Schedule for ``Industrial Organization I'' G601 (14 December 2006-Feb. 17, 2010)

Jean Tirole, The Theory of Industrial Organization, Cambridge: MIT Press, 1988. (my Tirole notes page collects the various weblinks on Tirole that are below, plus others)

Eric Rasmusen, Games and Information, Fourth Edition draft chapters, 2003. Besides what is listed below, you may find useful the mathematical appendix, the bibliography, the front matter, and the index. [I've now removed the draft chapters. If you need a copy, ask me.]

Eric Rasmusen, The Games and Information Reader, Blackwell, 2001.


Week 1:
29 August, Tuesday. Game Theory Basics
   Preface and Introduction and Chapter 1 Games and Information.
   Philip Straffin, ``The Prisoner's Dilemma,'' UMAP Journal. 1: 101-103 (1980). Reader 1.
   Albert Tucker, ``A Two-Person Dilemma,'' unpublished notes (May 1950). Reader 2.
   Powerpoints for this session are available here, as well as latex and pdf files I used.

31 August, Thursday Information
   Chapter 2, Games and Information.
   "Beliefs about Beliefs" notes.
   Powerpoints for this session are available here, as well as latex and pdf files I used.

Due 5pm Saturday Sept 2: The HTML project.

Week 2
5 September, Tuesday. Mixed Strategies
   Chapter 3, Games and Information.
   Powerpoints for this session are available here, as well as latex and pdf files I used.
Due: Problem Set 1: 1.1, 1.11, 2.3, 2.5. Answers are (or will be) here.

7 September, Thursday. Classics I-- The Big Picture
   Adam Smith, Wealth of Nations , Book I chapters 1, 2, 3, 9, and 10.
   Alfred Marshall, chapters 10 to 12 of Book IV of his Principles of Economics (8th edition, 1920).
   Alfred Marshall's letter to Bowley on mathematics and economics.
   Joseph A. Schumpeter, "The Fundamental Problem of Economic Development," The Theory of Economic Development, tr. Redvers Opie, pp. 57--94 (Oxford: Oxford University Press, 1934, 1st edition in German, 1911). Two parts in large files: 1 and 2.
   Judith Lachman, ``Knowing and Showing Economics and Law,'' (A review of An Introduction to Law and Economics, A. Mitchell Polinsky (1983)) Yale Law Journal, 93: 1587, 1598-1605 (July 1984). Reader 12.
   Overheads are here in powerpoint.
Problem Set 2 (due next Tuesday): 3.4, 3.5, 3.8.

Week 3
12 September, Tuesday. Accounting Data, and Finance I.
   I have constructed a data page that has lots of links. The Wharton WRDS finance data site is at
   The Eli Lilly Annual Report.
   Eric Rasmusen, ``Aphorisms on Writing, Speaking, and Listening,'' in ascii latex and pdf. I have short versions in ascii latex and pdf. Reader 68.
   Overheads are here in powerpoint.
Due: Problem Set 2: 3.4, 3.5, 3.8. Answers are here.

14 September, Thursday. Accounting Data, and Finance II
   "Notes on Present Discounted Value," 2003, in ascii-latex and pdf.
   Powerpoint Finance Slides.
   For reference: Ivo Welch (Yale) "A 3-Hour Tour of Finance," February 26, 2003, Yale SOM,

Due 10 PM Sunday Sept 17: The Latex project.

Week 4
19 September, Tuesday. Perfectness and Repeated Games
   Chapters 4 and 5, Games and Information.
   Latex and pdf transparency files are available for chapter 4.
   "Shooting the Bird's Eye," pp. 18-19 of The Five Sons of King Pandu: The Story of the Mahabharata, adapted from the Kisari Ganguli translation by Elizabeth Seeger, New York: William R. Scott (1967). Reader 22.
   Robert Barro, "This Tax Amnesty Will Only Work Once," Wall Street Journal, p. 1 (7 August 1986). Reader 25.

