Industrial Organization and Public Policy II (Econ 846-001)

 

Prof. Alex Tabarrok

Carow Hall

Email: tabarrok@gmu.edu

Tel: 703-993-2314

 

Web Page: http://mason.gmu.edu/~atabarro/

 

 

Office Hours:  If you are on the Fairfax campus, feel free to drop by any time or call for an appointment.  Email is a good way to contact me.  All students should periodically check their GMU email account for important information.

 

Office Hours: T-Thr: 10-12, 2-4

 

Textbooks: Carlton and Perloff’s Modern Industrial Organizationis the best undergraduate IO book and Jean Tirole’s The Theory of Industrial Organization (MIT Press) is the best graduate book, albeit now quite dated.  I recommend both books, especially if you will write the IO prelim.  Paul Klemperer’s book Auctions: Theory and Practice is a very nice introduction to the topic – note, however, that most of the papers in the book are available online if you want to save some money.  Also, although I will be dipping into all books, some subjects that I will cover are not covered in either and I do not follow either book systematically.  The books are recommended - you may choose not to purchase and instead work from articles and class notes. 
 

Grading: The largest share of your grade will be determined by a paper.  Ideally, the paper will serve as a draft for a dissertation chapter and eventually a publication.  I am looking for a 10-20 page, well-written theory or empirical paper in IO.  You may work in a group of two or at most three but note that you cannot all have the same dissertation chapter!  Papers are due last day of class – no exceptions.  You are encouraged to think about topics early and see me for some possible guidance.

 

            You will also be required to make a 15 minute class presentation on the subject of your paper.   

 

 

IO Paper                      35%

Presentation                10%

Homework                   25%

MidTerm/Final            30%

 

 

My personal grading scale is as follows.  Note that sometimes the university does not allow certain grades such as Ds – in which case you will receive the next highest grade below D.  Plus-Minuses for B through D grades, where allowed by university policy, will occur at the upper and lower 2.5% level.  For example, 70-72.49 will be B-, 72.5-77.49 B, 77.5-79.9 B+ and so forth.

 

A+: 90%+

A:   85-89% 

A-:  80-84%

B:   70-79%

C:   60-69%

D:   50-59%

F:    50% -

 

Disability Policy: If you are a student with a disability and you need academic accommodations, please see me and contact the disability Resource Center (DRC) at 703-993-2474. All academic accommodations must be arranged through that office.

Topics:

 

Review of Monopoly

 

Tirole, 65-69

CP, 87-105

 

Price Discrimination

 

Tirole, chapter 3

CP, chapter 9. 10

 

*Ayres, I., and P. Siegelman. 1995. Race and Gender Discrimination in Bargaining for a New Car. American Economic Review 85 (3):304-21.

 

Cowling, K., and D. C. Mueller. 1978. The Social Costs of Monopoly Power. The Economic Journal 88 (Dec):727-48.

 

Varian, H. 1985. Price Discrimination and Social Welfare. American Economic Review 75 (4):870-75.

 

Adams, W. J., and J. L. Yellen. 1976. Commodity Bundling and the Burden of Monopoly. Quarterly Journal of Economics 90 (3):475-98.

 

*Bakos, Y., and E. Brynjolfsson. 1999. Bundling Information Goods: Pricing, Profits, and Efficiency. Management Science 45:1613-30.

 

Bakos, Y., and E. Brynjolfsson. 2000. Bundling and Competition on the Internet. Marketing Science 19 (1):

 

*Nalebuff, Barry. 2004. Bundling as an Entry Barrier. Quarterly Journal of Economics 119 (1):159-188.  Also available as a Wharton Working Paper.


Xavier Gabaix, and David Laibson. 2006. Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets. The Quarterly Journal of Economics 121, no. 2. The Quarterly Journal of Economics: 505-540. 

 

*Lott, J. R., and R. D. Roberts. 1991. A Guide to the Pitfalls of Identifying Price Discrimination. Economic Inquiry XXIX (Jan):14-23.

 

Dana, J. D. J. 1998. Advance-Purchase Discounts and Price Discrimination in Competitive Markets. Journal of Political Economy 106 (2):395-422.

 

*Levine, M. E. 2002.Price Discrimination Without Market Power. Yale Journal on Regulation 19:1-36.


*
U.S. Court of Appeals for the 6th District. 2015. Spirit Airlines v. Northwest Airlines

 

Monopoly, Product Quality and Durability, Coase Conjecture

 

Tirole, 79-87, 100-104

CP, chapter 15

 

*Barzel, Y. 1976. An Alternative Approach to the Analysis of Taxation. Journal of Political Economy 84 (6):1177-97.

