Empirical Industrial Organization Spring Semester 2013 Time, Days, Location TBA

Transcription

1 Empirical Industrial Organization Spring Semester 2013 Time, Days, Location TBA Contact information Instructor: Prof. Andrea Szabo Office: 209 B McElhinney Hall aszabo2@uh.edu Office hours: TBA Course Description This course provides a graduate-level introduction to empirical industrial organization, both in terms of techniques and applications. We will discuss leading papers in the field of empirical IO covering the estimation of four broad classes of models and their applications: 1. Models of product differentiation 2. Static games of imperfect competition, Entry and market structure 3. Single agent dynamic models, Dynamic games of imperfect competition 4. Auctions Prerequisites Students are expected to have taken PhD level Microeconomic Theory and Econometrics classes. Students also need to have basic knowledge of dynamic optimization. Programming in STATA and MATLAB will be required to complete homework assignments. Textbook and software There is no specific textbook for this class. We will be using a combination of lecture notes and journal articles. The required articles are listed below in each section. The additional reading list provides background reading on the topics and serves as a reference to your lecture notes. You will be required to use STATA and MATLAB software packages. Public versions of these are available in the department s graduate computer lab. Both are also available for purchase at a discounted price at the Cougarbyte website for registered students. Students should familiarize themselves with the software packages in order to program the homework exercises. Although we will briefly discuss how to implement specific estimation methods in MATLAB, the class does not provide an introduction to basic computer programming.

2 Course Requirements The class schedule below contains the main papers we are going to discuss during each class. Students are expected to complete the assigned readings before attending class. For each topic, I will provide an overview of the literature, and we will discuss the assigned paper in detail. Depending on the class, we may spend more time on the overview and less on the details. Students are required to fully understand the assigned papers regardless of how much time we spend on them in class. All of these papers will be part of the final exam. The course has some difficult econometrics, and it is expected that students have a basic comfort level with estimation. It is also expected that students will do requisite background readings in econometric theory where necessary. This class will be rather demanding. There will be 3 homework assignments and a final exam. See below. Assignments and Grading The final grade is based on three homework exercises and a final exam. There will be 3 intensive exercises where students will implement the estimators discussed in class. Because of the complexity of the assignments and because each student may need different amounts of time to complete the exercises, I do not enforce the due dates of individual assignments. I suggest starting each assignment as soon as it is posted and submitting it at the suggested deadlines in the class schedule below. The final due dates for all homework assignments is May 10. The final exam will be posted in Blackboard after the last day of classes. You can access it any time until May 10. You will have 24 hours to complete the exam and upload your answers in Blackboard. Each assignment is worth a quarter of your final grade. To receive any grade other than F or Incomplete, a student is required to submit all four assignments by May 10. There is no exception. Class Website All assignments and handouts will be posted on the class website in Blackboard. Please do not me homework files, upload everything on Blackboard. 2

3 Tentative Course Schedule: Class # Date/Day Topic Problem Sets Welcome to IO 1 Jan 14 Keane, Michael P. (2010): Structural vs. atheoretic approaches to econometrics, Journal of Econometrics, 156(1), Rust, J. (2010): Comments on: Structural vs. atheoretic approaches to econometrics by Michael Keane, Journal of Econometrics, 156(1), Reiss, P. C. and Wolak, F. A. (2003): Structural Econometric Modeling: Rationales and Examples from Industrial Organization in Handbook of Econometrics, North Holland, I. Models of product differentiation 3 Jan 21 Berry, S. (1994): Estimating Discrete-Choice Models of Product Differentiation, Rand Journal of Economics, 25(2), Berry, S., J. Levinsohn, and A. Pakes (1995): Automobile Prices in Market Equilibrium, Econometrica, 63(4), Jan 28 Nevo, A. (2001): Measuring Market Power in the Ready-to-Eat Cereal Industry, Econometrica, 69, Petrin A. (2002): Quantifying the Benefits of New Products: The Case of the Minivan, Journal of Political Economy, 110, Feb 4 Berry S., J. Levinsohn, and A. Pakes (2004): Differentiated Products Demand Systems from a Combination of Micro and Macro Data: The New Cars Market, Journal of Political Economy, 112(1), Goeree M. (2009): Limited Information and Advertising in the U.S. Personal Computer Industry, Econometrica, 76(5), II. Entry and market structure 9 Feb 11 Bresnahan, T., and P. Reiss (1991): Entry and Competition in Concentrated Markets, Journal of Political Economy, 99, Berry, S. (1992): Estimation of a Model of Entry in PS 1 Due the Airline Industry, Econometrica, 60, Feb 18 Jia, P. (2008): What Happens When Wal-Mart Comes to Town: An Empirical Analysis of the Discount Retailing Industry, Econometrica, 76(6),