21 September, Thursday. Reputation, Rob, and Perfect Bayesian Equilibrium
   Chapters 5 and 6, Games and Information.
Rafael Rob and Huanxing Yang, notes on "Long-Term Relationships as Safeguards," May 26, 2006.
   Powerpoints on the Rob paper are available, as well as latex files on 5 and 6 and pdf files on 5 and 6.
   Robert Axelrod and William Hamilton, ``The Evolution of Cooperation,'' Science, 211: 1390-1396 (March 1981). Reader 24.
   Harry Roberts and Roman Weil, ``The University of Chicago. Starting Research Early,'' unpublished notes, University of Chicago Graduate School of Business (August 14, 1970). Reader 27.
   David Kreps, Paul Milgrom, John Roberts, and Robert Wilson, "Rational Cooperation in the Finitely Repeated Prisoners' Dilemma," Journal of Economic Theory, 27: 245-252 (1982). Reader 29.

Problem Set 3, due next Tuesday: 4.5, 5.4, 6.3, and 6.4.

Week 5
26 September, Tuesday. Risk
I have posted some notes on the math of defining risk aversion.
My new notes are on my weblog and at risk.htm.
I have other weblog entries that I might talk about on prospect-theory-and-loss-aversion, on Gollier's table-to-check-your-own-level of risk aversion, and on Knightian-risk-and-uncertainty discussed using two-card-bets.
Just before class, I posted this entry on "Caring About Probabilities of Probabilities".
I will post my powerpoints .
For reference: "When Does Extra Risk Strictly Increase the Value of Options?" Eric Rasmusen, forthcoming in The Review of Financial Studies.

Due: Problem Set 3: 4.5, 5.4, 6.3, and 6.4. Answers are here.

28 September, Thursday. Classics II: Law-and-Economics and Public Policy
   George J. Stigler, "The Theory of Economic Regulation" (1971) The Bell Journal of Economics and Management Science, Vol. 2, No. 1, pp. 3-21 (Spring 1971).
   David Friedman, Law's Order, 36-62, on the Coase Theorem and Calabresi and Melamed. (See .)
   Arnold C. Harberger (1954) "Monopoly and Resource Allocation," The American Economic Review, Papers and Proceedings of the Sixty-Sixth Annual Meeting of the American Economic Association, 44(2): 77-87 (May 1954).
   I have posted my powerpoint slides.

Week 6
3 October, Tuesday. The Principal-Agent Problem
   Chapter 7, Games and Information.
   2006 notes on quasilinearity.
   Latex pdf slides for this session are available here.
   Philip Davis, Reuben Hersh and Elena Marchisotto, "The Creation of New Mathematics: An Application of the Lakatos Heuristic," pp. 291-298 of The Mathematical Experience, Boston: Houghton-Mifflin (1981). Reader 44.

No problem set or anything is due.

5 October, Thursday. Tournaments and Teams
   Chapter 8, Games and Information. just sections 8.1, 8.6, and 8.7.
   Latex-pdf Slides on Chapter 8 are available.

Problem Set 4: problems 7.1, 7.2, 8.4, 8.5.

Week 7
10 October, Tuesday. Adverse Selection
   Chapter 9.
   Latex-pdf Slides on Chapter 9 are available.
   George Akerlof, ``The Market for Lemons: Quality Uncertainty and the Market Mechanism,'' Quarterly Journal of Economics, 84: 488-500 (August 1970). Reader 41.
Due: Problem Set 4: Problems 7.1, 7.2, 8.4, 8.5. Answers are (or will be) here.

12 October, Thursday. Midterm
   Midterm answers for Fall 2003 and for G604 in Spring 2006.
   Advice on taking tests.

Week 8
17 October, Tuesday. Mechanism Design I
   Chapter 10 of Games and Information.
   "Notes on Reservation Wages" from the class discussion.    Latex-pdf Slides on Chapter 10 are available.
   Jacob Gonik, ``Tie Salesmen's Bonuses to their Forecasts,'' Harvard Business Review, 56: 116-123 (May/June 1978). Reader 46.

19 October, Thursday. Mechanism Design II
   Chapter 10 of Games and Information.
   Latex-pdf Slides on Chapter 10 are available.

