My 2010 Industrial Organization reading list

by on August 5, 2010 at 8:01 am in Economics, Education | Permalink

I am placing it under the fold.  Comments and further suggestions are welcome.  I also would like to include a few pieces by non-economists, if possible, perhaps on the sociology or anthropology of cooperation within the firm.  Any particular recommendations?

Industrial Organization I, Tyler Cowen (x2312, 4910), tcowen@gmu.edu

METHODS OF EVALUATION:

There will be weekly quizzes, a paper, and a final exam.

READINGS:

  

I. Firm behavior, antitrust, and vertical and horizontal control.

Einav, Lira and Levin, Jonathan, “Empirical Industrial Organization: A Progress report,” Journal of Economic Perspectives, (Spring 2010), 145-162.

Asker, John, “A Study of the Internal Organization of a Bidding Cartel,” American Economic Review, (June 2010), 724-762.

Bresnahan, Timothy F. “Competition and Collusion in the American Automobile Industry: the 1955 Price War,” Journal of Industrial Economics, 1987, 35(4), 457-82.

Bresnahan, Timothy and Reiss, Peter C. “Entry and Competition in Concentrated Markets,” Journal of Political Economy, (1991), 99(5), 977-1009.

Timothy Bresnahan, “Empirical Studies of Industries with Concentrated Power,” Handbook of Industrial Organization, vol.II.

Tirole, Jean. “Vertical Control.” In Theory of Industrial Organization, Chapter 4.

Klein, Benjamin and Leffler, Keith.  “The Role of Market Forces in Assuring Contractual Performance.”  Journal of Political Economy 89 (1981): 615-641.

Breit, William. “Resale Price Maintenance: What do Economists Know and When Did They Know It?” Journal of Institutional and Theoretical Economics (1991).

McKenzie, Richard B. and Lee, Dwight, In Defense of Monopoly, chapter four, “Welfare-Enhancing Monopolies,” on reserve.   

Tirole, Jean.  “Information and Strategic Behavior: Reputation, Limit Pricing, and Predation.”  In Theory of Industrial Organization, Chapter 9, on reserve.

Sproul, Michael.  “Antitrust and Prices.”  Journal of Political Economy (August 1993): 741-754.

McCutcheon, Barbara.  “Do Meetings in Smoke-Filled Rooms Facilitate Collusion?”  Journal of Political Economy (April 1997): 336-350.

Hazlett, Thomas W. “Is Antitrust Anticompetitive?” Harvard Journal of Law and Public Policy, (Spring 1986).

Crandall, Robert and Whinston, Clifford, “Does Antitrust Improve Consumer Welfare?: Assessing the Evidence,”  Journal of Economic Perspectives (Fall 2003 ), 3-26, available at http://www.brookings.org/views/articles/2003crandallwinston.htm.

 II. The Microeconomics of the Firm

Holmstrom, Bengt and Tirole, Jean.  “The Theory of the Firm,” in Handbook of Industrial Economics, vol.I.

Holmstrom, Bengt and Roberts, John.  “The Boundaries of the Firm Revisited.” Journal of Economic Perspectives 12, 4 (Fall 1998): 73-94.

Gibbons, Robert. “Incentives in Organizations.” Journal of Economic Perspectives (Fall 1998): 115-132.

Montgomery, Cynthia.  “Corporate Diversification,” Journal of Economic Perspectives (Summer 1994): 163-178.

Hansemann, Henry.  “The Role of Non-Profit Enterprise.” Yale Law Journal (1980): 835-901.

Lazear, Edward P. “Leadership: A Personnel Economics Approach,” NBER Working Paper 15918, 2010.

Oyer, Paul and Schaefer, Scott, “Personnel Economics: Hiring and Incentives,” NBER Working Paper 15977, 2010.

Van den Steen, Eric, “Interpersonal Authority in a Theory of the Firm,” American Economic Review, 2010, 100:1, 466-490.

Ben-David, Itzhak, and John R. Graham and Campbell R. Harvey, “Managerial Miscalibration,” NBER working paper 16215, July 2010.

AER Symposium, May 2010, starts with “Why do Firms in Developing Countries Have Low Productivity?,” runs pp.620-633.

Glenn Ellison, “Bounded rationality in Industrial Organization,” http://cemmap.ifs.org.uk/papers/vol2_chap5.pdf

Xavier Gabaix and David Laibson, “Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets,” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=728545.