4 12 Seim, K. (2006): An Empirical Model of Firm Entry with Endogenous Product-Type Choices, The RAND Journal of Economics, 37(3), Feb 25 Ciliberto, F., and E. Tamer (2009): Market Structure and Multiple Equilibria in Airline Markets, Econometrica, 77(6), Sweeting, A. (2009): The Strategic Timing of Radio Commercials: An Empirical Analysis Using Multiple Equilibria, RAND Journal of Economics, 40(4), III. Dynamic models 15 March 4 Rust, J. (1987): Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher, Econometrica 55(5), Hotz, V. J. and R. A. Miller (1993): Conditional Choice Probabilities and the Estimation of Dynamic Models, Review of Economic Studies 60(3), March 11 Spring Break 18 Spring Break 19 March 18 Aguirregabiria, V. and P. Mira (2007): Sequential Estimation of Dynamic Discrete Games, Econometrica, 75(1), Bajari, P., L. Benkard and J. Levin (2007): Estimating Dynamic Models of Imperfect Competition, Econometrica 75(5), March 25 Benkard, L. (2004): Dynamic Analysis of the Market for Wide-Bodied Commercial Aircraft, Review of Economic Studies, 71, S. P. Ryan (2012): The Costs of Environmental Regulation in a Concentrated Industry, Econometrica, 80(3), IV. Auctions 23 Apr 1 Athey, S. and P. Haile (2006): Empirical Models of Auctions in Richard Blundell, Whitney Newey, and Torsten Persson, eds., Advances in Economics and Econometrics, Theory and Applications: Ninth World Congress, Volume II, Cambridge University Press, Ch. 1, Porter, R. (1995): The Role of Information in U.S. Offshore Oil and Gas Lease Auctions, Econometrica, 63, Apr 8 Athey, S. and J. Levin (2001): Information and Competition in U.S. Forest Service Timber Auctions, Journal of Political Economy, 109 (2), Bajari, P. and A. Hortacsu (2005): Are Structural Estimates of Auction Models Reasonable? Evidence PS 2 Due 4

5 from Experimental Data, Journal of Political Economy, 113(4), Apr 15 T Bajari, P. and A. Hortacsu (2004): Economic Insights from Internet Auctions, Journal of Economic Literature, 152, Hortacsu A. and D. McAdams (2010): Mechanism Choice and Strategic Bidding in Divisible Good Auctions: An Empirical Analysis of the Turkish Treasury Auction Market, Journal of Political Economy, 188(5), Closing 29 Apr 22 Einav, L. and J. Levin (2010): Industrial Organization: A Progress Report. Journal of Economic Perspectives, 24(2), Discussion of final exercise PS 3 Due Additional reading list: Topic 0 Blundell, R. (2010): Comments on: Michael P. Keane Structural vs. atheoretic approaches to econometrics, Journal of Econometrics, 156(1), Heckman, J. and S. Urzua (2010): Comparing IV with structural models: What simple IV can and cannot identify. Journal of Econometrics, 156(1), Angrist, J. D. and J.-S. Pischke (2010): The Credibility Revolution in Empirical Economics: How Better Research Design Is Taking the Con out of Econometrics, Journal of Economic Perspectives, 24(2), Leamer, E. E. (2010): Tantalus on the Road to Asymptopia, Journal of Economic Perspectives, 24(2), Keane M. P. (2010): A Structural Perspective on the Experimentalist School. Journal of Economic Perspectives, 24(2), Sims, C. A. (2010): But Economics Is Not an Experimental Science, Journal of Economic Perspectives, 24(2), Nevo, A. and M. D. Whinston (2010): Taking the Dogma out of Econometrics: Structural Modeling and Credible Inference, Journal of Economic Perspectives, 24(2), Stock, J. H. (2010): The Other Transformation in Econometric Practice: Robust Tools for Inference, Journal of Economic Perspectives, 24(2), Models of product differentiation Ackerberg, D. and M. Rysman (2005): Unobservable Product Differentiation in Discrete Choice Models: Estimating Price Elasticities and Welfare Effects, RAND Journal of Economics, 36(4),

