Industrial Organization I

1. Industrial Organization I Introduction

2. Welcome to ResEc 732 • Introduction • What is this course about? • How will this course work? • Course Overview

3. Industrial Organization I • Branch of Economics (Microeconomics) • “Study of markets” (i.e. supply and demand) • In Europe: Industrial Economics • Also: Market Economics/Organization • Some markets belong to other fields: • Labor, international, finance (applied micro)

4. Industrial Organization I • Focus on supply: • Strategic interaction among firms (price, advertising, product introduction) • Imperfections: monopoly, oligopoly, etc. • Factors that contribute to imperfection: transaction costs, product differentiation. • Regulatory intervention • But, certain analysis require sophisticated demand models

5. Industrial Organization I • Theoretical IO: • Supply parameters (e.g. costs) and demand parameters (e.g. elasticity) exogenous • Focus on market equilibrium. e.g.: • Equilibrium P and Q, advertising levels, entry • Assumptions to simplify reality (often extreme). E.g.: • Utility of consuming 1 unit is $x (for the whole population) • Objectives: Mathematical simplification to obtain broad qualitative predictions, e.g.: • A price increase reduces quantity demanded • Entry decreases prices

6. Industrial Organization I • Empirical IO: • Consumers’ and firms’ actions are observed: quantity, price, advertising are DATA • A theoretical model of demand (and/or supply) is assumed • Model parameters are estimated (econometrics) • Objective: Estimates of a particular strategy/action or status quo. e.g.: • Price elasticity (% Δ P → % Δ Q?) • Market power (P-MC) • Welfare effects of product introductions

7. Industrial Organization I • Focus of the Course: • Study economic principles of market imperfections • Price discrimination, oligopoly models, collusion, entry, vertical issues, product differentiation, market power, advertising • Understand implications of such imperfections: • Welfare, competition, public policy, etc.

8. Industrial Organization I • Focus of theCourse: • Theory: • Main theoretical models and predictions are formally presented • Theory problem sets • Empirics: • Empirical papers and applications are presented and discussed in class • Hands-on problem sets with real data • News articles briefly discussed

9. Class Format Syllabus: • Contact • No single textbook required. • Instead I will draw material from several sources (you don’t need to buy any specific book, unless you want to) • PPT slides + relevant chapters from books + journal articles are all you need.

10. Class Format Syllabus: • Website: • http://courses.umass.edu/resec732/index.shtml

11. Class Format

12. Class Format Syllabus: • Grades: • Problem sets & assignments: ~ 7-8 (30%) • Midterm project (25%) • Class participation (journal article + participation) (20%) • Final project (25%) • Coming up with a research proposal (details to follow)

13. Class Format • Journal Article presentation + class participation (20%): • Present article relevant to the class (I will assign these) • 30-40 minutes, PPT • Main ideas of the paper: motivation, methodology, contribution, results, limitations, further research • I will let you know which paper you are presenting and when.

14. Class Format • Journal Article presentation + class participation (20%): • (roughly) every other Thursday, starting on Feb. 7 • Bring a 2-3 minute (verbal) summary of an article related to IO. We will share, discuss and, overall, keep ourselves up-to-date.

15. Class Format • Other details: • Syllabus (especially references) may change as we move through topics. • I will announce changes on course webpage.