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   Course Title    Industrial Organization
Lecturer    Constantin Colonescu
Institution    Moscow Economics Education and Research Consortium
Country    Russia

Required Texts:

Tirole, Jean, The Theory of Industrial Organization, MIT Press, 1988.

Gibbons, Robert, Game Theory for Applied Economists Princeton University Press, 1992.

Course Topics and Reading List




Tirole, Chapter 1, p. 65-69.

M. Mussa and S. Rosen, "Monopoly and Product Quality," Journal of Economic Theory, 18 (August 1978), 301-317.

a)Durable Goods

Tirole, 72-3, 79-87.

R. Coase, "Durability and Monopoly" Journal of Law and Economics, 15:143-149, 1972.

b) Price Dispersion

H. Varian, "A Model of Sales," American Economic Review, 70, 651-659 (1980).

Stiglitz, "Competition and the Number of Firms in a Market: Are Duopolies More Competitive than Atomistic Markets?" Journal of Political Economy, 95: 1041-1061, (1987).



How are price and output determined in an oligopoly for fixed capital stocks and a fixed number of firms?

Tirole, pp. 205-208 and Chapter 11.

Tirole, Chapter 5 and 6.

S&R, Chapters 6-8.

C. Shapiro, "Theories of Oligopoly Behavior," in HIO.

a)Static competition

D. Kreps and J. Scheinkman, "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, 14 (Autumn 1983), 326-337.

b)Repeated interactions and cartels

G. Stigler, "A Theory of Oligopoly," Journal of Political Economy, 72 (February 1964), 44- 61.

S&R, Chapter 9.

S. Salop, "Practices that (Credibly) Facilitate Oligopoly Coordination," in J. Stiglitz and F. Mathewson (eds.), New Developments in the Analysis of Market Structure, MIT, 1986, 265-290.



What do inter-industry studies reveal about the influence of market structure on pricing and profitability? What do studies of particular markets show?

a)Interindustry Studies

R. Caves, "International Differences in Industrial Organization," in HIO.

R. Schmalensee, "Interindustry Studies of Structure and Performance," in HIO

S&R, Chapter 11.

H. Demsetz, "Industry Structure, Market Rivalry and Public Policy," The Journal of Law and Economics, 16 (April 1973), 1-9.

F. Fisher and J. McGowan, "On the Misuse of Accounting Rates of Return to Infer Monopoly Profits," American Economic Review, 73 (March 1983), 82-97.

R. Schmalensee, "Do Markets Differ Much?" American Economic Review, 75 (June 1985), 341-351.

b) Industry-specific studies

T. Bresnahan, "Empirical Studies of Industries with Market Power," in HIO.

J. Baker and T. Bresnahan, "Estimating the Residual Demand Curve Facing a Single Firm," International Journal of Industrial Organization, 6 (September 1988), 283-300.

T. Bresnahan, "Competition and Collusion in the American Automobile Industry: The 1955 Price War," Journal of Industrial Economics, 35 (June 1987), 457-482.

C. Plott, "An Updated Review of Industrial Organization Applications of Experimental Methods," in HIO, or "Industrial Organization Theory and Experimental Economics," Journal of Economic Literature, 20 (December 1982), 1485-1527.



L. Phlips, The Economics of Price Discrimination, Cambridge, 1981.

H. Varian, "Price Discrimination," in HIO.

H. Varian, "Price Discrimination and Social Welfare," American Economic Review 70, 651-9 (1980).

T. Holmes, "The Effects of Third-Degree Price Discrimination in Oligopoly," American Economic Review, 79 (March 1989), 244-50.



What determines the mix of activities carried out within firms? When do we observe organizations instead of markets? Do firms maximize profits?

D. Kreps, A Course in Microeconomic Theory, Princeton, 1990, Chapters 19 and 20.

Tirole, pp. 15-61.

a) Theories of the Firm

R. Coase, "The Nature of the Firm," reprinted in G. Stigler and K. Boulding (eds.), Readings in Price Theory, Irwin, 1952, 331-351.

S. Grossman and O. Hart, "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, 94 (August 1986), 691-796.

O. Hart, "Economic Perspectives on the Theory of the Firm," Columbia Law Review, 1989.

B. Holmstrom and J. Tirole, "The Theory of the Firm," in HIO.

B. Holmstrom and P. Milgrom, American Economic Review, forthcoming.

O. Williamson, Markets and Hierarchies, Free Press, 1975.

O. Williamson, "Transaction-Cost Economics: The Governance of Contractual Relations, Journal of Law and Economics, 22 (October 1979) 233-262. (Reprinted in Williamson, the Economic Institutions of Capitalism, Free Press, 1985, Chapter 3.)

b)Financial organization and firm behavior<p> J. Brander and T. Lewis, "Oligopoly and Financial Structure: The Limited Liability Effect," American Economic Review, 76 (December 1986), 956-970.

