SCHOOL OF SOCIAL SCIENCES DEPARTMENT OF ECONOMICS SS3.10 INDUSTRIAL ECONOMICS COURSE DESCRIPTION AND READING LIST

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1 SCHOOL OF SOCIAL SCIENCES DEPARTMENT OF ECONOMICS SS3.10 INDUSTRIAL ECONOMICS COURSE DESCRIPTION AND READING LIST Module Leader: Dr Xeni Dassiou, room A556, tel Web address: Aims and Learning Outcomes Aim The aim of this course is to Provide a grounding into the knowledge and understanding of the economic analysis that underlies the functioning of markets and industries and the behaviour of firms within them. The approach is mainly theoretical but incorporates some empirical aspects as and when appropriate. Learning Outcomes On successful completion of this course students will Acquire a knowledge of the factors that determine the conduct of firms in terms of their price setting, advertising, R&D and other decisions. Develop an understanding of the way that economic analysis can lie behind the application of competition policy. Acquire a knowledge of the economic justification behind the need to regulate the markets and how this can be done effectively. Teaching and Assessment Teaching methods Teaching will be in the form of 20 weekly lecture sessions of 2hours and 20 class sessions of 1 hour. There will also be three weekly 2-hours revision sessions during the summer term. Your attendance and participation in the classes is compulsory and essential to your understanding of the course and will contribute to your overall assessment mark. During the class period we will do exercises analyse and elaborate on the current lecture topic ask and answer questions Industrial Economics Reading List - Page 1 of 11

2 give guidelines about how to write your essays (coursework) and what to include (perhaps more importantly, what NOT to include!). Assessment Assessment for the entire course is by two pieces of coursework (one for each term), and a 3hrs written exam. The marks are weighted 20:80 by courswork:exam. The two pieces of coursework take the form of essays, the titles of which will be chosen from a small list of topics which will be distributed around the middle of the winter and spring term. There is a word limit of 3000 words. The essays must be handed to the Economics Office by the date of the set deadline at 5:00pm to be date stamped, not to me. Please note that under the coursework charter you are required to keep a copy of your coursework. Essay writing is NOT a copy-the-textbook exercise. When reading for this course as well as when you write your essay you will by no means restrict yourself to reading the corresponding chapter in one or more of the suggested textbooks. These should only serve as an introduction to the subject. One of the purposes of this course is to make you familiar with some classic and modern articles written on different topics in industrial economics. Plagiarism is severely penalised and you should ensure that you are familiar with the penalties as contained in the Student Handbook. Miscellaneous Each topic covered by this course has a list of references accompanying it. Note that the starred references do NOT denote that you should place any special emphasis on this article; it simply means that a photocopy of the particular article is included in the short loan collection under my name in the library. As we cover each topic I will assume that you do the required reading. If you do not, after a while it will be too late to catch up. Note that the topics in the course description are not isolated and separate from each other. They are interdependent, and in some cases the one complements the other. As a result the answers to many of the questions in the exams require the knowledge of more than one of the topics presented during the course. The course description and a list of Industrial Economics books available at the Main Library can be found from my Web address: Texts There is no single textbook, which covers the entire course; however the following cover most aspects. 1. L.M.B. Cabral, Introduction to Industrial Organization, The MIT Press, R. Clarke, Industrial Economics, Basil Blackwell, J. Lipczynski and J. Wilson, Industrial Organisation; An Analysis of Competitive Industrial Economics Reading List - Page 2 of 11

3 Markets, Financial Times/Prentice Hall, S. Martin, Industrial Economics; Economic Analysis and Public Policy, 2 nd edition, Macmillan, L. Pepall, D. J. Richards and G. Norman, Industrial Organization: Contemporary Theory and Practice, South Western College Publishing, W. G. Shepherd, The Economics of Industrial Organization, 4 th edition, Prentice- Hall, D.E. Waldman and E.J. Jensen, Industrial Organization: Theory and Practice, 2 nd edition, Addison-Wesley, M. Waterson, Economic Theory of the Industry, CUP Collections of surveys of the literature are: 1) R. Clarke & T. McGuiness (Eds.), The Economics of the Firm, Basil Blackwell, ) S. Davies & B. Lyons (Eds.), Economics of Industrial Organisation, Longman, Please note that the starred references in the reading list are photocopies included in the short loan collection under my name at the University Library. Industrial Economics Reading List - Page 3 of 11

