This course covers research methods and results in applied industrial organization. The primary focus will be on the use of econometric analysis and data both for descriptive and measurement purposes, and to test the predictions of economic theories. The course will also focus on empirical methods used in competition policy. Papers that demonstrate the various methods will be discussed in detail with an emphasis on data, sources of identification, and estimation techniques. Applied papers will be a large part of this discussion.

The course is organized in terms of 10 different topics (see below). Each lecture begins with an overview of some of the most important insights from theoretical models. However, most of the lecture is devoted to discussing empirical work and the results. Particular attention is given to the importance of data selection in testing theoretical models, and issues of specifying an econometric model.

During the course there are several hands-on exercises where students get real datasets to estimate econometric models using econometric software of their choice.
 

Topic 1: Market delineation and the measurement of market power: General issues in selecting data and specifying an appropriate econometric model. Hands-on exercise. Competition case.
 

Topic 2: Empirical entry models: Applying the power of revealed preferences to empirical industrial organization. Hands-on exercise.
 

Topic 3: Market structure and productivity: Testing robust predictions from industrial organization on data from multiple industries.
 

Topic 4: Quantifying the effects of mergers and new products: Doing counter-factual experiments (i.e. forecasting what will happen before it has happened) on the basis of estimates from historical information.
 

Topic 5: Price discrimination and price dispersion: Using single industry data to evaluate sophisticated pricing strategies. Hands-on exercise.
 

Topic 6: Network industries and two-sided markets: Measuring competition in the “new economy”.
 

Topic 7: Vertical relations, licensing, and exclusivity: Evaluating the competitive and efficiency effects of various vertical arrangements. Hands-on exercise.
 

Topic 8: Strategic trade policies and outsourcing: Applying insights from industrial organization to international trade.
 

Topic 9: Assessing the effects of government interventions in the market: Evaluating whether governments can improve upon the free market. Hands-on exercise.
 

Topic 10: Empirical industrial organization as a policy tool: Bringing all the tools covered in the course together.   

The course´s development of personal competences
During the course, students will develop the skills necessary to analyze industry and market data. In particular, the students will learn how to interpret industry data in conjunction with the theoretical models discussed during lecture. The student should be able to independently analyze market data using standard econometric methods and be able to undertake sophisticated research projects in industrial organization and competition policy

Textbooks:

Wooldridge, Jeffery, Econometric Analysis of Cross Section and Panel Data, Cambridge, MA: The MIT Press, 2002.
 

Belleflamme, Paul, Martin Peitz, Industrial Organization: Markets and Strategies, Cambridge University Press, 2010.
 

It should be noted that some of the econometric methods used in a few of the recent empirical papers are advanced and beyond typical “masters” level (defined by the level of e.g. the textbook by J.Wooldridge “Econometric Analysis of Cross Section and Panel Data”). In discussing these, the focus is not on the details of the econometric estimation techniques but rather various ways in which theoretical models can be tested, what kind of data that is necessary, and what the main empirical results are.

Papers by topic:

Topic 1: Market delineation and the measurement of market power
Amato, L. and R. Wilder, 1995, Alternative Profitability Measures and Tests of the Structure-Performance Relationship. Review of Industrial Organization, 10:21-31.
Asplund, M. and R.Sandin, 1999, Competition in Interrelated Markets: An Empirical Study, International Journal of Industrial Organization.
Dalkir, S. and F.Warren-Boulton, Prices, Market Definition, and the Effects of Merger: Staples-Office Depot. http://www.oup.com/us/pdf/kwoka/9780195322972_02.pdf

Coe, P, and D.Krause, 2008, An analysis of price-based tests of antitrust market delineation, Journal of Competition Law and Economics, 4: 983-1007.

Topic 2: Empirical entry models
Berry, S., and J. Waldfogel, 1999, Free entry and social inefficiency in radio broadcasting, RAND Journal of Economics, 70(3), 397–420.
Bresnahan, T. and R.Reiss, 1991, Entry and Competition in Concentrated Markets. Journal of Political Economy, 99:977-1009.
Mazzeo, M., 2002, Product choice and oligopoly market structure, RAND Journal of Economics, 33:221-242.

Topic 3: Market structure and productivity
Bresnahan, T, 1992, Sutton’s sunk cost and market structure: Review article”, RAND Journal of Economics, 137-152.
Ellickson, P.B., 2007, Does Sutton Apply to Supermarkets?, RAND Journal of Economics, 38: 43-59.
Foster, L, J.Haltiwanger, C.Syverson, 2008, Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?, American Economic Review, 98:394-425.

