My Fall 2016 Industrial Organization reading list, Ph.d class

This is tentative, and I still will make further changes, so by all means please leave your suggestions in the comments.  The list is long, so I am putting it under the fold…

  1. Competition

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

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.

Berry, Steven and Reiss, Peter, “Empirical Models of Entry and Market Structure,” Handbook of Industrial Organization, vol.III, chapter 29.

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

Fontanella-Khan, James and Arash Massoudi. “Megadeals for 2015 hit record high.” The Financial Times, September 18, 2015.

Whinston, Michael D., “Antitrust Policy Toward Horizontal Mergers,” Handbook of Industrial Organization, vol.III, chapter 36, see also chapter 35 by John Sutton.

“Benefits of Competition and Indicators of Market Power,” Council of Economic Advisors, April 2016.

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).

Bogdan Genchev, and Julie Holland Mortimer. “Empirical Evidence on Conditional Pricing Practices.” NBER working paper 22313, June 2016.

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.

Crandall, Robert and Winston, 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.

FTC, Bureau of Competition, website, http://www.ftc.gov/bc/index.shtml.  Read about some current cases and also read the merger guidelines.  You’ll also find four antitrust cases discussed at the top here: http://business.fullerton.edu/economics/rmichaels/Econ410/Econ%20410.htm

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

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

Armstrong, Mark and Sappington, David, “Recent Developments in the Theory of Regulation,” Handbook of Industrial Organization, chapter 27, also on-line.

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

Farrell, Joseph and Klemperer, Paul, “Coordination and Lock-In: Competition with Switching Costs and Network Effects,” Handbook of Industrial Organization, vol.III, chapter 31, also on-line.

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.

Strictly optional: Ariel Pakes and dynamic computational approaches to modeling oligopoly: http://www.economics.harvard.edu/faculty/pakes/files/Pakes-Fershtman-8-2010.pdf

http://www.economics.harvard.edu/faculty/pakes/files/handbookIO9.pdf

2. Organization

Gibbons, Robert, “Four Formal(izable) Theories of the Firm,” on-line at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=596864.

“Make Versus Buy in Trucking: Asset Ownership, Job Design, and Information,” by George P. Baker and Thomas N. Hubbard, American Economic Review, (June 2003), 551-572.

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

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.

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

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

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

 

3. Production

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

Dani Rodrik, “A Surprising Convergence Result,” http://rodrik.typepad.com/dani_rodriks_weblog/2011/06/a-surprising-convergence-result.html, and his paper here http://www.hks.harvard.edu/fs/drodrik/Research%20papers/The%20Future%20of%20Economic%20Convergence%20rev2.pdf

Mandel, Michael and Houseman, Susan, “Not all Productivity Gains are the Same,” http://whatmatters.mckinseydigital.com/growth_and_productivity/not-all-productivity-gains-are-the-same-here-s-why

Michael Spence and Sandile Hlatshwayo, “The Evolving Structure of the American Economy and the Employment Challenge,” Council on Foreign Relations working paper, March 2011, http://www.cfr.org/industrial-policy/evolving-structure-american-economy-employment-challenge/p24366

Serguey Braguinsky, Lee G. Branstetter, and Andre Regateiro, “The Incredible Shrinking Portuguese Firm,” http://papers.nber.org/papers/w17265#fromrss.

Nicholas Bloom, Raffaella Sadun, and John Van Reenen, “Recent Advances in the Empirics of Organizational Economics,” http://cep.lse.ac.uk/pubs/download/dp0970.pdf.

Nicholas Bloom, Raffaella Sadun, and John Van Reenen, the slides for “Americans do I.T. Better: US Multinationals and the Productivity Miracle,” http://www.people.hbs.edu/rsadun/ADITB/ADIBslides.pdf, the paper is here http://www.stanford.edu/~nbloom/ADIB.pdf but I recommend focusing on the slides.

Bloom, Nicholas, Raffaella Sadun, and John Van Reenen. “Management as a Technology?” National Bureau of Economic Research working paper 22327, June 2016.

Syerson, Chad “What Determines Productivity?” Journal of Economic Literature, June 2011, XLIX, 2, 326-365.