4 I. Theory of the Firm and its Objectives 1. The Traditional Theory of the Firm. 2. Perfect Competition. 3. Monopoly. 4. Oligopoly. 5. Alternative Theories of the Firm. COURSE TOPICS AND READING LIST *W. J. Baumol, On the Theory of Oligopoly, Economica, vol. 25, R. Clarke, Industrial Economics, pp H. Dixon, Oligopoly Theory Made Simple, in S. Davies and B. Lyons (eds), Economics of Industrial Organisation. J. Friedman, Oligopoly Theory, Ch. 2. D. A. Hay and D. J. Morris, Industrial Economics; Theory and Evidence, Ch. 8 (pp ). A. Koutsoyiannis, Modern Microeconomics, Parts 2A, 2B, 2E(15&16). J. Lipzczynski & J. Wilson, Industrial Organisation, Ch. 2. L. Pepall et al., Industrial Organization, Ch. 5. G. Romp, Game Theory; Introduction and Applications, OUP 1997, Ch. 4. M. C. Sawyer, The Economics of Industries and Firms, Ch. 11. W.G. Shepherd, The Economics of Industrial Organization, pp M. Waterson, pp , Ch. 3. Industrial Economics Reading List - Page 4 of 11

5 II. Industrial Concentration 1. Measurement of Concentration. 2. The Determinants of Concentration. 3. Empirical Problems in the Measurement of Concentration. 4. Concentration in the U.K. 5. Problems in the Measurement of Concentration in an open economy. R. Clarke, Industrial Economics, Ch. 2. *B. Curry and K. D. George, Industrial Concentration: A Survey, The Journal of Industrial Economics, vol. 31, S. Davies, Concentration, in S. Davies and B. Lyons (eds), Economics of Industrial Organisation. P.R. Ferguson and G.J. Ferguson, Industrial Economics; Issues and Perspectives, Ch. 3. K.D. George and C. Joll, Industrial Organisation, Ch.6. *M. S. Kumar, International Trade and Industrial Concentration, Oxford Economic Papers, vol. 37, J. Lipzczynski & J. Wilson, Industrial Organisation, Ch. 4. S. Martin, Industrial Economics; Economic Analysis and Public Policy, Ch. 9. L. Pepall et al., Industrial Organization, Ch. 2. F. M. Scherer, Stochastic Determinants of Market Structure in Industrial Market Structure and Economic Performance, 1980, Rand McNally. W.G. Shepherd, The Economics of Industrial Organization, Ch. 3 & Ch. 6. R. Stead et al., Industrial Economics, Ch. 3. M. Waterson, Economic Theory of the Industry, Ch. 9. *L. W. Weiss, Factors in Changing Concentration, Review of Economics and Statistics, vol. 45, Industrial Economics Reading List - Page 5 of 11

6 III. Market Structure and Firm Conduct 1. Measures of Monopoly Power. 2. Oligopolistic Pricing. 3. Profitability and Market Structure. 4. The Collusion versus the Differential Efficiency Debate. *K. Cowling and M. Waterson, Price-Cost Margins and Market Structure, Economica, vol. 43, R. Clarke, Industrial Economics, Ch. 5. *R. Clarke and S. W. Davies, Market Structure and Price-Cost Margins, Economica, vol. 49, *R. Clarke, S. W. Davies and M. Waterson, The Profitability-Concentration Relation: Market Power or Efficiency?, The Journal of Industrial Economics, vol. 32, *H. Demsetz, Industry Structure, Market Rivalry and Public Policy, Journal of Law and Economics, vol. 16, H. Demsetz, Two Systems of Belief about Monopoly, in H. Golschmid et al (eds), Industrial Concentration: The New Learning, P. Geroski, Competition Policy and the Structure-Performance Paradigm, in S. Davies and B. Lyons (eds), Economics of Industrial Organisation. J. Lipzczynski & J. Wilson, Industrial Organisation, Chs. 1 & 6. W.G. Shepherd, The Economics of Industrial Organization, Ch. 4. Waldman and Jensen, Industrial Organization, Ch. 16. Industrial Economics Reading List - Page 6 of 11