 

*Bulow, J. I. 1982. Durable Goods Monopolists. Journal of Political Economy 90 (2):314-32.

 

Coase, R. H. 1972. Durability and Monopoly. Journal of Law and Economics 15 (April):143-49.

 

Morch von der Fehr, N.-H., and K.-U. Kuhn. 1995. Coase Versus Pacman: Who Eats Whom in the Durable-Goods Monopoly. Journal of Political Economy 103 (4):785-812.

 

*Masten, S. E., and E. A. Snyder. 1993. United States Versus United Shoe Machinery Corporation: On the Merits. Journal of Law and Economics XXXVI (April):33-70.

 

*Bulow, J. 1986. An Economic Theory of Planned Obsolesence. Quarterly Journal of Economics 101 (4):729-49.

 

*Akerlof, G. A. 1970. The Market for Lemons: Quality Uncertainty and the Market Mechanism. Quarterly Journal of Economics 84:488-500.

 

*Shapiro, C. 1983. Premiums for High Quality Products As Returns to Reputations. Quarterly Journal of Economics 98 (4):659-79.

 

*Waldman, M. 2003. Durable Goods Theory for the Real World Markets. (link requires subscription) Journal of Economic Perspectives 17 (1):131-54.

 

Johnson, J. P., and M. Waldman. 2003. Leasing, Lemons and Buybacks. Rand Journal of Economics 34 (2):247-65.

 

Hendel, I., and A. Lizzeri. 1999. Adverse Selection in Durable Goods Markets. American Economic Review 89 (5):1097-1115.

 

Gilligan, T. W. 2003. Lemons and Leases in the Used Business Aircraft Market. Working Paper.

 

*Bond, E. W. 1982. A Direct Test of the "Lemons" Model: The Market for Used Pickup Trucks. American Economic Review 72 (4):836-40.

 

*Cawley, J., and T. Philipson. 1999. An Empirical Examination of Information Barriers to Trade in Insurance. American Economic Review 89 (4):827-46.

 

Hemenway, David. 1990. Propitious Selection. The Quarterly Journal of Economics, Vol. 105, No. 4. pp. 1063-1069.

 

Finkelstein, Amy and Kathleen McGarry. 2006. Multiple dimensions of private information: evidence from the long-term care insurance market  2006, American Economic Review September 96(4): 938-958.

 

Quality Discrimination

 

Tirole, 153-162

CP, chapter 10

 

Deneckere, R. J., and P. R. McAfee. 1996. Damaged Goods. Journal of Economics and Management Strategy 5 (2):149-74.

 

Waldman, M. 1996. Durable Goods Pricing When Quality Matters. Journal of Business 69 (Oct):489-510.

 

---. 1993. A New Perspective On Planned Obsolescence. Quarterly Journal of Economics 108 (1):273-83.

 

Auctions

 

Klemperer, Paul.  2000. Auction Theory: A Guide to the Literature. Introductory chapter to The Economic Theory of Auctions, P. Klemperer (ed.), Edward Elgar (pub.). (Also published in Journal of Economic Surveys, 1999, and reprinted in The Current State of Economic Science S. Dahiya (ed.), 1999.)    

 

*Klemperer, Paul. 2003.  Why Every Economist Should Learn Some Auction Theory. Advances in Economics and Econometrics: Invited Lectures to 8th World Congress of the Econometric Society, M. Dewatripont, L. Hansen and S. Turnovsky (eds.), Cambridge University Press.

 

*Klemperer, Paul. 2002. How (Not) to Run Auctions: the European 3G Telecom Auctions European Economic Review 46: 828-845.

 

Riley, J. G., and W. F. Samuelson. 1981. Optimal Auctions. American Economic Review 71 (3):381-92.

 

*Milgrom, P. 1989. Auctions and Bidding: A Primer. Journal of Economic Perspectives 3 (3):3-22.

 

Milgrom, P. R., and R. J. Weber. 1982. A Theory of Auctions and Competitive Bidding. Econometrica 50 (September):1089-1122.

 

Bulow, J., and P. Klemperer. 1996. Auctions Versus Negotiations. American Economic Review 86 (1):180-94.

 

*David Lucking-Reiley. 1999. Using Field Experiments to Test Equivalence Between Auction Formats: Magic on the Internet. American Economic Review. 89 (5): 1063-1080.

