Econ 664  Empirical Studies in Industrial Organization

Fall 2018

Monday 2 - 4:45pm Tydings 2108

Lecture notes, student presentations and assignments will be available on elms.umd.edu.



Contact Information

Ginger Z. Jin
3115 F Tydings Hall
Department of Economics
Phone: (301) 405-3484
E-mail:ginger@umd.edu
Web site: http://kuafu.umd.edu/~ginger/, click on "Econ 664"

Office Hour: Appointment by email

Overview

This course introduces students to the recent empirical literature of industrial organization. It is the first of the two advanced courses on empirical IO, the second one will be offered as Econ625 by Professor Andrew Sweeting in Spring 2019. The goal of this course is that, at the end of the semester, students have a good idea of how to take an industrial organization theory to data or vice versa. Specifically, the class consists of four themes: pricing, cartels and collusion, demand estimation, and information economics. The other more computational-oriented topics, such as entry, exit, auctions, and dynamic games, will be covered in Econ625. Each theme of this course will cover 5-6 lectures, plus one student representation. In the lectures, we will focus on a series of research papers and discuss their research question, related theory, data, identification strategies, estimation techniques and policy implications. At the end of each theme, students will present a working paper for a topic that is related to the theme but not yet covered in the lectures. The potential topic choices will be available at the beginning of each theme. All students are also required to do a computational assignment at the end of the demand-estimation theme.

 

Prerequisite

You are assumed to be familiar with econometrics and microeconomics theory, including game theory. Therefore, first year graduate courses in these areas are regarded as prerequisite. This course is also one of the courses in the second-year graduate sequence in industrial organization, so it is required for those taking industrial organization as a field. Students from other fields or other departments are welcome.

 

Readings

There is no text book. Reading list is provided in course outline. Most papers are electronically available at JSTOR (www.jstor.org), NBER working papers (www.nber.org), or the UMD electonic journal list (www.lib.umd.edu). Unpublished papers usually have the latest version at the authors' websites. For papers that I could not provide a web link, they will be available at elms.umd.edu electronically a few days in advance.

Each student is recommended to obtain a copy of Jean Tirole's The Theory of Industrial Organization, Luis M.B. Cabral edited Readings in Industrial Organization, or the Handbook of Industrial Organization, Volume 3 edited by Mark Armstrong and Robert Porter in 2007 as a reference for the theoretical literature related to the topics we cover in class.

Assignments

You are required to fulfill the following assignments, with grading weights in parentheses. There is no mid-term or final.

(20) Class Performance

Every student is expected to read each paper before the class and actively participate in discussion during the class. The value of discussion will be maximized if you prepare well, listen to the others' comments and offer insights to your peers (and to your professor). It is a good idea if you can review a list of questions while reading each paper before the class meeting.

 

To maximize class engagement, for each paper I will designate one student to do extra preparation on research question, another student on data, and the third student on methodology. These three students should give me a one-page written summary on their designated topic 24 hours before the paper is discussed in class. The student on research question should focus his/her summary on what the question is, why it is important, and what the paper does not address. The student on data should focus the summary on the key data variations that help the author, the data variations that the author does not have and how these data variations contribute to the paper’s strength and weakness. The student on methodology should focus the summary on not only the mechanics of the method used in this paper but also why the author chooses this method against alternative methods.

 

In the first class, I will pass out a signup sheet for every student to volunteer in these paper-topics, so that you can spread the workload evenly.

 

(20) Class Presentation

You are required to perform two class presentations throughout the class:

 

(1) present a working paper on one student-presentation topic at the end of a theme, and
(2) present your original research proposal at the end of the semester.

 

The end-of-theme papers are often a pair of theoretical and empirical papers on a very similar topic. Depending on the number of class attendants, the student presentation team may devote half of the team to the theoretical paper, and the other half to the empirical paper, while both paying attention to the match/mismatch between the two papers.

 

(20) Computational assignments

All students are required to complete a computational exercise on demand estimation. I will give you a data set to work with.

 

(40) Research Proposal

You are expected to assemble a research proposal at the end of the semester, describing a research question that you would like to answer in the area of empirical IO, the data you would like to use and the identification strategy you are going to adopt assuming the availability of perfect data. To facilitate feedback, each student is required to present his/her research proposal in a 15-25 minutes slot in the last class meeting. The written proposal is due on Dec 20, 2018. I would encourage you to discuss your preliminary idea(s) with me or your fellow students throughout the semester, so that you can screen out bad ideas and end up with something feasible to work on for your research proposal.

 

Course Outline

 

Theme 1: Pricing

Aug. 27-Sept. 10: Lectures covering:

Ian Ayres and Peter Siegelman "Race and Gender Discrimination in Bargaining for a New Car" American Economic Review, 85(3), June. 1995.