7 IV. Potential Competition and Barriers to Entry 1. Barriers to Entry. 2. Limit Pricing and Entry. 3. Strategic Barriers to Entry. 4. Contestable Markets. *W. J. Baumol, Contestable Markets: An Uprising in the Theory of Industry Structure, American Economic Review, vol. 72, *W. J. Baumol, J. C. Panzar and R. D. Willig, On the Theory of Perfectly-Contestable Markets, in J. E. Stiglitz and G. F. Mathewson (eds), New Developments in the Analysis of Market Structure. R. Clarke, Industrial Economics, Ch. 4. H. Demsetz, Barriers to Entry, American Economic Review, vol. 72, *A. Dixit, Recent Developments in Oligopoly Theory, American Economic Review, Papers and Proceedings, vol. 72, A. Koutsoyiannis, Modern Microeconomics, Part 2D. J. Lipzczynski & J. Wilson, Industrial Organisation, Ch. 5. B. Lyons, Strategic Behaviour by Firms, in R. Clarke and T. McGuinness (eds), The Economics of the Firm. B. Lyons, Barriers to Entry, in S. Davies and B. Lyons (eds), The Economics of Industrial Organisation. L. Pepall et al., Industrial Organization, Ch G. Romp, Game Theory; Introduction and Applications, OUP 1997, Ch. 5 & Ch. 9. R. Stead et al., Industrial Economics, Ch. 6. M. Waterson, Economic Theory of the Industry, Ch. 4. Industrial Economics Reading List - Page 7 of 11

8 V. Product Differentiation 1. Product Differentiation. 2. Spatial Competition. 3. Theory of Advertising Expenditure. 4. Advertising and Market Structure. R. Clarke, Industrial Economics, pp.91-94, Ch. 6. *M. Cancian, A. Bills and T. Bergstrom, Hotelling Location Problems with Directional Constraints: An Application to Television News Scheduling, The Journal of Industrial Economics, March 1995, vol. 43, no. 1. *W. S. Commanor and T. A. Wilson, Advertising, Market Structure and Performance, The Review of Economics and Statistics, vol. 49, J. Lipzczynski & J. Wilson, Industrial Organisation, Ch. 7. B. Lyons, Barriers to Entry, in S. Davies and B. Lyons (eds), The Economics of Industrial Organisation. M. C. Sawyer, The Economics of Industries and Firms, Ch. 7. *C. J. Sutton, Advertising, Concentration and Competition, Economic Journal, vol. 84, *L. Telser, Advertising and Competition, Journal of Political Economy, vol. LXXII, *J. Tirole, The Theory of Industrial Organization, Ch. 7, (pp ), M. Waterson, Economic Theory of the Industry, Ch. 6, (pp ), Ch. 7. Industrial Economics Reading List - Page 8 of 11

9 VI. The Economics of Innovation 1. Innovation and Market Structure. 2. Technical Change and Uncertainty. 3. Diffusion of Technology. 4. Economics of Patents. *K.J. Arrow, Economic Welfare and the Allocation of Resources for Invention, in R. Nelson (ed.), The Rate and Direction of Inventive Activity, 1962, NBER. R. Clarke, Industrial Economics, Ch.7. S. Davies, Technical Change, Productivity and Market Structure, in S. Davies and B. Lyons (eds), The Economics of Industrial Organisation. *H. Demsetz, Information and Efficiency: Another Viewpoint, Journal of Law and Economics, vol. 12, P.R. Ferguson and G.J. Ferguson, Industrial Economics; Issues and Perspectives, Ch. 6. D.M. Gamberton (ed.), Economics of Information and Knowledge, 1971, (contains reprints of Arrow and Demsetz articles). M. I. Kamien and N. L. Schwartz, Market Structure and Innovation, 1982, CUP. J. Lipzczynski & J. Wilson, Industrial Organisation, Ch. 8. L. Pepall et al., Industrial Organization, Ch. 11, pp N. Rosenberg (ed.), The Economics of Technical Change, 1971, (contains reprints of the Arrow and Demsetz articles). *F. M. Scherer, Nordhaus' Theory of Optimal Patent Life: A Geometric Reinterpretation, American Economic Review, vol. 62, M Waterson, Economic Theory of the Industry, Ch. 8. Industrial Economics Reading List - Page 9 of 11