Robinson, W.T. and J. Chiang, 1996, Are Sutton’s Predictions Robust? Empirical Insights into Advertising, R&D, and Concentration, Journal of Industrial Economics, 44, 389-408.
Sutton, J., 2007, Market structure: theory and evidence, Handbook of Industrial Organization Vol.3.
Sutton, J., 1991, Sunk Costs and Market Structure, Chapters 1-2, MIT Press.

Topic 4: Quantifying the effects of mergers and new products
Ashenfelter, O.; Ashmore, D.; Baker, J. B.; Gleason, S. and Hosken, D. S., 2006, Econometric Methods in Merger Analysis: Econometric Analysis of Pricing in FTC v. Staples, International Journal of the Economics of Business, 13, pp. 265–279.

Manuzak, M., and C. Moul, 2008, Prices and endogenous market structure in office supply superstores, Journal of Industrial Economics, 56
Nevo, A, 2000, Mergers with differentiated products: The case of the ready-to-eat cereal industry, RAND Journal of Economics, 31:395-421.

Petrin, A., 2002, Quantifying the benefits of new products: the case of minivans, Journal of Political Economy, 110:705-727.
 

Topic 5: Price discrimination and price dispersion
Borenstein S., and N.Rose, 1994, Competition and Price Dispersion in the U.S. Airline Industry, Journal of Political Economy, 102: 653-683.
Goldberg, P, and F.Verboven, 2001, The evolution of price dispersion in the European car market, Review of Economic Studies.68:811-848.
Nevo, Aviv and Catherine Wolfram, (2002), Why do manufacturers issue coupons? An empirical analysis of breakfast cereals, RAND Journal of Economics, 33: 319-339.
Shepard, A., 1991, Price Discrimination and Retail Configuration, Journal of Political Economy, 99: 30-53.
Verboven, F., 1996, International Price Discrimination in the European Car Market. RAND Journal of Economics, 27: 240-268.
 

Topic 6: Network industries and two-sided markets

Brown, J.R., and A.Goolsbee, 2002, Does the Internet make Markets More Competitive? Evidence from the Life Insurance Industry, Journal of Political Economy, 110:481-507.

Ellisson, G, and S.Ellison, 2009, Search, Obfuscation and Price Elasticites on the Internet, Econometrica, 77:427-452.

Rysman, M., 2004, Competition between networks: A study of the market for Yellow Pages, Review of Economic Studies, 71:483-512.

Topic 7: Vertical relations, licensing, and exclusivity

Baker, G., and T.Hubbard, 2003, Make vs Buy in Trucking: Asset Ownership, Job Design, and Information, American Economic Review, 551-572.

Brenkers, R., and F.Verboven, 2006, Liberalizing a distribution system: The European car market, Journal of the European Economic Association.

Hastings, Justine, 2004, ‘Vertical Relationships and Competition in Retail Gasoline Markets: Empirical Evidence from Contract Changes in Southern California,’ American Economic Review, 94(1), pp. 317-328.

Hortacsu, A, and C.Syverson, 2007, Cementing Relationships: Vertical Integration, Foreclosure, Productivity, and Prices, Journal of Political Economy.
 

Topic 8: Strategic trade policies and outsourcing

Bernard, A, J.Bradford Jensen, P.Scott, 2006, Trade Costs, Firms, and Productivity, Journal of Monetary Economics, 53:917-937.

Berry, S., J.Levinsohn, and A.Pakes, 1999, Voluntary Export Restraints on Automobiles: Evaluating a Trade Policy, American Economic Review 89:400-430.

Irwin, D. , and N.Pavcnik, 2004, Airbus versus Boeing Revisited: International Competition in the Aircraft Market, Journal of International Economics, 64:223-245.

Topic 9: Assessing the effects of government interventions in the market

Beresteanu, A., and S.Li, 2011, Gasoline Price, Government Support, and the Demand for Hybrid Vehicles in the United States, International Economic Review, 52:161-182.
Shauman,C. and F.Verboven, 2008, Entry and Regulation: Evidence from Health Care Professions, RAND Journal of Economics,39:949-972.
Verboven, F., 2002, Quality based price discrimination and tax incidence: Evidence from gasoline and disel cars, RAND Journal of Economics.
 

Topic 10: Empirical industrial organization as a policy tool
Topic and industry selected by class participants.