 

Pinelopi K. Goldberg, "Dealer Price Discrimination in New Car Purchases: Evidence from the Consumer Expenditure Survey, ", Journal of Political Economy    104 (June 1996), 622-654.

 

John List, "The Nature and Extent of Discrimination in the Marketplace: Evidence from the Field" The Quarterly Journal of Economics, Feb. 2004, 49-89.

 

Chad Syverson and Ali Hortacsu : "Product Differentiation, Search Costs and Competition in the Mutual Fund Industry: A Case Study of S&P 500 Index Funds ", Quarterly Journal of Economics, v.119, May 2004.

 

Phillip Leslie and Alan Sorensen: “Resale and Rent-Seeking: An Application to Ticket Markets", Review of Economic Studies, 2014, 81(1): 266-300.

 

Matt Backus, Tom Blake, Brad Larsen and Steve TadelisSequential Bargaining in the Field: Evidence from Millions of Online Bargaining Interactions” NBER working paper  #24306.  

 

Sept. 17: Student presentations on Theme 1: e-book pricing

Justin Johnson: “The Agency Model and MFN Clauses”, SSRN working paper, 2017.

 

Babur De los Santos, Daniel P. O’Brien and Matthijs R. Wildenbeest: “Agency Pricing and Bargaining:

Empirical Evidence from the E-Book Market”, working paper presented at the 2017 IIOC conference.

 

 

Theme 2: Cartel and Collusion

Sept. 24 – Sept. 28 (need to reschedule the Oct. 1 class to another day in the week of Sept. 24-28): Lectures covering:

Robert Porter: "A Study of Cartel Stability: The Joint Executive Committee, 1880-1886", Bell Journal of Economics 14 (Autumn 1983), 301-314.

Glenn Ellison: "Theories of Cartel Stability and the Joint Executive Committee, " RAND Journal of Economics 25 (Spring 1994), 37-57.

Useful readings:

David Genesove and Wallace P. Mullin "Rules, Communication, and Collusion: Narrative Evidence from the Sugar Institute Case," The American Economic Review, June 2001, 379-398.

 

Chris Knittel and Victor Stango: "Price Ceilings as Focal Points for Tacit Collusion: Evidence from Credit Cards" American Economic Review, Dec. 2003.

 

Interesting readings about credit cards:
Sumit Agarwal, John C. Driscoll, Xavier Gabaix and David Laibson "Learning in the Credit Card Market" (Feb 2008) working paper.
Larry Ausubel "The Failure of Competition in the Credit Card Market" American Economic Review 81(1): pp 50-81 March 1991.
Larry Ausubel "Adverse Selection in the Credit Card Market" (June 1999) working paper.
Haiyan Shui and Larry Ausubel "Time Inconsistency in the Credit Card Market" May 2004 working paper, SSRN #586622.

 

John Asker "A Study of the Internal Organisation of a Bidding Cartel", American Economic Review, v100(3), 724-762, 2010.

Oct. 8: Student Presentations on collusion:

Schultz, Christian, 2005. “Transparency on the Consumer Side and Tacit Collusion”, European Economic Review, vol. 49(2), pages 279-297, February.

 

Fernando Luco (2018) “Who Benefits from Information Disclosure? The Case of Retail Gasoline” AEJ: Microeconomics, forthcoming.

 

Theme 3: Demand Estimation and Oligopolistic Competition in Differentiated Products Markets

Oct. 15 – Oct. 29: Lectures covering:

Steve Berry, "Estimating Discrete Choice Models of Product Differentiation" RAND Journal of Economics 25 (Summer 1994) 242-262.

Steve Berry, James Levinsohn and Ariel Pakes: " Voluntary Export Restraints on Automobiles: Evaluating a Strategic Trade Policy" American Economic Review 89(3) (1999) 400-430.

Steve Berry, James Levinsohn and Ariel Pakes: " Differentiated Products Demand Systems from a Combination of Micro and Macro Data: The New Vehicle Market " Journal of Political Economy, 2004, 112(1): 68-104.

 

Useful readings:

Dennis Epple, " Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for Differentiated Products, " Journal of Political Economy, 95(1), 1987, 59-80.

 

Aviv Nevo "Measuring Market Power in the Ready-to-Eat Cereal Industry" Econometrica 2001, 69(2) 307-342.

 

Aviv Nevo "A Research Assistant's Guide to Random Coefficients Discrete Choice Models of Demand" NBER Technical Working Paper No. 221, 1998.

 

Daniel A. Ackerberg and Marc Rysman "Unobserved product differentiation in discrete-choice models: estimating price elasticities and welfare effects", RAND Journal of Economics, 36(4): Winter 2005, 771-788.