New firms and an employment puzzle, http://macroblog.typepad.com/macroblog/2011/08/new-firm-employment-puzzle.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+typepad%2FRUQt+%28macroblog%29

David Lagakos, “Explaining Cross-Country Productivity Differences in Retail Trade,” Journal of Political Economy, April 2016, 124, 2, 1-49.

Casselman, Ben. “Corporate America Hasn’t Been Disrupted.” FiveThirtyEight, August 8, 2014.

Decker, Ryan and John Haltiwanger, Ron S. Jarmin, and Javier Miranda. “Where Has all the Skewness Gone?  The Decline in High-Growth (Young) Firms in the U.S. National Bureau of Economic Research working paper 21776, December 2015.  NB: This paper and the three that follow have some repetition, so read them selectively rather than exhaustively.

Decker, Ryan and John Haltiwanger, Ron S. Jarmin, and Javier Miranda. “The Secular Business Dynamism in the U.S.” Working paper, June 2014.

Haltiwanger, John, Ian Hathaway, and Javier Miranda. “Declining Business Dynamism in the U.S. High-Technology Sector.” Ewing Marion Kauffman Foundation, February 2014.

Haltiwanger, John, Ron Jarmin and Javier Miranda. Where Have All the Young Firms Gone? Ewing Marion Kauffman Foundation, May 2012.

Song, Jae, David J. Price, Fatih Guvenen, and Nicholas Bloom. “Firming Up Inequality,” CEP discussion Paper no. 1354, May 2015.

Furman, Jason and Peter Orszag. “A Firm-Level Perspective on the Role of rents in the Rise in Inequality.” October 16, 2015.

Andrews, Dan, Chiara Criscuolo and Peter N. Gal. “Frontier firms, Technology Diffusion and Public Policy: Micro Evidence from OECD Countries.”  OECD working paper, 2015.

Mueller, Holger M., Paige Ouimet, and Elena Simintzi. “Wage Inequality and Firm Growth.” Centre for Economic Policy Research, working paper 2015.

http://evansoltas.com/2016/05/07/pro-business-reform-pro-growth/

Berger, David W. “Countercyclical Restructuring and Jobless Recoveries.” Yale University working paper, 2012.

Furman, Jason. ”Business Investment in the United States: Facts, Explanations, Puzzles, and Policy.” Remarks delivered at the Progressive Policy Institute, September 30, 2015, on-line at https://m.whitehouse.gov/sites/default/files/page/files/20150930_business_investment_in_the_united_states.pdf.

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

4. Incentives

Carola Frydman and Dirk Jenter, “CEO Compensation,” NBER Working Paper 16585.

Conyon, Martin J. “Executive Compensation and Incentives.” Academy of Management Perspectivse, 2006.

Kaplan, Steven N. “Executive Compensation and Corporate Governance in the U.S.: Perceptions, Facts and Challenges.” Working paper, July 2012.

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

 Acemoglu, Daron and Autor, David, “Skills, Tasks, and Technologies: Implications for Employment and Earnings,” http://econ-www.mit.edu/files/5607

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

http://marginalrevolution.com/?s=short-termism

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

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

5. Sectors: finance, health care, others

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.

Erel, Isil, Nadault, Taylor D., and Stulz, Rene M., “Why Did U.S. Banks Invest in Highly-Rated Securitization Tranches?” NBER Working Paper 17269, August 2011.

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

Paul Graham, essays, http://www.paulgraham.com/articles.html, and on Google itself, http://www.slate.com/blogs/blogs/thewrongstuff/archive/2010/08/03/error-message-google-research-director-peter-norvig-on-being-wrong.aspx

Strictly optional but recommended for the serious: Ponder reading some books on competitive strategy, for MBA students.  Here is one list of recommendations: http://www.linkedin.com/answers/product-management/positioning/PRM_PST/20259-135826

Kotchen, Matthew J. and Moon, Jon Jungbien, “Corporate Social Responsibility for Irresponsibility,” NBER working paper 17254, July 2011.