Charness, Gary and Kuhn, Peter J. “Lab Labor: What Can Labor Economists Learn From the Lab?” NBER Working Paper, 15913, 2010.

Cowen, Tyler, Google lecture on prizes, on YouTube.

III. Capital structure and control

Miller, Merton, and commentators.  “The Modigliani-Miller Propositions After Thirty Years,” and comments, Journal of Economic Perspectives (Fall 1988): 99-158.

Myers, Stewart. “Capital Structure.” Journal of Economic Perspectives (Spring 2001): 81-102.

Hart, Oliver.  “Financial Contracting.”  Journal of Economic Literature (December 2001): 1079-1100.

Easterbrook, Frank H. “Two Agency-Cost Explanations of Dividends.”  American Economic Review (September 1984).

Baker, Malcolm and Wurgler, Jeffrey. “A Catering Theory of Dividends,” Journal of Finance (2004), available at http://pages.stern.nyu.edu/~jwurgler/.

Baker, Malcolm and Ruback, Richard. “Behavioral Corporate Finance: A Survey,” found at http://www.wcfia.harvard.edu/seminars/pegroup/BakerRubackWurgler.pdf

MacKinlay, A.C. (1997), “Event Studies in Economics and Finance”, Journal of

Economic Literature 35(1), 13-39.

Andrade, Gregor, et. al. “New Evidence and Perspective on Mergers.” Journal of Economic Perspectives (Spring 2001): 103-120.

Holmstrom, Bengt and Kaplan, Steven. “Corporate Governance and Merger Activity in the United States,” Journal of Economic Perspectives (Spring 2001): 121-149.

Gompers, Paul and Lerner, Josh.  “The Venture Capital Revolution.” Journal of Economic Perspectives (Spring 2001): 145-168.

Stein, Jeremy C. “Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior.” Quarterly Journal of Economics 104 (November 1989): 655-670.

Stein, Jeremy C.  “Takeover Threats and Managerial Myopia.”  Journal of Political Economy (1988): 61-80.

Scharfstein, David S. and Stein, Jeremy C.  “Herd Behavior and Investment.”  American Economic Review 80 (June 1990): 465-479.

Hall, Brian and Murphy, Kevin J, “The Trouble with Stock Options,” Journal of Economic Perspectives, Summer 2003, also at http://www-rcf.usc.edu/~kjmurphy/HMTrouble.pdf.

Murphy, Kevin J. and Zaboznik, Jan. “CEO Pay and Appointments,” American Economic Review, May 2004, also at http://www-rcf.usc.edu/~kjmurphy/CEOTrends.pdf

Jensen, Michael, Murphy, Kevin J., and Eric Wruck. “Remuneration: Where We've Been, How We Got to Here, What are the Problems, and How to Fix Them,” available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=561305#PaperDownload.

Robert J. Gordon and Ian Dew-Becker, “Unresolved Issues in the Rise of American Inequality,” http://www.people.fas.harvard.edu/~idew/papers/BPEA_final_ineq.pdf

McKay, Alisdair and Reis, Ricardo, “The Brevity and Violence of Contractions and Expansions,” NBER Working Paper, 12400, 2010.

Gorton, Gary B. Slapped in the Face by the Invisible Hand: Banking and the Panic of 2007, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1401882, published on-line in 2009.

IV. Theory and Regulation of Natural Monopolies

Sanford Berg and John Tschirhart, Natural Monopoly Regulation, Cambridge University Press.

pp. 21-275. 

Demsetz, Harold.  “Why Regulate Utilities?”  Journal of Law and Economics (April 1968): 347-359.

Williamson, Oliver.  “Franchise Bidding for Natural Monopolies – in General and with Respect to CATV.” Bell Journal of Economics (Spring 1976): 73-104.

Crandall, Robert W. “An End to Economic Regulation?” available at http://www.brookings.org/views/papers/crandall/20030721.pdf.

Parente, Stephen L. and Prescott, Edward. “Monopoly Rights: A Barrier to Riches.”  American Economic Review 89, 5 (December 1999): 1216-1233.

Shleifer, Andrei. “State vs. Private Ownership.” Journal of Economic Perspectives (Fall 1998): 133-151.

Chang, Roberto, Constantino Hevia, and Norman Loayza, “Privatization and Nationalization Cycles,” NBER Working Paper 16126, June 2010.

Berg and Tschirhart, pp. 480-522.