 

Jean-Pierre Dube, Jeremy Fox and Che-Lin Su BLP codes and "Improving the Numerical Performance of BLP Static and Dynamic Discrete Choice Random Coefficients Demand Estimation" Econometrica, Sept. 2012.

 

Chris Knittel and Konstantinos Metaxiglou: “Challenges in Merger Simulation Analysis” AER P&P May 2011.

 

Kyoo il Kim and Amil Petrin: Tests for Price Endogeneity in Differentiated Product Models , Journal of Econometric Methods, March 2014.

 

Marc Rysman and Gautam Gowrisankaran: "Dynamics of Consumer Demand for New Durable Goods" Journal of Political Economy, 2012, Volume 120, 1173-1219.

 

Nikhil Agarwal and Paulo Somaini: “Demand Analysis using Strategic Reports: An Application to a School Choice Mechanism”,

forthcoming Econometrica.

 

Nov. 5: student presentation on demand estimation

Amit Gandhi, Xiaoxia Shi and Zhentong Lu (2017) "Estimating Demand for Differentiated Products with Zeroes in Market Share Data," working paper.

 

Jeremy Fox, Chenyu Yang and David Hsu (2018) “Unobserved Heterogeneity in Matching Games” Journal of Political Economy.

 

Chris Conlon and Julie Mortimer (2018) “Empirical Properties of Diversion Ratios”, NBER working paper #24816.

 

Theme 4: Information Issues

Nov. 12 – Nov. 26: Lectures covering:

Ken Hendricks and Robert Porter: "An Empirical Study of an Auction with Asymmetric Information, " American Economic Review Dec 1988, 865-883.

 

Daniel Ackerberg, "Empirically Distinguishing Informative and Prestige Effects of Advertising " RAND Journal of Economics, Summer 2001.

Useful readings:

 

Daniel Ackerberg "Advertising, Learning, and Consumer Choice in Experience Good Markets: A Structural Empirical Examination" International Economic Review, Aug 2003, 1007-1040.

 

Kyle Bagwell "The Economic Analysis of Advertising." Handbook of Industrial Organization, vol 3, 2007: 1701-1844.

 

David Dranove , Dan Kessler, Mark McClellan and Mark Satterthwaite (2003) "Is More Information Better? The Effects of 'Report  Cards' on Health Care Providers" Journal of Political Economy, June 2003, 111(3):555-588.

 

Useful readings:

 

David Dranove and Ginger Zhe Jin "Quality Disclosure and Certification: Theory and Practice" Journal of Economic Literature 2010.

 

Ginger Zhe Jin and Phillip Leslie "The Effects of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards" Quarterly Journal of Economics, May 2003, 118(2), 409-51.

 

Ginger Zhe Jin and Phillip Leslie "Reputation Incentives For Restaurant Hygiene", American Economic Journal (Microeconomics) Feb. 2009.

 

Ben Handel: Adverse Selection and Inertia in Health Insurance Markets: When Nudging Hurts American Economic Review, 2013,

103(7): 2643-2682.

 

Useful readings:

 

David Genesove, "Adverse Selection in the Wholesale Used Car Market, " Journal of Political Economy 101 (August 1993), 644-665.

 

Pierre-Andre Chiappori and Bernard Salanie " Testing for Asymmetric Information in Insurance Markets" Journal of Political Economy 2000, 108(1): 56-78.

 

Ginger Zhe Jin and Andrew Kato " Dividing Online and Offline: A Case Study" Review of Economic Studies 74(3), 981-1004, July 2007.

 

Liran Einav, Amy Finkelstein, and Mark Cullen “Estimating Welfare in Insurance Markets Using Variation in Prices”, Quarterly Journal of Economics, 2010.

 

Ginger Jin, Daniel Martin, and Michael Luca, Complex Disclosure, 2018, NBER working paper 24675.

 

Weijia Dai, Ginger Jin, Jungmin Lee and Michael Luca: Aggregation of Consumer Ratings: An Application to Yelp.com, forthcoming Quantitative Marketing and Economics.

 

Dec. 3: Student presentation on Information

Dilip Mookherjee and Ivan Png “Marginal Deterrence in Enforcement of Law”, Journal of Political Economy, 1994, 102(5), 1039-1066.

 

Karam Kang and Bernardo S. SilveiraUnderstanding Disparities in Punishment: Regulator Preferences and Expertise” working paper, 2018.

 

Yi Cao and Ginger Zhe Jin “Soft Disclosure of Data Breach: A Close Look at the SEC Financial Filings”, working paper.

Dec. 10: Student Presentation of research proposal