Healy, Kieran. “The Persistence of the Old Regime.” Crooked Timber blog, August 6, 2014.

Comments

No room for Tirole? Stigler?

Great list, thanks for posting. I'm jealous-not jealous of your students.

JLK, as a former IO student of Tyler's* I can say you should be jealous.

[*] Full disclosure: I earned an A. And I know he doesn't hand As out freely.

I wonder, as a manager interested in improving his craft, what if any of these books would be useful to me.

+1 to this comment.

I don't see anything the discusses the high labor capital industry sectors that were extremely common when I was growing up in my youth in the 50s and 60s, but that seem rare in the US, but very common in China.

Why are there so few Amazons, Tesla Motors, SpaceX, Solarcity, and to a lesser degree Google firms in the US. These are firms that must pay billions in wages to add their standard increment of commodity productive capital.

I haven't been paying attention to Intel, but in the 80s and 90s, IBM, DEC, struggled to match the $1 billion, then $2 billion, then $5 billion labor cost fabs added every several years, with older fabs getting billion dollar labor cost capital investments.

I'm guessing Amazon is paying several billion in labor cost for new data centers and automated warehouses.

Elon Musk is the driving force behind building a half dozen multi-billion dollar labor cost capital assets, a rocket ship manufacturing plant, a car manufacturing plant, the first of a number of battery manufacturing plants, a solar cell and panel manufacturing plant, a high launch rate rocket launch facility to add to its launch facilities in NASA Florida and the California military rocket facility.

Big oil does make billion dollar investments in existing oil refineries, but they have mostly closed refineries because they increase capacity doing required maintenance on 50-75 year old refineries. I believe one new refinery has been built in 30+ years near Cushing to refine the excess oil for the local region. Big oil failed to invest in horizontal drilling and fracking for 40 years, much less invest in such wells, even though the past year is making it pretty clear this is the lowest labor cost production investment outside the Persian Gulf.

With extremely high profits, but 2% interest rates, floods of cash bidding for shares of stock, corporations buying back shares, I can't understand why hundreds of new factories and other production facilities with labor cost of a billion dollars each aren't being built.

Isn't the point of supply side economics to focus relentlessly on increasing supply by increasing production capacity?

Yes, I find examples of such investment. A low volume speciality fabric textile plant costing over a billion dollars serving local custom production. (American Apparel is a customer with a special fabric just for hoodies at $60-80, it's only product for several years.)

I attribute the lack of investment to Milton Friedman winning with his argument that corporate management must maximize shareholder value, as opposed to Galbraith's model of engineers driving investment to innovate and deliver new and more product to employ more and more workers, thus providing opportunities to move up the career ladder. Plus the more workers paid more, the more customers to buy all the increased production.

"his argument that corporate management must maximize shareholder value" - this argument means that companies should accept positive-Net Present Value (NPV) investments if they can find any.

High profits and companies buying back stock are both signs that there aren't enough good new investments. The 'high profit' part is due to the limitations of our measure of profits: returns on past investments are mixed in with spending on new investments, so profits appear to be lower in good times and higher in bad times. Perhaps the best way to see this is with start-ups - their 'profits' are usually negative, because they are expanding rapidly. Later, when they're mature and have few or no growth opportunities, their 'profits' will be all the higher because they're no longer growing.

I've read that privately owned companies make capital investments much more aggressively than publicly traded companies, and are more profitable overall to boot. Is it possible that publicly traded companies not run by their founders are simply more risk averse than private companies, and that the lack of investment is perhaps caused more by industry consolidation (i.e. lower levels of competition) than by a lack of good ideas? Or another way to put it, if markets for various goods had more competitors, there would be more ideas that are good investments for at least one of the competitors in seeking a competitive advantage? I am putting this out there as a likely story.