6 Ackerberg, D., L. Benkard, S. Berry and A. Pakes (2007): Econometric Tools for Analyzing Market Outcomes, in The Handbook of Econometrics, J. J. Heckman (ed.), Vol. 6, Part A, Bajari, P. and L. Benkard (2005): Demand Estimation With Heterogeneous Consumers and Unobserved Product Characteristics: A Hedonic Approach, Journal of Political Economy, 113(6), Bajari, P. and M. Kahn (2005): Estimating Housing Demand with an Application to Explaining Racial Segregation in Cities, Journal of Business and Economic Statistics, 23(1), Bajari, P., J. Fox, K. Kim, and S. Ryan: The Random Coefficient Logit Model is Identified, Journal of Econometrics, forthcoming. Bayer P., F. Ferreira and R. McMillan (2007): A Unified Framework for Measuring Preferences for Schools and Neighborhoods, Journal of Political Economy, 115(4), Berry, S. and A. Pakes, (2007): The Pure Characteristics Demand Model, International Economic Review, 48(4), Bresnahan, T.F. Empirical Studies with Market Power, in The Handbook of Econometrics, J. J. Heckman (ed.), vol. 2, Chap. 17, Brett, C., J. Pinkse and M. Slade (2001): Spatial Price Competition: a Semiparametric Approach, Econometrica, 70(3), Davis, P. (2006): Spatial Competition in Retail Markets: Movie Theatres, RAND Journal of Economics, 37(4), Gandhi, A., K. Kim and A. Petrin (2011): Identication in Discrete Choice Demand Models when Endogenous Variables Interact with the Error, NBER Working Paper No Goolsbee, A. and A. Petrin (2004): Consumer Gains from Direct Broadcast Satellites and the Competition with Cable TV, Econometrica, 72(2), Hausman, J. (1996): Valuation of New Goods Under Perfect and Imperfect Competition, in Bresnahan and Gordon (eds), The Economics of New Goods, Studies in Income and Wealth, NBER, Vol. 58, Hausman, J., G. Leonard and J. D. Zona (1987): Competitive Analysis with Differentiated Products, Annales deconomie et de Statistique, 34, Hendel, I. (1999): Estimating Multiple Discrete Choice Models: An Application to Computerization Returns, Review of Economic Studies, 66, Leslie, P. (2004): Price Discrimination in a Broadway Theatre, RAND Journal of Economics, 35(3), McCulloch, R. and P. Rossi (2000): Bayesian Analysis of the Multinomial Probit Model (with R.McCulloch), Simulation Methods in Econometrics, Cambridge University Press. McManus, B. (2007): Nonlinear Pricing in an Oligopoly Market: the Case of Specialty Coffee, RAND Journal of Economics, 38(2), Nevo, A. (1998): A Practitioner's Guide to Estimation of Random-Coefficients Logit Models of Demand, Journal of Economics and Management Strategy, 9(4), Nevo, A. (2000): Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal Industry, RAND Journal of Economics, 31(3), Petrin, A. and A. Goolsbee (2004), The Consumer Gains from Direct Broadcast Satellites and the Competition with Cable TV, Econometrica, 72(2), Petrin, A. and K. Kim (2012): Control Function Corrections for Omitted Attributes in Differentiated Product Models, Minnesota Working Paper. 6