Associated other topics in regulation, depending on your interests; reading suggestions will follow later in the semester.

Keith Lee August 5, 2010 at 8:31 am

How about that Social Science doesn’t work much of the time? RE: “Randomized Field Trials” and high causal density:

http://www.city-journal.org/2010/20_3_social-science.html

rsg August 5, 2010 at 8:57 am

Make Versus Buy In Trucking: Asset Ownership, Job Design, and Information. American Economic Review. 93(3): 551-572.

Henry Farrell August 5, 2010 at 8:59 am

An extract from Gary Miller – Managerial Dilemmas: The Political Economy of Hierarchy would work well with the Holmstrom/Roberts ‘Boundaries of the Firm Revisited’ piece. Fligstein and Dauter (http://sociology.berkeley.edu/profiles/fligstein/pdf/ANRV316.pdf) is a nice overview of the sociological literature. Ronald Dore, “Goodwill and the spirit of market capitalism,” British Journal of Sociology, 1983 is a highly influential polemic, and interesting (although I think that Dore does not realise how much of his argument can be captured within non-cooperative game theory. Finally – if you were doing a week on sociological accounts, Kreps’ corporate culture piece would be a nice example of how economists try to think about these issues.

j August 5, 2010 at 9:43 am

No BLP?

jonm August 5, 2010 at 9:53 am

Chandler again : Strategy and structure. I haven’t read The Visible Hand.

Christian August 5, 2010 at 10:21 am

Second on Fligstein: The architecture of the firm, etc.

Arthur Stinchcombe: Information and Organizations, also has good summaries/redescriptions of the work of Piore & Sabel, Chandler, Schumpeter, etc. also article on Bureaucratic and Craft Organization

Charles Perrow: Organizing America

Brehm & Gates: Working, Shirking and Sabotage

Bill August 5, 2010 at 10:48 am

The sylabus is very strong on theory of the firm, agency and contract theory, and vertical relationships.

It is a bit weak, and unless you are trying to show balance by throwing in poor articles, and I would say somewhat unbalanced on horizontal coordination and competitive strategy.

On horizontal coordination and strategy, I would assign chapters horizontal structure and conduct chapters from the Handbook on Industrial Organization by Schmalensee and Willig, materials from Carlton and Perloff in their graduate text on IO, Modern Industrial Organization, and would use case studies on deregulation to illustrate changes on output and prices when price and entry regulation is eliminated. I also think the materials need to be balanced in another horizontal area: the area questioning horizontal antitrust enforcement, and to balance it I would add some articles on the costs of cartels, international cartels, and facilitating practices. I would also, just for a little quirkiness, look at monopsony issues as well.

A modern IO course needs some game theory and strategy pieces as well. You might use Nalebuff at Yales piece on bundling strategies written for Britain’s competition authority and contrast it with some of the work at George Mason on bundling that is actually pretty good. I would use bundling materials from the Dentsply case, Intel settlement, and a recent FTC medical device case to play with and use the Antitrust Modernization’s commissions handling of bundling and contrast that with the Peacehealth case in the ninth circuit.

I think the sylabus should have materials on auction theory as well, focusing on knowledge, revealed preference, auction design and industry structure as it affects auction results.

No sylabus is perfect, particularly my spelling of it. But, you want to cast a wide net, not only capturing some of the outliers, but also making sure you capture the core.

Finally, I would assign a project: take a regulated industry and ask the students how they would introduce competition to it and ask what minimum scope of regulation they would have or transition rules the would or would not adopt; take a current case from the Antitrust Division website, go through the pleadings and public economic affidavits, and write a memo on the recommended outcome as an economic advisor to the Assistant Attorney General for Antitrust or an FTC Commissioner.

Dan in Euroland August 5, 2010 at 11:21 am

For something completely different: A Naturalistic Approach to the Theory of the Firm, by a bunch of anthropologists including Peter Richerson.

Abstract: One reason why firms exist, this paper argues, is because they are suitable organizations within which cooperative production
systems based on human social predispositions can evolve. In addition, we showhowan entrepreneur, given these predispositions, can
shape human behavior within a firm. To illustrate these processes, we will present a model that depicts how the biased transmission
of cultural contents via social learning processes within the firm influence employees’ behavior and the performance of the firm.
These biases can be traced back to evolved social predispositions. Humans lived in tribal scale social systems based on significant
amounts of intra- and even intergroup cooperation for tens if not a few hundred thousand years before the first complex societies
arose. Firms rest upon the social psychology originally evolved for tribal life. We also relate our conclusions to empirical evidence
on the performance and size of different kinds of organizations. Modern organizations have functions rather different from ancient
tribes, leading to friction between our social predispositions and organization goals. Firms that manage to reduce this friction will
tend to function better.

