Schedule for ``Industrial Organization and Business Strategy II'' (G604) (7 May 2006)


Instructor: Eric Rasmusen, [email protected], BU 456, 812-855-9219.
Office hours: Monday, Wednesday, 2:30-3:45 (but feel free to drop by other times if my door is open).


    Most of the readings will be available via weblinks from this html file.

    Stephen Martin, Advanced Industrial Economics, 2nd edition, Oxford: Blackwell Publishers, 2002. Most of you will have this from last semester. Martin's errata is up on the web.

    The Eli Lilly Annual Report.

    Eric Rasmusen, Games and Information, Fourth Edition draft chapters, 2005.

Recommended Books:

    Eric Rasmusen, The Games and Information Reader, Blackwell, 2001. The Reader is helpful as a guide to doing research, as well as for the journal articles it contains.

    Jean Tirole, The Theory of Industrial Organization , MIT Press (1988). Tirole's book is the standard text in industrial organization, and anyone taking the field exam ought to own a copy.

    This course is designed to be a second semester course for students at Indiana University interested in industrial organization, and hence is rather different from the typical industrial organization course. The difficulty in a course like this is to strike a balance between surveying the field and preparing students for dissertation work in some one narrow part of it.


Week 1:
10 January, Tuesday. Regressions of Profit on Industry
    Martin: Chapter 5
    Powerpoints on concentration and profits.

12 January, Thursday. Problems with Profit Regressions .
    Martin: Chapter 6
    Overheads on four alternative theories

Week 2
17 January, Tuesday. Various Theories for Profit Regressions .
    Martin: Chapter 7
For a discussion of marginal vs. average Tobin's q, see the introduction to the working paper, "Fixed Costs: The Demise of Marginal q" by Ricardo J. Caballero and John V. Leahy.

19 January, Thursday. Accounting, Data, and Finance .
    I have constructed a data page that has lots of links. The Wharton WRDS finance data site is at
    The Eli Lilly Annual Report. I have posted my powerpoint slides on accounting.

Week 3
24 January, Tuesday. Games of Incomplete Information and Perfect Bayesian Equilibrium
    Rasmusen: Chapter 2 and Chapter 6. Here are pdf slides from Chapter 2 and Chapter 6.
    You may also find useful the book's bibliography, in pdf.

26 January, Thursday. Repeated Games and Reputation
    Rasmusen: Chapter 5. Here are pdf slides from Chapters 5 and 6.
    Homework problems from Games and Information, due Tuesday: 2.8, 5.1, 5.2, 6.1.
Martin, Chapter 10.

Week 4
31 January, Tuesday. Mechanism Design, Unravelling, and Sender-Receiver Games
    Rasmusen: Chapter 10.
    Here are pdf slides from Chapter 10.

2 February, Thursday. Rate of Return Regulation
    Rasmusen: Chapter 10.
    Homework problems from Games and Information, due Tuesday: 6.3, 10.1, 10.2, 10.4

Week 5
7 February, Tuesday. Auctions
    Rasmusen: Chapter 13.

    Here are pdf slides from Chapter 13, and various rewrites (the first-price auction bid function, common value revenue ranking, a different revenue equivalence theorem).

9 February, Thursday. Auctions
Rasmusen: Chapter 13.
    Homework assignment, due Tuesday: Prove the two auction revenue equivalence theorems without having the book open in front of you.

Week 6
14 February, Tuesday. The Hotelling Model
    Rasmusen: Rasmusen: Chapter 14.
    Here are pdf slides from Chapter 14.
    Martin: Chapter 4.

16 February, Thursday. Vertical Differentiation
    Rasmusen: Rasmusen: Chapter 14.
    Martin, Chapter 4.

Week 7
21 February, Tuesday. Midterm examination
    Spring 2003 answers and an Excel spreadsheet illustrating Vinerian U-shaped cost curves.
    Spring 2006 answers and pdf slides of the answer sheet.

22 February, WEDNESDAY NIGHT, 8:30-9:45. BU 404. Research at Indiana
Richmond Harbaugh's homepage.
False Modesty: When Disclosing Good News Looks Bad. Dr. Richmond Harbaugh and Ted To, working paper. Also: powerpoint slides.
Comparative Cheap Talk. Archishman Chakraborty and Rick Harbaugh, forthcoming, Journal of Economic Theory. Also: powerpoint slides.

Week 8
28 February, Tuesday. 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).

2 March, Thursday. Demand Estimation II
        We will continue with the previous topic. You need not read any of the links below-- they are just for reference, though I hope to cover the Appendix and some computer code in one of these classes.

        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).
    Webpage Project due.

Week 9
7 March, Tuesday. Demand Estimation III
    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: 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.

9 March, Thursday. Demand Estimation IV
   Ian Lee's slides on BLP and his dissertation work.
    For reference--- you need not 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).
    For reference--- you need not read: On Matlab, see "Getting Started With MATLAB" by David Hart and Clinton Wolfe, Indiana University (June 1999) and my notes.

