Economics 330                                                                                                                                                                                       Dr. John B. Egger
Industrial Organization and Price Analysis                                                                        101-D Stephens (410-830-2951);
Fall 2000                                                                                                                                                                           Office Hours: 2-3 MW, 11-12 F

PURPOSE: Industrial organization, like portions of microeconomic ("price") theory, is a study of the causes and effects of businesses' decisions about production and marketing, broadly conceived to include such issues as mergers, pricing strategies, technological innovation, and interfirm contracts. The subject is still shaped by its traditional structural concern about the relationship between the number and size distribution of an industry's firms and their actions. In the past several decades, though, the focus of Industrial Organization has shifted to the logic and empirical evidence of firms'competitive strategies, concluding--to the surprise of traditionally trained economists--that there is little or no link between structure and competitiveness. In this course we will examine this transformation with the goal of better understanding the nature and consequences of the market system. Judging market outcomes, which requires their comparison to a knowable and realistic standard, is more problematic. Such judgments undergird our antitrust laws; although we'll look occasionally at them and their effect on competition, antitrust and regulation play little role in this course. (For that, see Government and Economic Life, Economics 331.) This course is mainly a study of business choices in a free market.

PREREQUISITES: Only Economics 201 and 202, Microeconomic Principles and Macroeconomic Principles, are required for this course. When our textbook uses tools from Intermediate Price Theory (Economics 309), it will be my job to make them clear at the Principles level...and yours to make sure I do!

TEXT: Shughart, William F., II, The Organization of Industry, 2nd ed. (Houston TX: Dame Publications, 1997). 

READINGS: The Shughart textbook is substantial. With some regret I have omitted additional outside readings like McGee's classic "Predatory Pricing," Coase's "Nature of the Firm," Sweezy's "kinked demand curve," and Armentano on the Addyston Pipe case. The only additional readings are two review chapters from my Principles textbook, Elements of Economics; copies will be placed on reserve in Cook Library.

We are also omitting some very interesting chapters of Shughart's book, especially those dealing directly with antitrust. Shughart's deft analysis of the "competition or competitors?" issue is in Chapter 9. Please feel free to dig into these delightful chapters that we, again regretfully, omit.

Wall Street Journal: Though not required, every student of economics, business, and political science should develop the habit of reading this newspaper. Cheap student rates are available, and your subscription includes both the print and interactive editions. (Follow the path from, and when it's requested enter the 12-digit number from your bill or address label as your "user name.")

HOMEWORK: Short assignments, designed to keep me apprised of your progress and to keep you progressing, are due at the start of class on non-exam Wednesdays. Each will be graded 2, 1, or 0. Only your best seven will count, so none will be accepted late. Working together is just fine -- in fact, it's encouraged.

ATTENDANCE: I will take roll. Three unexcused absences are OK. Each over three will reduce my "class participation, attendance" grade by ½ percentage point; its minimum is zero. 

EXAMS AND GRADING: There will be two in-class exams, on:

Wednesday, 11Oct00: Shughart Chapters 1-5, Egger Chapters 6-7
Wednesday, 15Nov00: Shughart Chapters 6-7, 10-11

Your semester grade will be computed as follows: Two exams 25% each, Final exam 33%, Homework 10%, Class participation and attendance 5%. 

MAKE-UP EXAMS require a good excuse. They will be given on the last day of classes, in another room. 

CHEATING will be dealt with as harshly as the University permits, including an automatic F in this course.



-/06 sep Syllabus and course mechanics; Industrial Organization...What is it good for?
11/13sep Microeconomic foundations: a review of perfect competition and monopoly [Homework answers here] 1
Assigned reading: Shughart Chapter 1 (pp. 1-18)
Egger, Elements of Economics, Chapter 6 (pp. 133-157)
Shughart Chapter 2 (pp. 25-41 only)
18/20sep Review of microeconomic foundations, continued... [Homework answers here] 2
Assigned reading: Shughart Chapter 2, pp. 41-62
Egger, Elements of Economics, Chapter 7 (pp. 163-183)
25/27sep Why do firms exist?  [Homework answers here] 3
Assigned reading: Shughart Chapter 3 (pp. 71-103)
02/04oct Industry structure and the structure/profit studies [Homework answers here]  4
Assigned reading: Shughart Chapter 4 (pp. 111-138)
Shughart Chapter 5 (pp. 145-169)
09/11oct Monday: catchup and review... ---
Wednesday, EXAM #1: Chapters 1-5 (Part One)
16/18oct Determinants of market structure: cost and (other?) barriers to entry [Homework 5 answers here.] 5
Assigned reading: Shughart Chapter 6 (pp. 179-217)
23/25oct The thorny problem of defining the market  [Homework 6 answers here.] 6
Assigned reading: Shughart Chapter 7 (pp. 227-257)
30/01nov Oligopoly and collusive behavior  [Homework 7 answers here.] 7
Assigned reading: Shughart Ch. 10 (pp. 365-389)
06/08nov Coördinating oligopolistic activity  [Homework 8 answers here.] 8
Assigned reading: Shughart Ch. 11 (pp. 399-433)
13/15nov Monday: catchup and review... For a Study Guide, click here. ---
Wednesday, EXAM #2: Chapters 6-7, 10-11
20/22nov Price discrimination 9
Assigned reading: Shughart Ch. 12 (pp. 445-482)
27/29nov Vertical integration 10
Assigned reading: Shughart Ch. 13 (pp. 493-521)
04/06dec The economics of vertical restraints without merger ---
Assigned reading: Shughart Ch. 14 (pp. 531-557)
11/13dec Advertising and product differentiation ---
Assigned reading: Shughart Ch. 16 (pp. 613-645)
14 dec FINAL EXAMINATION, 12:30 - 2:30 PM


