890.
Anton, James J. and Dennis A. Yao (2004). “Little Patents and Big Secrets: Managing
Intellectual Property,” RAND Journal of Economics 35(1): 1-22.
Moore, Kimberly A. (2005). “Worthless Patents,” Berkeley Technology Law Journal 20:
1521-1552. (LexisNexis Academic database)
*Lemley, Mark A. and Carl Shapiro (2005). “Probabilistic Patents,” Journal of Economic
Perspectives 19(2): 75-98.
Kultti, Klaus, Tuomas Takalo and Juuso Tiokka (2007). “Secrecy versus Patenting,”
RAND Journal of Economics 38(1): 22-42.
Samuelson, Pamela and Suzanne Schotchmer (2002). “The Law and Economics of
Reverse Engineering,” Yale Law Journal 111(7): 1575-1663.
Zieminski, Craig (2008). “Game Over for Reverse Engineering? How the DMCA and
Contracts Have Affected Innovation,” Journal of Technology Law & Policy 13(2): 289339. (LexisNexis Academic database)
Boldrin, Michelle, and David K. Levine (2013). “The Case Against Patents,” Journal of
Economic Perspectives 27(1): 3-22.
Kremer, Michael (1998). “Patent Buyouts: A Mechanism for Encouraging Innovation,”
Quarterly Journal of Economics 113(4): 1137-1167.
Shavell, Steven and Tanguy van Ypersele (2001). “Rewards versus Intellectual Property
Rights,” Journal of Law and Economics 44(2): 525-547. (LexisNexis Academic database)
Grinols, Earl L. and Hwan C. Lin (2011). “Patent Replacement and Welfare Gains,”
Journal of Economic Dynamics & Control 35(9): 1586-1604.
Ruble, Richard and Bruno Versaeval (2014). “Market Shares, R&D Agreements, and the
EU Block Exemption,” International Review of Law and Economics 37: 15-25.
*Boyle, James (2003). “The Second Enclosure Movement and the Construction of the
Public Domain,” Law and Contemporary Problems 66: 33-74. (on-line at Professor
Boyle’s website, http://www.law.duke.edu/boylesite/.)
Lerner, Josh and Jean Tirole (2005). “The Economics of Technology Sharing: Open
Source and Beyond,” Journal of Economic Perspectives 19(2): 99-120.
Schwarz, Michael and Yuri Takhteyev (2010). “Half a Century of Public Software
Institutions: Open Source as a Solution to Hold-Up Problems,” Journal of Public
Economic Theory 12(4): 609-639.
Schotchmer, Suzanne (2010). “Openness, Open Source, and the Veil of Ignorance,”
American Economic Review Papers & Proceedings 100(2): 165-171.
Bullard, Clark W. (1988). “Management and Control of Modern Technologies,”
Technology in Society 10: 205-232.