Week 9
24 October, Tuesday. Price Discrimination I
   Chapter 10 of Games and Information.
   Latex-pdf Slides on Chapter 10, price discrimination only, are available.
   Hal Varian, "How to Build an Economic Model in Your Spare Time," From Passion and Craft: Economists at Work, edited by Michael Szenberg, University of Michigan Press (1999). Reader 48.

26 October, Thursday. Price Discrimination II
  Chapter 3, Tirole. Sections 3.1, 3.2.    Handwritten notes on sections 3.1 and 3.2 of Tirole are available.

Due: Problem Set 5: 10.2, 10.4, 10.5. Answers are (or will be) here.

Week 10
31 October, Tuesday. Signalling: The Basic Model
   Chapter 11 of Games and Information. Sections 11.1 to 11.4.
   Latex-pdf slides on Chapter 11 are available.
   John Davis, ``The Argument of an Appeal," from American Bar Association Journal, 26: 895-909 (December 1940). Reader 51.

2 November, Thursday. Signalling: Signal Jamming and Countersignalling
   Chapter 11 of Games and Information. Sections 11.6 and 11.7.
   Latex-pdf slides on Chapter 11 are available.

Week 11
7 November, Tuesday. Writing, Looking at Regressions
   John H. Cochrane Writing Tips for Ph. D. Students, June 8, 2005, University of Chicago.
   "Aphorisms," Reader: item 68.
   Edward Tufte, "PowerPoint Is Evil," Wired, Issue 11.09 (September 2003),
   Peter Norvig, "The Gettysburg Powerpoint Presentation," . Here is the original Gettysburg Address.
   "Capitalization Rules for Titles". Also, "Writing Tips",, is a good site on the fine points of writing.
   Tips for Regression Presentation and "Common Mistakes" in student papers.
   pdf overhead slides on these matters.
   An MS-Word file for practice revising
   Handouts on writing

9 November, Thursday. Auctions
   Chapter 13 of Games and Information. Sections 13.1, 13.2, 13.5.
   Latex-pdf slides on Chapter 13.
   Martin Shubik, ``The Dollar Auction Game: A Paradox in Noncooperative Behavior and Escalation,'' Journal of Conflict Resolution, 15: 109-11 (March 1971). Reader 57.
   R. Preston McAfee and John McMillan, ``Analyzing the Airwaves Auction,'' Journal of Economic Perspectives, 10:159-170 (Winter 1996). Reader 58.
   ``At Many Auctions, Illegal Bidding Thrives as a Longtime Practice among Dealers,'' Wall Street Journal, Meg Cox, p. 1 (19 February 1988). Reader 59.
   Here is the auction consulting company MDI's website.

Week 12
14 November, Tuesday. The Theory of the Firm
   Tirole: pp. 1-34.

   Slides on Tirole, chapter 0 in powerpoint and my hmtl handout explaining the three theories of the firm.

(I should have put Coase 1937) to be read for this class too.)

Due: Problem Set 6: 11.1, 11.4, 11.6, 13.1. Answers are (or will be) here.

16 November, Thursday. The Theory of the Firm
   Tirole: pp. 1-34.

   5 pages of notes on Tirole's authority model, which I went over in class.

Robert Gibbons (2005) "Incentives Between Firms (and Within)" Management Science, 51,Issue: 1: 2-17 January 2005). I have some html notes on this article.

Thomas P. Lyon and Eric Rasmusen (2004) ``Buyer-Option Contracts, Renegotiation, and the Hold-Up Problem,'' Journal of Law, Economics and Organization, 20,1: 148-169 (April 2004).

On Fisher Body, see: R. H. Coase, "The Acquisition of Fisher Body by General Motors," Journal of Law and Economics , Vol. 43, No. 1. (Apr., 2000), pp. 15-31. Robert F. Freeland, "Creating Holdup through Vertical Integration: Fisher Body Revisited," Journal of Law and Economics, Vol. 43, No. 1. (Apr., 2000), pp. 33-66. Ramon Casadesus-Masanell and Daniel F. Spulber "The Fable of Fisher Body," Journal of Law and Economics, Vol. 43, No. 1. (Apr., 2000), pp. 67-104.