7 Rysman, M. (2004): Competition between Networks: A Study of the Market for Yellow Pages, Review of Economic Studies, 71, Train, K. (2003): Discrete Choice Methods with Simulation, Cambridge University Press, Chapters 2-6, 8, 10, 13. Trajtenberg, M. (1989): The Welfare Analysis of Product Innovation, with an Application to CT Scanners, Journal of Political Economy, 97, Static games of imperfect competition, Entry and market structure Ackerberg, D. and G. Gowrisankaran (2006): Quantifying Equilibrium Network Externalities in the ACH Banking Industry, RAND Journal of Economics, 37, Anderson, S., A. de Palma, and Y. Nesterov (1995): Oligopolistic Competition and the Optimal Provision of Products, Econometrica, 63, Aradillas-Lopez, A. and E. Tamer (2008): The Identification Power of Equiliibrium in Games, Journal of Business and Economic Statistics, 26 (3), Bajari, P., H. Hong, J. Krainer and D. Nekipelov (2010): Estimating Static Models of Strategic Interactions, Journal of Business and Economic Statistics, 28, Bajari, P., H. Hong and S. Ryan (2010): Identification and Estimation of Discrete Games of Complete Information, Econometrica, 78(5), Berry, S. and E. Tamer (2007): Identification in Models of Oligopoly Entry, in Advances in Economics and Econometrics: Theory and Applications, Ninth World Congress, vol. 2, R. Blundell, W.K. Newey and T. Persson, eds., Cambridge Univ. Press. Berry, S. and P. Reiss (2006): Empirical Models of Entry and Market Structure Chapter for Volume III of the Handbook of Industrial Organization. Berry, S. and J. Waldfogel (1999): Free Entry and Social Inefficiency in Radio Broadcasting, Rand Journal of Economics 30(3), Bresnahan, T. (1992): Sutton's Sunk Costs and Market Structure: Price Competition, Advertising, and the Evolution of Concentration: Review Article, Rand Journal of Economics 23, Bresnahan, T. and P. Reiss (1990): Entry in Monopoly Markets, Review of Economic Studies, 57, Bresnahan, T. and P. Reiss (1991): Empirical Models of Discrete Games, Journal of Econometrics, 48, Brock, W. and S. Durlauf (2001): Discrete Choice with Social Interactions, The Review of Economic Studies, 68, Einav, L. (2010): Not All Rivals Look Alike: Estimating an Equilibrium Model of The Release Date Timing Game, Economic Inquiry, 48(2), Ellickson, P. (2007): Does Sutton Apply to Supermarkets? Rand Journal of Economics, 38(1), Ellickson, P., S. Houghton and C. Timmins (2010): Estimating Network Economies in Retail Chains: A Revealed Preference Approach, NBER Working Paper Han, L. and S. H. Hong (2011): Testing Cost Inefficiency under Free Entry in the Real Estate Brokerage Industry, Journal of Business and Economic Statistics, 29(4), Mazzeo, M. (2002): Product Choice and Oligopoly Market Structure, RAND Journal of Economics, 33,