 

*Roth, Alvin E. and Axel Ockenfels. 2002. Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet. American Economic Review 92 (4): 1093-1103.

 

*Tideman, T. N., & Tullock, G. 1976. A New and Superior Process for Making Social Choices. Journal of Political Economy, 84(6): 1145–1159. Retrieved from http://www.jstor.org/stable/1831271
*Varian, H. R., & Harris, C. 2014. The VCG Auction in Theory and Practice. The American Economic Review, 104(5): 442–445.

Incentive Schemes, Tournaments, Piece Rates

 *Prendergast, C. 1999. The Provision of Incentives in Firms. Journal of Economic Literature XXXVII (1,March):7-63.

 

Lazear, E. P., and S. Rosen. 1981. Rank Order Tournaments As Optimum Labor Contracts. Journal of Political Economy 89 (5):841-64.

 

Baker, G. P. 1992. Incentive Contracts and Performance Measurement. Journal of Political Economy 100 (3):598-614.

 

*Holmstrom, B., and P. Milgrom. 1991. Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design. Journal of Law, Economics, and Organization 7 (sp):24-52.

 

*Lazear, Edward. P. 1996. Performance Pay and Productivity. NBER Working Paper 5672

 

*Passell, Peter. 1996. Paid by the Widget, and Proud. New York Times (June. 16).

 

*Prendergast, Canice. 1999. Paying for Performance. The financial Times (Dec. 13).

 

*King, Ralph T. 1998. Infighting Rises, Productivity Falls, Employees Miss Piecework System. Wall Street Journal (May 20).

 

Gneezy, U., M. Niederle, and A. Rustichini. 2003. Performance in competitive environments: Gender differences. Quarterly Journal of Economics, August 2003, p. 1049-1074.

 

 

The Problem with Strong Incentives

 

*Hart, O. A. Shleifer, and R.W. Vishny. 1997. The Proper Scope of Government: Theory and Application to Prisons. Quarterly Journal of Economics 451: 1127-162.

 

*Kane, T. J., and D. O. Staiger. 2002. The Promise and Pitfalls of Using Imprecise School Accountability Measures. Journal of Economic Perspectives 16 (4):91-114.

 

*Dranove, D., D. Kessler, M. McClellan, and M. Satterthwaite. 2003. Is More Information Better? The Effects of "Report Cards" On Health Care Providers. Journal of Political Economy 111 (3):555-88.

 

Behavioral Economics and Incentives

 

*Dan Pink. TED Talk: The Surprising Science of Motivation.

 

*Gneezy, Uri, and Aldo Rustichini. 2000. A Fine Is a Price. The Journal of Legal Studies 29, no. 1 (January 1): 1-17. doi:10.1086/468061

 

*Amabile, T. M. "Motivation and Creativity: Effects of Motivational Orientation on Creative Writers." Journal of Personality and Social Psychology 48, no. 2 (February 1985): 393-399.

 

Glucksberg, S. (1962). The influence of strength of drive on functional fixedness and perceptual recognition. J. exp. Psychol., 1962, 63, 36-41.


*Li, Jian, Erte Xiao, Daniel Houser, and P. Read Montague. 2009. Neural responses to sanction threats in two-party economic exchange. Proceedings of the National Academy of Sciences 106, no. 39: 16835-16840. 

*Eisenberger, Robert, and Linda Rhoades. 2001. Incremental effects of reward on creativity. Journal of Personality and Social Psychology 81, no. 4: 728-741. doi:10.1037/0022-3514.81.4.728.  

 

*Bénabou, Roland, and Jean Tirole. 2003. Intrinsic and Extrinsic Motivation. Review of Economic Studies 70, no. 3: 489-520. doi:10.1111/1467-937X.00253.

  

*ARIELY, DAN [1], URI [2] GNEEZY, GEORGE [3] LOEWENSTEIN, and NINA [4] MAZAR. 2009. Large Stakes and Big Mistakes. The Review of Economic Studies 76 (March): 451-469. doi:10.1111/j.1467-937X.2009.00534.x.  

 

*Frey, Bruno S., and Margit Osterloh. 2005. Yes, Managers Should Be Paid Like Bureaucrats. Journal of Management Inquiry 14, no. 1 (March 1): 96-111.

 

*Smallwood, Dennis E. and John Conlisk. 1979. Product Quality in Markets Where Consumers are Imperfectly Informed

The Quarterly Journal of Economics , Vol. 93, No. 1 (Feb., 1979), pp. 1-2.