Week 13
21 November, Tuesday. Monopoly
   Tirole: Chapter 1 (skip 1.5, appendix)
   Notes and figures in pdf. <> Due: Problem Set 7: Tirole problems-- 0.1 (p. 26), 0.2 (p. 41), 1.2 (p. 67) and 1.3 (p.68) (answers are at the back of the chapters,, or, in expanded detail written by me, here.).

23 November, Thursday. Thanksgiving. Holiday.

Week 14
28 November, Tuesday. Marketing
   Tirole: Chapter 2. Sections 2.2. 2.3, 2.4, 2.5.
Here are my handwritten notes in pdf and notes on the Swan (1970) durability choice model in latex/pdf.    A diagram of an example of monopoly quality being too high or too low.

Due: Assignment on presenting data.

30 November, Thursday. Vertical Control I
   Tirole: Chapter 4, sections 4.1, 4.2.
   Overheads on Tirole, Chapter 4, in pdf.

Week 15
5 December, Tuesday. Vertical Control II
  Tirole: Chapter 4, sections 4.2, 4.3, 4.4, 4.5.

7 December, Thursday. Classics: Organization
   R. H. Coase (1937) "The Nature of the Firm," Economica, New Series, 4, 16: 386-405 (November 1937)
   Jacob Viner (1931) "Cost Curves and Supply Curves," Zeitschrift fur Nationalokonomie, 3: 23-46 (1931), here, bundled with some pages from Kreps's micro text that give a numerical example. I have a couple of pages of notes giving diagrams and interpretation of U-shaped cost curves, a very tricky topic to teach.
   Oliver Hart and Bengt Holmstrom, "A Theory of Firm Scope," November 4, 2002, MIT Department of Economics Working Paper No. 02-42. Authors' notes are here. Rasmusen notes are here.
Due: Assignment on writing up regressions.

Final Examination: Tuesday, 12 December 7:15 - 9:15 p.m., regular classroom
   Final answers for Fall 2003 and Fall 2006 and for G604 in Spring 2006.

DROPPED FROM FALL 2006. Bargaining
   Chapter < 12 of Games and Information. I will tell you which sections I plan to cover.
   Latex-pdf slides on Chapter 12 are available.
   John Nash, ``The Bargaining Problem,'' Econometrica, 18:155-162 (April 1950). Reader, 53.
   Ariel Rubinstein, "Perfect Equilibrium in a Bargaining Model," Econometrica, 50: 97-109 (January 1982). Reader 54.
  My Notes on Rubinstein (1982).

Demand Estimation I
   Eric Rasmusen , "The BLP Method of Demand Curve Estimation in Industrial Organization," forthcoming in Gendai Keizaigaku 1, mikuro-bunseki, edited by Isao Miura and Tohru Naito, Tokyo: Keiso shobo.
   Aviv Nevo, "A Practitioner's Guide to Estimation of Random-Coefficients Logit Models of Demand," Journal of Economics and Management Strategy, 9(4): 513-548 (Winter 2000).
   On the method of moments, see Jeffrey M. Wooldridge, 2001. "Applications of Generalized Method of Moments Estimation,"Journal of Economic Perspectives, 15(4): 87-100.
   A few powerpoint slides.

For reference--- you need not read:
   Nevo's homepage and Appendix and computer code are also useful. See too the revisions of his code by Bronwyn Hall (2005) and Eric Rasmusen (2005).
Steven Berry, James Levinsohn, and Ariel Pakes, "Automobile Prices in Market Equilibrium," Econometrica, 63(4): 841-890 (July 1995) and the working paper version, which is easier to read.
Steven Berry, James Levinsohn, and Ariel Pakes, "Differentiated Products Demand Systems from a Combination of Micro and Macro ..." The Journal of Political Economy, 112(1): 68-105 (February 2004).
On Matlab, see "Getting Started With MATLAB" by David Hart and Clinton Wolfe, Indiana University (June 1999) and my notes.