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What's it about?
Industrial organization is essentially a branch of applied microeconomics which seeks to understand the causes and effects of various market structures on pricing and product choices. As such, students will learn to apply economic theory to analyze various industries in the economy. A deeper understanding of standard economic models will be stressed.
Meeting Time: 9:35 - 10:25 MWF
246 DeBartolo
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What will we do?
On Monday and Wednesday of each week we will cover the topics listed on the calendar. Simulation decisions are typically turned in on Wednesday in class.
The Friday class will be quite different. The Friday class will be spent with a presentation (by a student) and class discussion covering one of the industries highlighted in the book "The Structure of American Industry."
This course will survey a range of topics in industrial organization. Topics required are listed below; these topics would constitute the core materials in the course. The optional topics, also listed below may be covered in specific semesters. The course will also cover specific industry studies.
Required Topics:
Theory of the Firm (short review)
Market Structures
Competition
Monopoly/Monopsony/Dominant Firm
Oligopoly/Cartels/Joint Decision Making
Monopolistic Competition
Business Practices
Strategy
Price Discrimination
Integration
Pricing
Long-run versus Short-run Contracting
Antitrust Policy
Optional Topics:
Information Theory
Advertising
Market Dynamics
Decision Making Over Time
Patents and Patent-Like Devices
Dynamic Market Clearing
International Trade
Specific Industry Examples
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The Simulation
An integrating simulation will be used in this course.
The simulation is a competitive interaction between about eight student-run companies that compete with one another in one or more of three different markets. The markets would differ in size, elasticity of demand, degree of product differentiation, ability to store the product, capital intensity of production, and the degree to which investments are sunk. In a given market, the companies may have different costs of production -- entry costs, capital costs, and marginal costs.
Each company is controlled by a team of students who decide which markets to enter, how much capacity to build, when to reduce capacity or exit a market, what quantities to produce and what prices to charge. In each decision period, each company submits a strategy specifying these variables and may also submit a public statement. The markets then operate for a quarter of simulated time. At the end of each quarter, every team receives a market update --- the ERP has public information on prices, capacities, and approximate market sales, as well as public statements --- and a company update (also part of the ERP) --- which would have the relevant income statement and balance sheet information, such as capacity, production, sales, inventory, capacity costs, variable costs, interest paid or earned on cash balances, and cash position.
An important aspect of the simulation would be the role of information. Some data are public information, such as all firms' prices and production capacities, the degree of substitutability across brands within each market, and some basic information
about demand. Other variables are known only with some noise. For instance, each firm will know its own sales in each market, but the total sales in each market is known publicly only with some degree of error. Similarly, no firm will know the production costs of its competitors with certainty, but it will know the distribution from which costs are drawn. The simulation is expected to draw together the diverse topics covered in the course.
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Industry Analysis
Each student (or possibly 2 students) will be responsible for becoming "experts" with respect to a particular industry; this will form your "Industry Analysis."
Once each week on Thursdays we will have a presentation covering a particular industry. The industries we will cover will be the same as those covered in the separate chapters of the book The Structure of American Industry (listed below).
You should use the "structure" book and other outside sources to create a presentation on your industry; this is the "industry analysis." Your analysis should draw upon the topics we cover in class (e.g., demand structure, cost structure, market structure, etc.).
Presentations later in the semester will be expected to thoroughly cover all those topics we have discussed in class; presentations earlier in the semester will concentrate on those topics we have covered up tothat point in the semester.
See Student Assignments for the Industry Analysis here.
See Actual Student Presentations here.
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Course Grading
Grading in the course will be on the basis of performance on written examinations, analyses of real world industries required of every student, class participation, and on performance in the simulation:
First Examination 15%
Second Examination 15%
Final Examination 20%
Industry Analysis 20%
Participation 20%
Simulation Performance 10%
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Textbooks
Modern Industrial Organization 3rd Edition
Dennis W. Carlton and Jeffrey M. Perloff
Addison-Wesley
ISBN 0-321-01145-7
Also required:
Structure of American Industry 10th Ed.
Walter Adams and James Brock
Prentice Hall
ISBN 0-13-017916-7
and
Micromatic 2nd Edition
Scott/Strickland/Hofmeister/Thompson
Houghton Mifflin Company
ISBN 0-395-58076-5
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Final Examination
The exam for FIN 435 will be on:
On the day set by the Registrar
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