Paul H. Rubin August 5, 2010 at 11:38 am

I would suggest the DOJ-FTC Merger Guidelines for a little practical knowledge. Some of the students will be in the antitrust business and make their living from the Guidelines.

Bill August 5, 2010 at 11:52 am

Adding to the list, I would include materials on network economics and IO in network industries. See Economides website which collects economic articles and network IO materials. See http://www.stern.nyu.edu/networks/site.html

Also, you might want to googlesearch sylabii from other graduate IO programs and get access to the lecture notes and overheads for some of the graduate IO textbooks listed above. Carlton and Perloff have good materials, for example.

E. Barandiaran August 5, 2010 at 11:57 am

Dan in Euroland, thanks for the reference. To anyone interested in cooperation –albeit not centered on cooperation in organizations– I recommend to read the draft version of a new book by S. Bowles and H. Gintis. You can dowload A Cooperative Species from http://people.umass.edu/gintis/

Gabriel Rossman August 5, 2010 at 12:37 pm

Tyler,

Kieran Healy (who blogs at orgtheory and crookedtimber) has a sociology of organizations syllabus that might be worth stealing from.

More broadly, since the 1970s economic sociology has been less interested in “cooperation within the firm” than in relations between firms (networks and embeddedness) and the firm’s position in the field (contingency theory, resource dependence, organization ecology / niche partitioning, and neo-institutionalism). Recently you’ve seen institutionalism and ecology converge on a fascination with the nature of categorical schema and the cognitive structure of market positions. For my money, the most important sociology that speaks to IO are the following:

Carroll, Glenn R., and Anand Swaminathan. 2000. “Why the Microbrewery Movement? Organizational Dynamics of Resource Partitioning in the U.S. Brewing Industry.† American Journal of Sociology 106:715-762.

DiMaggio, Paul J. and Walter W. Powell. 1983. “The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields.† American Sociological Review 48:147–160.

Espeland, Wendy Nelson, and Michael Sauder. 2007. “Rankings and Reactivity: How Public Measures Recreate Social Worlds.† American Journal of Sociology 113:1-40.

Pfeffer, Jeffrey, and Gerald R Salancik. 1978. The External Control of Organizations: A Resource Dependence Perspective. New York: Harper & Row.

Bill August 5, 2010 at 12:43 pm

Since you are in DC, I would arrange for your students to sit in on some of the economist brown bag lunches at the FTC and DOJ. They invite IO economists to come in and discuss their research.

Also, to make it interesting and relevant, I would get registered at the Harvard Business School case study website as a faculty member and assisgn some of the classic business strategy case studies and analyze them from an IO perspective. Cigarrettes, airlines, etc.

glory August 5, 2010 at 2:28 pm

DeLong had a nice treatment of “The Corporation as a Command Economy” from a while back… also btw just finished reading DeLong & Cohen’s “The End of Influence” and its penultimate chapter is about state-directed capitalism as it pertains to the military industrial complex, which may have some topical interest for those studying industrial organization.

mulp August 5, 2010 at 5:27 pm

You really need to include the work of Clayton Christensen, The Innovator’s Dilemma. That is the best explanation for how the dominant computer giants like RCA, Sperry-Rand, NCR, Burroughs, Univac, and of course, IBM, could be bankrupted or virtually eliminated from the computer system market.

Remember that IBM was seen as a near monopoly for a couple of decades, and then in a few years was seen as headed for bankruptcy.

Exxon is, in my view, headed for the same fate as IBM was in 1980. Or maybe Exxon is more like Univac in 1960.

To understand why, you need to think of electric cars the way Elon Musk of Paypal fame does, as a tech product that only needs the niche that the dominant players ignore at their peril as the means to rapid product life cycles to rapidly increase the cost performance by 5-10% an iteration. Or First Solar and its emphasis on frequent process improvements that gain 5-10% in cost performance.

Hoover August 6, 2010 at 4:22 am

Buddenbrooks, by Thomas Mann.

The Way We Live Now, by Trollope.

Johnboy August 11, 2010 at 2:21 pm

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