8 Pakes, A., J. Porter, K. Ho and J. Ishi (2011): Moment Inequalities and Their Application, Harvard Working Paper. Tamer, E. (2003): Incomplete Simultaneous Discrete Response Model with Multiple Equilibria, Review of Economic Studies, 70(1), Toivanen, O. and M. Waterson (2005): Market Structure and Entry: Where's the Beef? Rand Journal of Economics 36(3), Single agent dynamic models, Dynamic games of imperfect competition Ackerberg, D. (2003): Advertising, Learning, and Consumer Choice in Experience Good Markets: A Structural Empirical Examination, International Economic Review 44, Ackerberg, D., L. Benkard, S. Berry, and A. Pakes (2007): Econometric Tools for Analyzing Market Outcomes, in Handbook of Econometrics, (ed.) J. Heckman and E. Leamer, Volume 6A, North Holland. Aguirregabiria, V. (1999): The Dynamics of Markups and Inventories in Retailing Firms, Review of Economic Studies, 66, Aguirregabiria, V. and P. Mira (2002): Swapping the Nested Fixed Point Algorithm: A Class of Estimators for Discrete Markov Decision Models, Econometrica, 70, Aguirregabiria, V. and P. Mira (2010): Dynamic Discrete Choice Structural Models: A Survey, Journal of Econometrics, 156, Benkard, L. (2000): Learning and Forgetting: The Dynamics of Aircraft Production, American Economic Review, 90, Berry, S., M. Ovstrovsky and A. Pakes (2007): Simple Estimators for the Parameters of Dynamic Discrete Games, RAND Journal of Economics, 38(2), Caruana, G., and L. Einav (2008): Production Targets, Rand Journal of Economics, 39(4), Doraszelski, Ulrich and P. Ariel (2007): A Framework for Applied Dynamic Analysis in IO, in Armstrong, M. and R. Porter (eds.), Handbook of Industrial Organization, Volume 3, Chapter 30, , North-Holland, Amsterdam. Viard, B. (2007): Do Switching Costs Make Markets More or Less Competitive?: The Case of 800-Number Portability, The RAND Journal of Economics, 38(1), Ericson, R. and A. Pakes (1995): Markov-Perfect Industry Dynamics: A Framework for Empirical Work, Review of Economic Studies, 62, Fershtman, C. and A. Pakes (2000): A Dynamic Oligopoly with Collusion and Price Wars, RAND Journal of Economics, 31(2), Gavazza, A. (2011): Leasing and Secondary Markets: Theory and Evidence from Commercial Aircraft, Journal of Political Economy, 119(2), Goettler, R and B. Gordon (2011): Does AMD spur Intel to innovate more?, Journal of Political Economy, 119(6), Gowrisankaran, G., and R. J. Town (1997): Dynamic Equilibrium in the Hospital Industry, Journal of Economics and Management Strategy 6, 1997, Hendel, I. and A. Nevo (2006): Measuring the Implications of Sales and Consumer Stockpiling Behavior, Econometrica, 74(6), Hollifield, B., R. Miller and P. Sandas (2004): An Empirical Analysis of Limit Order Markets, Review of Economics Studies, 71,

9 Holmes, T. (2011): The Diffusion of Wal-Mart and Economies of Density, Econometrica, 79(1), Hotz, J., R. Miller, S. Sanders and J. Smith (1994): A Simulation Estimator for Dynamic Models of Discrete Choice, Review of Economic Studies, 61, Jofre-Bonet, M. and M. Pesendorfer (2003): Estimation of a Dynamic Auction Game, Econometrica, 71(5), Keane, M. and K. Wolpin (1997): The Career Decisions of Young Men, Journal of Political Economy, 105(3), Olley, G. and A. Pakes (1996): The Dynamics of Productivity in the Telecommunications Equipment Industry, Econometrica, 64, Pakes, A. and P. McGuire (1994): Computing Markov-Perfect Nash Equilibrium: Empirical Implicaitons of a Dynamic Model, RAND Journal of Economics, Pakes, A. and P. McGuire (1995): Empirical Implications of Alternative Models of Firm Dynamics, Journal of Economic Theory, 62, Pakes, A., M. Ostrovsky and S. Berry (2007): Simple Estimators for the Parameters of Dynamic Discrete Games (with Entry/Exit Examples), Rand Journal of Economics, 38(2), Rust, J. (1994): Structural Estimation of Markov Decision Processes, in: Handbook of Econometrics, Vol. 4 Ch. 51, Ryan, S. and C. Tucker (2006): Diversification and the Dynamics of Technology Adoption, Quantitative Marketing and Economics, forthcoming. Schmidt-Dengler, P. (2006): The Timing of New Technology Adoption: The Case of MRI, Manuscript, LSE. Auctions Asker, J. (2010): A Study of the Internal Organization of a Bidding Cartel, American Economic Review, 100(3), Asker, J. and E. Cantillon (2008): Properties of Scoring Auctions, RAND Journal of Economics, 39(1), Asker, J. and E. Cantillon (2010): Procurement when Both Price and Quality Matter, RAND Journal of Economics, 41(1), Athey, S. and D. Nekipelov (2010): A Structural Model of Sponsored Search Advertising Auctions, mimeo, University of California Berkeley. Athey, S. and P. Haile (2007): Nonparametric Approaches to Auctions, in Handbook of Econometrics, Vol. 6, Part A, Athey, S., J. Levin and E. Seira (2011): Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions, Quarterly Journal of Economics, 126, Bajari, P. (2001): Comparing Competition and Collusion: A Numerical Approach, Economic Theory, 18(1), Bajari, P. and G. Lewis (2011): Procurement with Time Incentives: Theory and Evidence, Quarterly Journal of Economics, 126(3), Bajari, P. and S. Houghton and Tadelis (2011): Bidding for Incomplete Contracts: An Empirical Analysis, NBER Working Paper Bajari, P. and Tadelis (2001): Incentives Versus Transaction Costs: A Theory of Procurement Contracts, Rand Journal of Economics, 32(3),