10 VII. Welfare and Market Structure 1. Perfect Competition and Pareto Optimality. 2. Theoretical/Empirical Estimates of Welfare Loss. 3. Welfare Losses under Monopoly. 4. Welfare Losses under Oligopoly. 5. The General Equilibrium Approach to Welfare Loss. 6. Allocative vs Technical Efficiency. 7. The Welfare Implications of Vertical Integration. R. Clarke, Industrial Economics, Ch.10. *K. Cowling and D. C. Mueller, The Social Costs of Monopoly Power, The Economic Journal, vol. 88, K. Cowling and D. C. Mueller, The Social Costs of Monopoly Power Revisited, The Economic Journal, vol. 91, S. Davies, Vertical Integration, in Clarke and McGuiness (eds), The Economics of the Firm. P.R. Ferguson and G.J. Ferguson, Industrial Economics; Issues and Perspectives, Ch. 5. *A. C. Harberger, Monopoly and Resource Allocation, American Economic Review, vol. 44, *J. A. Kay, A General Equilibrium Approach to the Measurement of Monopoly Welfare Loss, International Journal of Industrial Organization, vol. 1, H. Liebenstein, Allocative Efficiency versus X-Efficiency, American Economic Review, vol. 56, J. Lipzczynski & J. Wilson, Industrial Organisation, pp *S. C. Littlechild, Misleading Calculations of the Social Costs of Monopoly Power, The Economic Journal, vol. 91, M. C. Sawyer, The Economics of Industries and Firms, Ch. 14. M Waterson, Economic Theory of the Industry, Ch. 5. Industrial Economics Reading List - Page 10 of 11

11 VIII. Public Ownership and Privatisation 1. Public ownership in the U.K.. 2. Privatisation vs. Public Ownership. 3. Private monopoly - regulation, liberalisation, franchising. *M. Beesley and S. Littlechild, Privatisation; Principles, Problems and Priorities, Lloyds Bank Review, July L. Cabral, Introduction to Industrial Organization, Chapter 5. P.R. Ferguson and G.J. Ferguson, Industrial Economics; Issues and Perspectives, Ch. 9. C. Fershtman, The Interdependence between Ownership Status and Market Structure: The Case of Privatisation, Economica, vol. 57, A. Griffiths and S. Wall, Intermediate Microeconomics; Theory and Applications, (2nd Ed.), 2000, Ch. 13. *J.A. Kay and Z.A. Silberston, The New Industrial Policy - Privatisation and Competition, Midland Bank Review, Spring J. Lipzczynski & J. Wilson, Industrial Organisation, Ch. 12. D.M. Newbery, Privatisation, Restructuring, and Regulation of Network Utilities, 2002, MIT Press. Pipes & Wires, Report by the NAO, HC 723 session : 10 April 2002, *Ray Rees, Privatisation: A View of the Debate, Mimeo, University College, Cardiff. Fiscal Studies, Feb. 1984, Symposium on Privatisation and After. *J. Vickers and G. Yarrow, Privatisation and the Natural Monopolies, Public Policy Centre, 1985, Ch. 1, 2. Vickers and G. Yarrow, Privatisation: An Economic Analysis, W.K. Viscusi, J.M. Vernon and J.E. Harrington JR., Economics of Regulation and Antitrust, 3 rd edition, 2000, MIT Press. Industrial Economics Reading List - Page 11 of 11