ECONOMICS 600 YALE UNIVERSITY Prof. Phil Haile 37 Hillhouse, Rm 26

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1 ECONOMICS 600 YALE UNIVERSITY Prof. Phil Haile 37 Hillhouse, Rm 26 Overview and Objectives. Michi Igami and I are teaching the fall term of the IO sequence. I will teach through October 14 and will focus on empirical models of demand and supply in differentiated products markets. This is a major area of IO in its own right and a foundation for extensions in many directions in IO and beyond. Relative to later parts of the course we will spend more time on tools, although we will also cover a number of important empirical applications. This fall I am also teaching the final third of Econ 556, where I will focus on empirical studies of markets with asymmetric information, including auctions, contracting, and insurance. Course Requirements. For my part of the course, students are expected to (1) read the papers assigned for each class meeting; (2) prepare a 1-page summary of an assigned paper for each class meeting; (3) participate in the class discussions of papers; (4) turn in a homework assignment (one long problem set). You will be evaluated be based on the quality of the required work for the course. I will drop the lowest grade on the one-page summaries from each student s evaluation. You may work in groups of 2-3 on the homework assignment; however, you must write your own answers and list all group members on the first page. The one-page summaries must be written independently. You should describe the objectives, contributions, and key ideas of the paper. Typically this should be done with words. Occasionally a key equation will be helpful to convey an essential idea, but resist the temptation to substitute notation and equations for insights about what the mathematics represents. Your summary should focus on the most important contributions of the paper but should not be a review or critique in any other sense. Do not write more than one page. 1

2 Preliminary Schedule of Papers (* indicates the papers on which you should prepare the one-page summary) Sept 2: *Bresnahan (1981) Sept 7: *Berry (1994), Berry, Levinsohn, and Pakes (1995) Sept 9: *Berry, Levinsohn, and Pakes (1995), Dube, Fox and Su (2013) Sept 14: *Nevo (2001) Sept 16: 2010 Horizontal Merger Guidelines, *Nevo (2000b) Sept 21: *Fan (2013) Sept 23: *Berry and Haile (2014), Berry and Haile (2010) Sept 28: *Petrin (2001) Sept 30: *Goeree (2008) Oct 5: *Berry, Levinsohn, and Pakes (2004) Oct 7: *Neilson (2013) Oct 12: *Ho and Lee (2015) Oct 14: Hong and Shum (2006), *Hortacsu and Syverson (2004) 2

3 READING LIST Despite being long, this list is not complete nor even my selection of the best papers on each topic. However it should be sufficient to get you going if topics we cover interest you enough for further exploration. Basic IO Theory Tirole, J. (1988). The Theory of Industrial Organization, MIT Press. This text is now outdated and only slightly more advanced than of what I teach Yale undergrads. On the other hand, it covers core models that every IO economist needs to know about. If you want to be an IO economist (or any kind of economist studying firms), you should buy the book and work through it. Handbook Chapters in Empirical IO There are several handbook chapters on modern IO. Together these provide excellent resources on methods, as well as an overview of applications in some areas. Ackerberg, D., L. Benkard, S. Berry, and A. Pakes (2007). Econometric Tools for Analyzing Market Outcomes. Demand estimation, production function estimation, dynamics, and entry. Handbook of Econometrics. Athey, S. and P. Haile (2007), Nonparametric Approaches to Auctions, Auctions, focusing on methods. Handbook of Econometrics. Hendricks, K. and R. Porter (2007), An Empirical Perspective on Auctions. Auctions, focusing on applications. Handbook of IO. Reiss, P. and F. Wolak (2007), Structural Econometric Modeling: Rationales and Examples from I.O. Handbook of Econometrics. Reiss, P. and S. Berry (2007), Entry. Handbook of IO. Supply and Demand in Differentiated Products Markets Anderson, S., A. DePalma, and F. Thisse (1992). Discrete Choice Theory of Product Differentiation, Cambridge: MIT Press. Bartik, M. (1987). The Estimation of Demand Parameters in Hedonic Pricing Models, Journal of Political Economy, 95, Berry, S. A. Gandhi and P. Haile (2013). Connected Substitutes and Invertibility of Demand, Econometrica, 81,

4 Berry, S. and P. Haile (2010). Nonparametric Identification of Multinomial Choice Demand Models with Heterogeneneous Consumers, working paper, Yale. Berry, S. and P. Haile (2014). Identification in Differentiated Products Markets using Market Level Data, Econometrica, 82, Berry, S. and P. Haile (2015). Identification in Differentiated Products Markets, working paper, Yale. Berry, S. (1994). Estimating Discrete Choice Models of Product Differentiation, Rand Journal of Economics, Berry, S., J. Levinsohn, and A. Pakes (1995), Automobile Prices in Market Equilibrium, Econometrica, 63, Berry, S., J. Levinsohn, and A. Pakes (2004). Differentiated Products Demand Systems from a Combination of Micro and Macro Data: The New Car Market, Journal of Political Economy, 112, Berry, S. and A. Pakes (2007), The Pure Characteristics Demand Model, International Economic Review. Bresnahan, T. (1981). Departures from Marginal Cost Pricing in the American Automobile Industry, Journal of Econometrics, 17, Bresnahan, T. (1987), Competition and Collusion in the American Auto Industry: The 1955 Price War, Journal of Industrial Economics, 35, Davis, P. (2000). Empirical Models of Demand for Differentiated Products, European Economic Review, 44, Epple, D. (1987). Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for Differentiated Products, Journal of Political Economy, 95, Goldberg, P. (1995). Product Differentiation and Oligopoly in International Markets, Econometrica, 63, Goolsbee, A. and A. Petrin (2004). The Consumer Gains from Direct Broadcast Satellites and the Competition with Cable TV, Econometrica, 72, Hausman, J., G. Leonard, and D. Zona (1994). Competitive Analysis with Differentiated Products, Annales d Economie et de Statistique, 34, Hendel, I. (1999). Estimating Multiple Discrete-Choice Models: An Application to Computerization Returns, Review of Economic Studies, April 1999,