10 Bajari, P. and Ye (2003): Deciding Between Competition and Collusion, Review of Economics and Statistics, Baldwin, L., R. C. Marshall and J-F. Richard (1997): Bidder Collusion at Forest Service Timber Auctions, Journal of Political Economy, 105(4), Bandiera, O., A. Prat and T. Valletti (2010): Active and Passive Waste in Government Spending: Evidence from a Policy Experiment, American Economic Review, 99(4), Brendstrup, B. and H. J Paarsch (2007): Semiparametric Identification and Estimation of Multi- Object, English Auctions, Journal of Econometrics, 141(1), Brendstrup, B. and H. J. Paarsch (2006): Identification and Estimation in Sequential, Asymmetric, English Auctions, Journal of Econometrics, 134(1), Cantillon, E. and M. Pesendorfeer (2006): Combination Bidding in Multi-Unit Auctions, mimeo, LSE. Crawford, V. and N. Iriberri (2007): Level-k Auctions: Can Boundedly Rational Strategic Thinking Explain the Winner s Curse and Overbidding in Private-Value Auctions?, Econometrica, 75(6), Donald, S. G., H. J. Paarsch and J. Robert (2006): An Empirical Model of the Multi-Unit, Sequential, Clock Auction, Journal of Applied Econometrics, 21, Einav, L., T. Kuchler, J. Levin, and N. Sundaresan (2011): Learning from Seller Experiments in Online Markets, NBER Working Paper No Guerre, E. and I. Perrigne and Q. Vuong (2000): Optimal Nonparametric Estimation of First- Price Auctions, Econometrica, 68(3), Guerre, E., I. Perrigne and Q. Vuong (2009): Nonparametric Identification of Risk Aversion in First-Price Auctions Under Exclusion Restrictions, Econometrica, 77(4), Haile, P. and E. Tamer (2003): Inference with an Incomplete Model of English Auctions, Journal of Political Economy, 111(1), Hendricks, K., J. Pinkse and R. Porter (2003): Empirical Implications of Equilibrium Bidding in First Price Common Value Auctions, Review of Economic Studies, 70(1), Hong, H. and M. Shum (2002): Increasing Competition and the Winner's Curse: Evidence from Procurement, Review of Economic Studies, 69(4), Kastl, J. (2011): Discrete Bids and Empirical Inference in Divisible Good Auctions, Review of Economic Studies, 78(3), Krasnokutskaya, E. (2009): Identification and Estimation in Procurement Auctions under Unobserved Auction Heterogeneity, Review of Economic Studies, 78 (1), Krasnokutskaya, E. and K. Seim (2011): Bid Preference Programs and Participation in Procurement, American Economic Review, 101(6), Li, T., I. Perrigne and Q. Vuong (2000): Conditionally Independent Private Information in OCS Wildcat Auctions, Journal of Econometrics, 98 (1), Lucking-Reiley, D. (1999): Using Field Experiments to Test Equivalence Between Auction Formats: Magic on the Internet, American Economic Review, 89(5), Olken, B. A. (2009): Corruption Perceptions vs. Corruption Reality, Journal of Public Economics, 93(7-8), Paarsch, H. J. (1992): Deciding Between the Common and Private Values Paradigms in Empirical Models of Auctions, Journal of Econometrics, 51(1-2), Pesendorfer, M. (2000): A Study of Collusion in First-Price Auctions, Review of Economic Studies, 67(3),

11 Pesendorfer, M. and M. Jofre-Bonet (2003): Estimation of a Dynamic Auction Game, Econometrica, 71(5), Porter, R. and J. D. Zona (1993): Detection of Bid Rigging in Procurement Auctions, Journal of Political Economy, 101(3), Porter, R. and J. D. Zona (1999): Ohio School Milk Markets: An Analysis of Bidding, RAND Journal of Economics, 30(2),