Related: http://equitablegrowth.org/equitablog/the-potential-costs-of-short-termism-to-u-s-economic-growth/

This is a great example of the difficulties with going from correlation to causation! I only glanced it over, but the paper seems to use companies whose earnings are at or just above expectations as a measure of companies that are too focused on the short term and are not investing enough. Has the author heard of whisper numbers, or of managing investor expectations? I couldn't find any tables or list of the control variables used, but there are all sorts of possibilities here that need to be controlled for: the pattern may be due to larger companies having fewer growth opportunities and also having more analyst coverage, leading to more accurate earnings forecasts (I couldn't find any indication that the empirical work controlled for size, age or number of analysts). There's the question of how much of this is due to systematic differences in how good (or how aggressive) companies are at communicating/manipulating the forecasts in advance (granted, this is probably harder since Reg FD). There is the natural herding of analyst forecasts - they're pretty careful not to go too far from the consensus except in unusual cases.

There are all kinds of things going on here that the author seems unaware of. The paper might get into an econ journal, but would have a lot more problems in a finance or accounting journal, where the editor and referees would be more likely to understand the process.

It's hard to determine cause and effect. Remember that, in terms of the life cycle of companies, they generally start out private and only go public when they're older and better established, after having already achieved substantial growth. So a simple comparison might easily reveal the pattern you suggest without any causal effect at all.

If publicly traded companies are passing up great investments, then why don't private companies take them? Why isn't there at least one public company that's still trying to grow? Even if public companies are more risk averse than private ones, how can we tell which set of companies has the "right" level of risk aversion?

The market system isn't perfect - no system that relies on people is. But overall it has been the best system we have found. It's fine to speculate that opportunities are systematically being missed, but before we go from that to actively interfering, we should remember the potential that the side effects of our meddling may be very negative. Rather than increasing our meddling, it might be worthwhile to look for ways to decrease it by cutting back on excessive regulation. The extra cost of regulation means that, at the margin, companies overall will invest less, leading to lower growth. The benefits of the regulation might be large enough to justify the cost of lower growth and less investment, but we still need to remember that the cost is there.

You can't repeal the law of unintended consequences.

I didn't see anything on invention and innovation . Much of our wealth depends on them. Much of competition is driven by them.

There's too much for anybody to read in one semester, and the list is all over the map. What good does http://crookedtimber.org/2014/08/06/the-persistence-of-the-old-regime/ do? It speaks to how universities were ranked in 1911 compared to now. A single sentence summarizing this finding would be sufficient, something like "x% of universities ranked in the top tier in 1911 are still in the top tier now".

If education is signaling, I guess a PhD reading list is also a form of signaling. Does TC grade on a curve, pass/fail, or is he an easy grader?

I see some of the articles are short, so I guess one could read them, if TC is going to comment on them. Otherwise it's a waste of time.

Also this man's works are not represented, and he's an 'organizational genius': https://en.wikipedia.org/wiki/Alfred_D._Chandler_Jr. can it be because TC objects to his "visible hand" thesis? Certainly it's controversial but given large corporations are often price makers not takers, not unsound.

Wikipedia:
("Along with economist Oliver E. Williamson and historians Louis Galambos, Robert H. Wiebe, and Thomas C. Cochran, Chandler was a leading historian of the notion of organizational synthesis.[5]

He argued that during the 19th century, the development of new systems based on steam power and electricity created a Second Industrial Revolution, which resulted in much more capital-intensive industries than had the industrial revolution of the previous century. The mobilization of the capital necessary to exploit these new systems required a larger number of workers and managers, and larger physical plants than ever before. More particularly, the thesis of The Visible Hand is that, counter to other theses regarding how capitalism functions, administrative structure and managerial coordination replaced Adam Smith's "invisible hand" (market forces) as the core developmental and structuring impetus of modern business.

In the wake of this increase of industrial scale, three successful models of capitalism emerged, which Chandler associated with the three leading countries of the period: Great Britain ("personal capitalism"), the United States ("competitive capitalism") and Germany ("cooperative capitalism.")
Chandler's work was somewhat ignored in history departments, but proved influential in business, economics, and sociology.[6]

In the business field, Chandler, along with Kenneth R. Andrews and Igor Ansoff, has been credited with the foundational role in introducing and popularizing the concept of business strategy.[7][8][9][10] Chamberlain's Theory of Strategy cites Chandler's Strategy and Structure repeatedly as a source of key concepts.[11]

In sociology, prior to Chandler's research, some sociologists assumed there were no differences between governmental, corporate, and nonprofit organizations. Chandler's focus on corporations clearly demonstrated that there were differences, and this thesis has influenced organizational sociologists' work since the late 1970s. It also motivated sociologists to investigate and critique Chandler's work more closely, turning up instances in which Chandler assumed American corporations acted for reasons of efficiency, when they actually operated in a context of politics or conflict.[12]")

This isn't an exceptionally long reading list. Grad school is basically that. Read a couple hundred pages in a semester. See what sticks.