5 Hendel, I. (1999). Ho, K. and R. Lee (2015). Insurer Competition in Health Care Markets, working paper (Columbia/Harvard). Neilson, C. (2013). Targeted Vouchers, Competition Among Schools, and the Academic Achievement of Poor Students, working paper, Princeton University. Nevo, A. (2001). Measuring Market Power in the Ready-to-Eat Breakfast Cereal Industry, Econometrica,69, Nevo, A. (2000a). A Practitioner s Guide to Random Coefficients Logit Models of Demand, Journal of Economics and Management Strategy, 9, Petrin, A. (2001). Quantifying the Benefits of New Products: The Case of the Minivan, Journal of Political Economy. Rosen, (1974). Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition, Journal of Political Economy, 82, Shaked, A. and J. Sutton (1982). Relaxing Price Competition through Product Differentiation, Review of Economic Studies, 49, Train, K. (2003). Discrete Choice Methods with Simulation,, Cambridge U. Press, also available on Train s web page. Merger Analysis Berry, S. and J. Waldfogel (2001). Do Mergers Increase Product Variety? Evidence from Radio Broadcasting, Quarterly Journal of Economics, Capps, C., D. Dranove and M. Satterthwaite (2003). Competition and Market Power in Option Demand Markets, Rand Journal of Economics, 34(4), pp Fan, Y. (2010). Ownership Consolidation and Product Quality: A Study of the U.S. Daily Newspaper Market, working paper. Gowrisankaran, G. (1999). A Dynamic Model of Endogenous Horizontal Mergers, Rand Journal of Economics 30, Gowrisankaran, G., A. Nevo and R. Town (2013), Mergers When Prices Are Negotiated: Evidence from the Hospital Industry, working paper, University of Arizona. Nevo, A. (2000b). Mergers with Differentiated Products: The Case of the Ready-to-Eat Breakfast Cereal Industry, Rand Journal of Economics, 31, U.S. DOJ and FTC (2010), 2010 Horizontal Merger Guidelines, available at 5

6 Advertising Ackerberg, D. (2001). Empirically Distinguishing Informative and Prestige Effects of Advertising, RAND Journal of Economics, Vol. 32, No. 2, Summer pp Bagwell, K. (2007), The Economic Analysis of Advertising, Handbook of IO. Becker, G. and K. Murphy (1993). A Simple Theory of Advertising as a Good or Bad, Quarterly Journal of Economics, Goeree, M. (2008) Limited Information and Advertising in the U.S. Personal Computer Industry, Econometrica. Milgrom, P. and J. Roberts (1986). Price and Advertising as Signals of Quality, Journal of Political Economy, 94, Milyo, J. and J. Waldfogel (1999). The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart, American Economic Review, 89, Search and Switching Armstrong, M and J. Vickers (2009). Prominence and Consumer Search, RAND Journal of Economics, 40, Dubé, J.P., G. Hitsch and P. Rossi (2010). State Dependence and Alternative Explanations for Consumer Inertia. RAND Journal of Economics, 41(3), pp Farrell, J. and P. Klemperer (2007). Coordination and Lock-In: Competition with Switching Costs and Network Effects, in Handbook of Industrial Organization, M. Armstrong and R. Porter, eds. Amsterdam: North Holland. Hartmann, W. and V.B. Viard (2008). Do frequency reward programs create switching costs? A dynamic structural analysis of demand in a reward program, Quantitative Marketing and Economics, 6, Hong, H. and M. Shum (2006). Using Price Distributions to Estimate Search Costs, Rand Journal of Economics, Vol. 37, no. 2. Hortacsu, A. and C. Syverson (2004). Product Differentiation, Search Costs, and Competition in the Mutual Fund Industry: A Case Study of S&P 500 Index Funds Quarterly Journal of Economics, May. 6

7 Klemperer, P. (1987), Markets with Consumer Switching Costs, Quarterly Journal of Economics, 102 (2), Klemperer, P. (1995), Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade, Review of Economic Studies, 62 (4), Moraga-Gonzalez, J.L. and M. R. Wildenbeest (2008). Maximum Likelihood Estimation of Search Costs, European Economic Review, 52, Sorensen, A. (2000) Equilibirum Price Dispersion in Retail Markets for Prescription Drugs, Journal of Political Economy, 108, Stahl D. (1989) Oligopolistic Pricing with Sequential Consumer Search, American Economic Review, 79, Varian, H. (1980) A Theory of Sales, American Economic Review, 70,