(14, 16 March) SPRING BREAK
Week 10
21 March, Tuesday. Classics: Public Policy
    Adam Smith, The Wealth of Nations (1776) "Of the Causes of Improvement in the productive Powers of Labour, and of the Order according to which its Produce is naturally distributed among the different Ranks of the People," Book I, chapters 1-3. (do not read chapters 4 and on).
   "I, Pencil," Leonard Read, The Freeman (December (1958).
    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). On Ramsey pricing, see my natural monopoly powerpoint slides from G406.
    George J. Stigler (1971) "The Theory of Economic Regulation" The Bell Journal of Economics and Management Science, 2(1): 3-21 (Spring 1971)
    David Friedman, Law's Order, chapters 4 and 5, pages 36-62, on the Coase Theorem and Calabresi and Melamed. (See ) Also: bids in the sulfuric acid auction of 2005, and an article on the buyout of an Ohio town by a polluter.
    I have posted my powerpoint slides .

23 March, Thursday. Classics: Organization
    Alfred Marshall, Principles of Economics, 8th edition, 1920 (1st edition, 1890), "Industrial Organization, Continued. Business Management,"Book IV, Chapter 12.
    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). The Viner, Kreps, and Schumpeter materials are all in one pdf file here.
    I have posted my powerpoint slides .

Week 11
28 March, Tuesday. The Theory of the Firm
    R. H. Coase (1937) "The Nature of the Firm," Economica, New Series, 4(16): 386-405 (November 1937)
    I have posted my powerpoint slides .

    Tirole, pp. 15-60, "The Theory of the Firm" (pw: coin).
A couple of my papers that connect nicely with these ideas are: Rasmusen and Zenger, ``Diseconomies of Scale in Employment Contracts,'' Journal of Law, Economics and Organization (June 1990), 6(1): 65-92; and Lyon and Rasmusen, ``Buyer-Option Contracts, Renegotiation, and the Hold-Up Problem,'' Journal of Law, Economics and Organization , 20,1: 148-169 (April 2004).

30 March, Thursday. Research at Indiana University: John Maxwell
    Lyon, Thomas P. and John Maxwell (2004) "Astroturf: Interest Group Lobbying and Corporate Strategy," Journal of Economics & Management Strategy, 2004, 13(4) 561.
    The profit assignment is due today.

Week 12
4 April, Tuesday. Firm Size
    Jacob Viner (1931) "Cost Curves and Supply Curves," Zeitschrift fur Nationalokonomie, 3: 23-46 (1931). The Viner, Kreps, and Schumpeter materials are all in one pdf file here.
Holt, C.J. in Keeble v. Hickeringill, QB, 1707, 11 East 574, 103 Eng. Rep. 1127. An 18th century judge citing a case from 1410.
    Kreps, David, A Course in Microeconomic Theory, pp. 274-279 (Princeton University Press, 1990)

6 April, Thursday. Writing, Looking at Regressions
    Today, we'll look at your profit reports.
   John H. CochraneWriting Tips for Ph. D. Students, June 8, 2005, University of Chicago.
    Reader: item 68, "Aphorisms"
    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 .
    Principles of Graphs and Tables and other powerpoint slides.

    "Common Mistakes" and other powerpoint slides.

Week 13
11 April, Tuesday. Exclusive Dealing
    John Asker, "Diagnosing Foreclosure Due to Exclusive Dealing," October 14, 2004, Leonard N. Stern School of Business, NYU.
    Powerpoint lecture slides

13 April, Thursday. File Sharing and Record Sales,
    Felix Oberholzer and Koleman Strumpf, "The Effect of File Sharing on Record Sales An Empirical Analysis," Harvard Business School (March 2004).
    Powerpoint lecture slides

Week 14
18 April, Tuesday. Production Functions
    Instead of class in BU 404, go to the Econometrics Workshop in Wiley 005, 4-5:30, to hear Dan Ackerberg of UCLA on "Structural Identification of Production Functions". Comments in tex and pdf.

20 April, Thursday. Prices, Ads, and Search
    Jeffrey Milyo and Joel Waldfogel "The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart," American Economic Review, 89(5): 1081-1096 (December 1999).
    You might be interested in reading the Supreme Court decision in 44 Liquormart. Excerpts are here. You can also view the full Main Opinion and the Thomas opinion.
Here are my powerpoint slides.

Week 15
25 April, Tuesday. Mandatory Disclosure
    Ginger Jin and Phillip Leslie (2003): "The Effect of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards," Quarterly Journal of Economics, 118(2): 409-451 (May 2003).
2006 Bloomington restaurant inspections.
    Here are my powerpoints.

27 April, Thursday. Antitrust Law.
    "Statutory Provisions and Guidelines of the Antitrust Division," 3rd edition (April 2001)
    Microsoft case: "Conclusions of Law," United States District Court for the District of Columbia, Civil action 98-1232
    Lawrence White (1999) "Present at the Beginning of a New Era for Antitrust: Reflections on 1982-1983,"March 16, 1999.
    Powerpoint lecture slides

The paper report assignment is due today.

Final Examination: BU 404, Thursday, May 4. 7:15-9:15 p.m.
    Finals in pdf for 2003 and with its paper to analyze: ``Characteristics, Contracts, and Actions: Evidence From Venture Capitalist Analyses,'' Steven Kaplan and Per Stromberg, January 2002' and for 2006.

Some Extras We Might Talk About Now and Then

    Reader, item 2, Albert Tucker, ``A Two-Person Dilemma,'' unpublished notes (May 1950).

    Reader, item 17, "The Conference Handbook"

    Reader: item 68, "Aphorisms"

    Reader: item 27, "Starting Research Early"

    Reader: item 7, Nasar "School of Genius"

    Reader: item 12, Lachman

    Reader: item 48, Hal Varian

    Reader: item 22, "Shooting the Bird's Eye"

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