In Canada we use an IO book that is pretty comprehensive a covers a lot of the topics you assigned full books for. It's called, Industrial Organization: A Strategic Approach by Jeffrey Church and Roger Ware. It's use in several universities in the US too, mostly at the PhD level. Free to download online, by the way. Highly recommend it.

Tyler

I think you need more on vertical restraints (including, but not limited to, minimum RPM), especially on the relevant empirical evidence. May I suggest:

1. http://www2.owen.vanderbilt.edu/lukefroeb/froeb.papers/vertical/2005.IJIO.pdf

2. http://econ.sites.olt.ubc.ca/files/2013/05/pdf_paper_margaret-slade-exclusivecontracts-verticalrestraints.pdf [this was published in the Handbook of Antitrust Economics.]

Also: Whinston's Lectures on Antitrust Economics has an excellent survey of the relevant theory

Quite a reading list

Especially considering [upon perusal] it/you ignores the pachyderm dans la piece

that in every industry vertical, business in the USA since the 1980's has transformed from a model with dozens -> hundreds of firms competing

to oligopolies

Exhibit 'A': http://thetravelinsider.info/airlinemismanagement/airlineoligopoly.htm

& who cares, right, about such peripheral concerns like customer service?

Nice list. Comprehensive, eccentric. About that elephant..

Since you include the CEA's recent report, "Benefits of Competition and Indicators of Market Power," I recommend you also include a remarkable recent speech by FTC Commissioner Maureen K. Ohlhausen, "Does the U.S. Economy Lack Competition, And If So What To Do About It?" Include it for four reasons: 1) she is a Mason law school graduate, 2) it does a fine job critiquing the revival of a theory in industrial organization discredited for 40+ years, 3) her argument to reduce monopolization promoted by government is terrific, and 4) amazingly, she is an Obama appointee.

If found myself wonder at time over that past few years when we should consider firms as market participants (those lumps of butter in the market pail) as apposed to alternative markets themselves (separate pails with various connections amoung them).

Thank you for this list that I will bookmark and attempt to follow along at my own pace!

just a note that none of the links (in the Competition section) work. They all lead to now defunct webpages.

"New firms and an employment puzzle" - I wonder how much of the puzzle could be explained by the findings in a recent study about how States/Local governments allocate their incentive $ to attract new businesses. The study found that a very lager percentage of the money was given to large corporation but these enties tend to create fewer new jobs than small businesses. (http://www.goodjobsfirst.org/sites/default/files/docs/pdf/shortchanging.pdf)

The list would appear to assume that students are already familiar with Coase's Nature of the Firm. The Gibbons paper, for example, refers to it but does not go into any depth. Is Coase actually taught outside economics or law and economics programs though?
https://www.jstor.org/stable/2626876?seq=1#page_scan_tab_contents

Richard Caves: Creative Industries

James Brickley, Clifford Smith and Jerold Zimmerman, Managerial Economics and Organizational Architecture. Organization/governance, incentives, pricing decisions and more. Includes a distinct Austrian emphasis on the importance of knowledge and of subjective value. Nova Southeastern University gave me this book when I taught in their MBA program.

Jean Tirole, The Theory of Industrial Organization.

There is very little actual IO in this reading list, but you also aren't an IO economist, so I guess that shouldn't be surprising. I mean, this is just an incredible distance from what anyone who remotely considers themselves an IO economist is doing, except for a slight portion of the competition portion.

To be specific: the most important paper for modern IO methods is Berry Levinsohn and Pakes 1996. If that's not on your syllabus for a graduate IO class you have no idea what you're doing.

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