[Smallwood Conlisk Notes, Mathematica CDF file]


SPIEGLER, R. (2006), The Market for Quacks. Review of Economic Studies, 73: 1113–1131. doi: 10.1111/j.1467-937X.2006.00410.x


Quasi-Hyperbolic Discounting


Laibson, David. 1997. Golden Eggs and Hyperbolic Discounting. Quarterly Journal of Economics 112(2): 443-477.


Shapiro, Jesse. 2005. Is There a Daily Discount Rate? Evidence from the Food Stamp Nutrition Cycle. 89(2-3), pp. 303-25.


 DellaVigna, Stefano, and Ulrike Malmendier. 2006. "Paying Not to Go to the Gym." American Economic Review, 96(3): 694-719.

 

Management, Productivity and Entrepreneurship


*Bloom, N., Eifert, B., Mahajan, A., McKenzie, D., Roberts, J., 2013. Does Management Matter? Evidence from India. The Quarterly Journal of Economics 128, 1–51. doi:10.1093/qje/qjs044

*Bloom, N., Van Reenen, J., 2010. Why Do Management Practices Differ across Firms and Countries? Journal of Economic Perspectives 24, 203–224. doi:10.1257/jep.24.1.203

*Decker, R., Haltiwanger, J., Jarmin, R., Miranda, J., 2014. The Role of Entrepreneurship in US Job Creation and Economic Dynamism. Journal of Economic Perspectives 28, 3–24. doi:10.1257/jep.28.3.3

*Hathaway, I., Litan, R.E. 2014. The Other Aging of America: The Increasing Dominance of Older Firms. The Brookings Institution.

Hsieh, C.-T., Klenow, P.J., 2009. Misallocation and Manufacturing TFP in China and India. The Quarterly Journal of Economics 124, 1403–1448. doi:10.1162/qjec.2009.124.4.1403

*Melitz, M.J., Trefler, D., 2012. Gains from Trade when Firms Matter. Journal of Economic Perspectives 26, 91–118. doi:10.1257/jep.26.2.91

Syverson, C., 2011. What Determines Productivity? Journal of Economic Literature 49, 326–365. doi:10.1257/jel.49.2.326


Patents and Intellectual Property

 

*Tabarrok, Alex. 2011.Launching the Innovation Renaissance. TED Books (e-book).
 

Machlup, F. 1958. An economic review of the patent system. Study No. 15 of the subcommittee on Patents, Trademarks and Copyrights of the Committee on the Judiciary United States Senate, 85th Cong., 2d Sess., Washington, D.C.: Government Printing Office.

 

Barlow, J. P. 1994. The Economy of Ideas. Wired 2 (March):1-15.

 

Shulman, S. 1999. Owning the Future. New York: Houghton Mifflin Company.

 

Cole, J. H. 2001. Patents and Copyrights: Do the Benefits Exceed the Costs? Journal of Libertarian Studies 15 (4):79-105.

 

*Mansfield, E. 1986. Patents and Innovation: An Empirical Study. Management Science 32:173-81.

 

Hunt, R. 1999. Patent Reform: A Mixed Blessing for the U.S. Economy? Business Review: Federal Reserve Bank of Philadelphia (November/December):15-29.

 

Hunt, R. M. 2001. You Can Patent That? Business Review: Federal Reserve Bank of Philadelphia (Q1):5-15.

 

*Lerner, J. 2002. 150 Years of Patent Protection. Working Paper. Harvard University.

 

Arrow, K. J. 1962. Economic Welfare and the Allocation of Resources for Invention. In The Rate and Direction of Inventive Activity: Economic and Social Factors, ed. R. Nelson, 609-25. Princeton: Princeton University Press.

 

Klemperer, P. 1990. How Broad Should the Scope of Patent Protection Be? Rand Journal of Economics 21 (1):113-30.

 

Bessen, J., and E. Maskin. 1999. Sequential Innovation, Patents, and Imitation. MIT Working Paper 11/99.

 

Scotchmer, S. 1998. Incentives to Innovate. In The New Palgrave Dictionary of Economics and the Law, ed. P. Newman, 273-76. New York: Macmillan Reference.

 

Merges, R. P., and R. R. Nelson. 1990. On the Complex Economics of Patent Scope. Columbia Law Review 90:839-916.

 

*Bittlingmayer, G. 1988. Property Rights, Progress, and the Aircraft Patent Agreement. Journal of Law and Economics 31 (April):227-48.