These are a few articles and books I have found interesting and relevant to Industrial Organization. It is far from comprehensive (see Shughart's end-of-chapter bibliographies of you doubt that!), but if any student wishes to read further it offers a good start. The Brozen and the Goldschmid et al volumes are classics, still relevant and important; the Milgrom and Roberts book is highly readable and the most important recent work in the field, especially to students of business.

Addleson, Mark, "Competition," in Boettke ed., pp. 96-102.

Armentano, Dominick T., Antitrust and Monopoly (New York: Holmes and Meier, 1990)

Boettke, Peter J., ed., The Elgar Companion to Austrian Economics (Hants, England: Edward Elgar Publishing Ltd., 1994)

Brozen, Yale, ed., The Competitive Economy (Morristown NJ: General Learning Press, 1975)

Coase, R. H., "The Nature of the Firm," Economica NS IV (1937): 386-405. Reprinted in Stigler and Boulding eds., pp. 331-351.

Demsetz, Harold, "Two Systems of Belief About Monopoly," in Goldschmid et al, pp. 164-184.

DiLorenzo, Thomas J., "Industrial Organization and the Austrian School," in Boettke ed., pp. 382-8.

Egger, John B., "The Free Market and the Standards by which it is Judged," in Boettke and Rizzo, eds., Advances in Austrian Economics (Greenwich CT: JAI Press, 1995): 179-196.

Ekelund, Robert B. and Robert F. Hebert, "Competition Reconsidered: Chamberlin and Robinson," Chapter 18 of their A History of Economic Theory and Method (New York: McGraw-Hill, 1990): 484-510.

Goldschmid, Harvey J., H. Michael Mann, and J. Fred Weston, Industrial Concentration: The New Learning (Boston: Little, Brown and Company, 1974) 

Hayek, F. A., "Competition as a Discovery Procedure," in Hayek (1978), pp. 179-190.

Hayek, Friedrich A., Individualism and Economic Order (Chicago: University of Chicago Press, 1948)

Hayek, F. A., New Studies in Philosophy, Politics, Economics and the History of Ideas (Chicago: University of Chicago Press, 1978)

Hayek, F. A., "The Meaning of Competition," in Hayek (1948), pp. 92-106.

Hayek, F. A., "The Use of Knowledge in Society," in Hayek (1948), pp. 77-91.

Hebert, Robert, "Advertising," in Boettke ed., 389-393.

Kirzner, Israel M., "Entrepreneurship," in Boettke ed., pp. 103-110.

Machlup, Fritz, "Monopoly and Competition: A Classification of Market Positions," American Economic Review 1937. Reprinted in David R. Kamerschen, ed., Readings in Microeconomics (Cleveland: World Publishing Company, 1967): 299-306. 

Machovec, Frank M., Perfect Competition and the Transformation of Economics (Brookfield VT: Edward Elgar, 1996)

McGee, John S., "Predatory Price Cutting: The Standard Oil (N.J.) Case," Journal of Law and Economics 1 (October 1958). Reprinted in Yale Brozen, The Competitive Economy, pp. 380-404.

Milgrom, Paul and John Roberts, Economics, Organization & Management (Englewood Cliffs NJ: Prentice-Hall, 1992)

O'Driscoll, Gerald P., Jr. and Mario J. Rizzo, "The Political Economy of Competition and Monopoly," Chapter 7 (pp. 130-159) of their The Economics of Time and Ignorance (Oxford: Basil Blackwell, 1985).

Reekie, W. Duncan, "Non-price rivalry," in Boettke ed., 156-161.

Stigler, George J. and Kenneth E. Boulding, eds., Readings in Price Theory (Chicago: Richard D. Irwin, 1952).

Sweezy, Paul M., "Demand Under Conditions of Oligopoly," The Journal of Political Economy XLVII (1939): 568-573, reprinted in Stigler and Boulding, eds., pp. 404-409.

Tirole, Jean, The Theory of Industrial Organization (Cambridge MA: MIT Press, 1988)

Waldman, Don E. and Elizabeth J. Jensen, Industrial Organization (Reading MA: Addison-Wesley, 1998)
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