J. Chevalier, "Debt and Product Market Competition: Local Market Entry, Exit and Expansion Decisions of Supermarket

Chains," Harvard University, March 1993, mimeo.



a)Strategic Models of Entry, Expansion and Entry Deterrence

Tirole, Chapters 8 and 9.

P. Aghion and P. Bolton, "Contracts as a Barrier to Entry," American Economic Review, 77:388-401, 1987.

D. Fudenberg and J. Tirole, "The Fat Cat Effect, the Puppy Dog Ploy and the Lean and Hungry Look," American Economic Review, 74 (May 1984), 361-366.

P. Milgrom and J. Roberts, "Limit Pricing and Entry Under Incomplete Information: An Equilibrium Analysis," Econometrica, 50 (March 1982), 443-460.

A. Dixit, "The Role of Investment In Entry Deterrence," Economic Journal, 90 (March 1980), 95-106.

b)Exit and turnover

Dixit, "Entry and Exit Decisions Under Uncertainty," Journal of Political Economy, 97: 620- 638 (1989).

D. Fudenberg and J. Tirole, "A Theory of Exit in Duopoly," Econometrica, 54 (July 1986), 943-960.

M. Deily, "Exit Strategies and Plant-Closing Decisions: The Case of Steel," Rand Journal of Economics, 22 (Summer 1991), 250-263.


J. Ordover and G. Saloner, "Predation, Monopolization and Antitrust," in HIO.

M. Burns, "Predatory Pricing and the Acquisition Costs of Competitors," Journal of Political Economy, 94 (April 1986), 266-296.

G. Saloner, "Predation, Mergers and Incomplete Information," Rand Journal of Economics, 19 (Winter 1988), 165-186.



a)Strategic models

Tirole, Ch. 10.

D. Fudenberg and J. Tirole, 1985. "Preemption and Rent Equalization in the Adoption of New Technology," Review of Economic Studies, 52: 383-401.

D. Fudenberg, R. Gilbert, J.Stiglitz, and J. Tirole, 1983. "Preemption, Leapfrogging, and Competition in Patent Races," European Economic Review, 22:3-31.

G. C. Loury, 1979. "Market Structure and Innovation," Quarterly Journal of Economics, 93:395-410.

b)Standardization and networks

M. Katz and C. Shapiro, "Network Externalities, Competition and Compatability," American Economic Review, 75:424-440, (1985).

M. Katz and C. Shapiro, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, 94:822-841.

J. Farrell and G. Saloner, 1985, "Standardization, Compatibility, and Innovation," Rand Journal of Economics, 16:70-83.



How should product differentiation be modeled?

How are product arrays determined in imperfect markets?

What effects do they have on market structure?

How is advertising determined, and what are its effects?

Tirole, Chapters 2 and 7.

a)Product differentiation and monopolistic competition

C. Eaton and R. Lipsey, "Product Differentiation," in HIO.

H. Hotelling, "Stability in Competition," Economic Journal, 39 (March 1929), 41-57.

A. Dixit and J. Stiglitz, "Monopolistic Competition and Optimum Product Diversity," American Economic Review, 67 (June 1977), 297-308.

A. Shaked and J. Sutton, "Product Differentiation and Industrial Structure," Journal of Industrial Economics, 36 (1987), 131-146.

b)Product differentiation and strategic behavior

R. Schmalensee, "Product Differentiation Advantage of Pioneering Brands," American Journal of Economics, 72 (June1982), 349-365.

J. Farrell and C. Shapiro, "Optimal Contracts with Lock-In," American Economic Review, 79, (1979), 51-68.



a) Revelation principle, incentive compatibility, individual rationality, basic optimal auctions theorem.

Milgrom, Paul, "The Economics of Competitive Bidding: A Selective Survey", in Leonid Hurwicz, David Schmeidler and Hugo Sonnenschein, eds., Social Goals and Social Organization, Cambridge: Cambridge University Press, 1985.

b) Milgrom and Weber: Tools.

Milgrom, Paul, and John Roberts, Rationalizability, Learning and Equilibrium in Games with Strategic Complementarities, Econometrica 58, November, 1990, 1255-1278.

c) Milgrom and Weber: Theorems.

Milgrom, Paul and Robert Weber, "A Theory of Auctions and Competitive Bidding," Econometrica 50, 1982, 1089-1122.


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