 

*Hall, B. H., and R. H. Ziedonis. 2001. The Patent Paradox Revisited: An Empirical Study of Patenting in the U.S. Semiconductor Industry, 1979-1995. Rand Journal of Economics 32 (1):101-28.

 

Boldrin, M., and D. K. Levine. 2003. Perfectly Competitive Innovation. Working Paper.

 

*Moser, P. 2003. How Do Patent Laws Influence Innovation? Evidence from Nineteenth-Century World Fairs. NBER Working Paper Series 9909. http://www.nber.org/papers/w9909.


*Murray, F. (et al.). 2009. Of Mice and Academics: Examining the Effect of Openness of Innovation. NBER Working Paper 14819.
http://www.nber.org/papers/w14819.

*Galasso, A., & Schankerman, M. 2014. Patents and Cumulative Innovation: Causal Evidence from the Courts. Working Paper no. 20269. National Bureau of Economic Research. Retrieved from http://www.nber.org/papers/w20269
*Sampat, B., & Williams, H. L. 2015. How Do Patents Affect Follow-On Innovation? Evidence from the Human Genome. Working Paper no. 21666. National Bureau of Economic Research. Retrieved from http://www.nber.org/pape /w21666


*Starr, E., Bishara, N., & Prescott, J. in press. Noncompetes in the US Labor Force. Retrieved from https://sites.google.com/site/starrevan/research


Dourado, E., & Tabarrok, A. 2015. Public choice perspectives on intellectual property. Public Choice, 163(1): 129–151.

 

Alternatives to Patents

 

*Tabarrok, A. 2002. Patent Theory Versus Patent Law. Contributions to Economic Analysis and Policy 1 (1). Article 9.

 

*Kremer, M. 1998. Patent Buyouts: A Mechanism for Encouraging Innovation. Quarterly Journal of Economics 113:1137-67.

 

Wright, B. D. 1983. The Economics of Invention Incentives: Patents, Prizes, and Research Contracts. American Economic Review 73 (4):691-707.

 

*Shavell, S., and van T. Ypersele. 2001. Rewards Versus Intellectual Property Rights. Journal of Law and Economics XLIV (2 (pt.1)):525-48.

 

 

The Pharmaceutical Market and Regulation

 

 

*Lichtenberg, Frank R. and Joel Waldfogel. 2003. Does Misery Love Company? Evidence from Pharmaceutical Markets Before and After the Orphan Drug Act. NBER Working Paper 9750.

 

*Kremer, Michael and Christopher M. Snyder. 2003. Why are Drugs more Profitable than Vaccines? NBER Working Paper 9833.

 

Hughes, James W., Moore, Michael J., and Edward A. Snyder. 2002. “NAPSTERIZING” PHARMACEUTICALS: ACCESS, INNOVATION, AND CONSUMER WELFARE. NBER Working Paper 9229.

 

Peltzman, S. 1973. An Evaluation of Consumer Protection Legislation: The 1962 Drug Amendments. Journal of Political Economy 81, no. 5: 1049–91. Reprinted in Chicago Studies in Political Economy, edited by George J. Stigler, 303–48. Chicago, University of Chicago Press, 1988.

 

Klein, Daniel and Alexander Tabarrok 2004. Do Off-Label Drug Practices  Argue Against FDA Efficacy Requirements? Testing an Argument by Stuctured Conversations with Experts.  Working paper.

 

DiMasi, Joseph A.; Hansen, Ronald W.; Grabowski, Henry G. The Price of Innovation: New Estimates of Drug Development Costs. Journal of Health Economics v22, n2 (March 2003): 151-85.

 

 

IO Theory in other Fields/School Choice and Federalism

 

Tiebout, C. M. 1956. A Pure Theory of Local Expenditure. Journal of Political Economy 64 (5):416-24.  Classic article.

 

Hoxby, C. M. 2000. Does Competition Among Public Schools Benefit Students and Taxpayers?. American Economic Review 90 (5):1209-38.  Important empirical work on Tiebout competition in the context of schooling.

 

---. 2003. School Choice and School Competition: Evidence from the United States. Swedish Economic Policy Review 10:9-65.  Review of competition in education more generally – not directly relevant to Federalism but of interest if you wanted to follow up on some school choice issues.

 

Qian, Y., and B. R. Weingast. 1997. Federalism As a Commitment to Preserving Market Incentives. Journal of Economic Perspectives 11 (4):83-92.