INDUSTRIAL ORGANIZATION II
ECO 2901: Winter 2019
This course deals with Empirical Industrial Organization. It covers topics related to econometric models and empirical applications of competition in industries. We study empirically the determinants of firms’ behaviour and market outcomes in the context of problems of price and quantity competition, investment, innovation, product design, networks, or market entry/exit. The course focuses on research papers using empirical games to investigate firms’ strategies and competition, and how firms’ information and beliefs play a fundamental role in the nature of competition and on market outcomes and welfare. The covered topics include recent research that relax standard assumptions of firms’ rational expectations and allow for firms’ limited information, biased beliefs, and learning. The course emphasizes the importance of combining data, economic models, and appropriate identification strategies and econometric techniques to answer empirical questions in economics.
· We have a 2-hours lecture every Thursday from 9am to 11am in room WO-25.
· We do have class on Thursday, February 21st, during Reading Week.
· We have Final Exam in class the last week of the term, on Thursday, April 4th.
Your final grade will be based on the following requirements.
· Final exam (50%). The final exam will cover all the material in the course and it is closed-book. The exam will be on Thursday, April 4th, in class.
· Problem set (50%). I will distribute the problem set online on Thursday, February 21st. Your completed problem set is due on Thursday, March 7th.
OUTLINE AND REFERENCES
PART I: STATIC MODELS OF COMPETITION IN PRICES OR QUANTITIES
Topic 1: Cournot competition and Conjectural Variations with homogeneous product
Topic 2: Bertrand competition with differentiated product
Topic 3: Conjectural Variations with differentiated product
Topic 4: Empirical models of price / quantity competition with incomplete information
· Vives, X. (2002): “Private Information, Strategic Behavior, and Efficiency in Cournot Markets,” The RAND Journal of Economics, 33(3), 361-376.
PART II: STATIC MODELS OF MARKET ENTRY AND SPATIAL COMPETITIO
Topic 5: Estimation of market entry models: complete and incomplete information
Topic 6: Market entry and spatial competition
Topic 7: Relaxing assumptions on information structure in discrete choice games
· Grieco, P. (2014): “Discrete games with flexible information structures: An application to local grocery markets,” The RAND Journal of Economics, 45(2), 303-340.
Topic 8: Static games of incomplete incomplete information with non-equilibrium beliefs
· Aguirregabiria, V., & Xie, E. (2017): “Identification of Biased Beliefs in Games of Incomplete Information Using Experimental Data,” manuscript.
PART III: DYNAMIC GAMES OF OLIGOPOLY COMPETITION
Topic 9: The structure and estimation of dynamic games of oligopoly competition
Topic 10: Dynamic games of innovation
· Pakes, A. and P. McGuire (1994): “Computing Markov-perfect Nash Equilibria: Numerical Implications of a Dynamic Differentiated Product Model,” Rand Journal of Economics, 25, 555-589.
· Goettler, R. and B. Gordon (2011): “Does AMD spur Intel to innovate more?” Journal of Political Economy, 119(6), 1141-1200.
· Igami, M (2017): “Estimating the Innovator's Dilemma: Structural Analysis of Creative Destruction in the Hard Disk Drive Industry,” Journal of Political Economy, 125(3), 798-847
Topic 11: Dynamic games with non-equilibrium beliefs
· Aguirregabiria, V. and J. Jeon (2018): “Firms’ Beliefs and Learning: Models, Identification, and Empirical Evidence,” Review of Industrial Organization, forthcoming.
· Aguirregabiria, V., & Magesan, A. (2018): “Identification and estimation of dynamics games when players beliefs are not in equilibrium, working paper,” manuscript.
· An, Y., Hu, Y., & Xiao, R. (2018): “Dynamic decisions under subjective expectations: A structural analysis,” manuscript. Department of Economics. Johns Hopkins University.
· Ellison, S., Snyder, C., & Zhang, H. (2018): “Costs of managerial attention and activity as a source of sticky prices: Structural estimates from an online market,” Manuscript. MIT, Department of Economics.
Topic 12: Dynamic games with firms’ learning
· Asker, J., Fershtman, C., Jeon, J., & Pakes, A. (2016): “The competitive effects of information sharing,” NBER Working Paper, No. 22836. National Bureau of Economic Research.
· Doraszelski, U., Lewis, G., & Pakes, A. (2018): “Just starting out: Learning and equilibrium in a new market,” American Economic Review, 108, 565-615.
· Fershtman, C., & Pakes, A. (2012): “Dynamic games with asymmetric information: A framework for empirical work,” Quarterly Journal of Economics, 127, 1611-1661.
· Jeon, J. (2017): “Learning and investment under demand uncertainty in container shipping,” Manuscript, Department of Economics, Boston University.
CLASS SCHEDULE & REQUIRED READINGS BEFORE CLASS
WEEK- DATE TOPIC ____________________________
Week 1: Jan. 10 Topic 1: Cournot competition and Conjectural Variations with homogeneous product
Week 2: Jan. 17 Topic 2: Bertrand competition with differentiated product
Week 3: Jan. 24 Topic 3: Conjectural Variations with differentiated product
Week 4: Jan. 31 Topic 4: Empirical models of price / quantity competition with incomplete information
Week 5: Feb. 7 Topic 5: Estimation of market entry models: complete and incomplete information
Week 6: Feb. 14 Topic 6: Market entry and spatial competition
Week 7: Feb. 21 Topic 7: Relaxing assumptions on information structure in discrete choice games
Problem set will be handed-out
Week 8: Feb. 28 Topic 8: Static games of incomplete incomplete information with non-equilibrium beliefs
Week 9: Mar. 7 Topic 9: The structure and estimation of dynamic games of oligopoly competition
Problem set is due
Week 10: Mar. 14 Topic 10: Dynamic games of innovation
Week 11: Mar. 21 Topic 11: Dynamic games with non-equilibrium beliefs
Week 12: Mar. 28 Topic 12: Dynamic games with firms’ learning
Week 13: Apr. 4 FINAL EXAM