Economics 8440/Spring 2002 (Comp. #5147)
Bruce A. Seaman, Ph.D.
Industrial Organization and Antitrust Economics
ADMINISTRATIVE INFO: Office: Room 636 CBA; Phone: 404-651-2775; Fax: 404-651-4985;
E-mail: ecobas@langate.gsu.edu, or ecobas@cs.com. Office hours: By appointment,
or normally MW 4:00-5:30 (call first).
TIME AND LOCATION: 7:45 - 8:30 P.M., MW. Arts and Music #311.
CATALOG DESCRIPTION: This course applies microeconomic analysis to the study of firm strategies and industry behavior, with special emphasis on those horizontal and vertical interactions that have been subject to antitrust scrutiny. Specific examples include price fixing, mergers, tying contracts, exclusive dealer and territorial arrangements, price discrimination, boycotts and reciprocity, and various predation strategies. Doctrinal disputes are explored and specific cases studied in light of the academic literature in industrial organization.
PREREQUISITES: Formally, EC 3910 (intermediate microeconomics) or MBA 8403. Ideally, students have also taken at least Ec 8100, the first microtheory course in the graduate micro sequence, and also have taken EC 6030, Math for Economists I, or its equivalent, but those latter courses are not formally identified as prerequisites.
COURSE REQUIREMENTS:
TEXTS:
Carelton, Dennis W. and Jeffrey M. Perloff, Modern Industrial Organization, Third edition, Addison-Wesley Longman, 2000.
John E. Kwoka,
Jr. and Lawrence J. White, eds., The Antitrust Revolution: Economics, Competition
and Policy, 3rd edition, Oxford Press, 1999.
Additional readings will be assigned from other texts , journals, and personal
reports. Note that hardcopies will only be distributed if the articles are NOT
available electronically at www. jstor.org, or at another source.
COMPANION TEXTS: The following texts can serve as a useful source of additional
non-journal treatment of important topics. Some chapters from these texts may
be required as part of the supplemental reading, and this list serves as the
full citation for any such readings.
(these texts are NOT required).
Industrial Organization: A Strategic Approach, Jeffrey Church and Roger Ware,
Irwin-McGraw Hill, 2000.
Industrial Organization: Contemporary Theory and Practice, Pepall, Richards and Norman, Southwestern, 1999.
Industrial Organization: Theory and Practice, Donald Waldman and Elizabeth Jensen,
Addison-Wesley, 1998.
The Organization of Industry, William Shughart II, Irwin, 1990.
Government and
Business: The Economics of Antitrust and Regulation. David Kaserman and John
W. Mayo, Dryden, 1995.
Handbook of Industrial Organization, Vols. I and II, edited by Richard Schmalensee
and Robert D. Willig, North-Holland, 1989.
Antitrust Economics, Roger Blair and David Kaserman, Richard Irwin, 1985.
Industrial Market Structure and Economic Performance, Fourth Edition, F.M. Scherer and David Ross, Houghton Mifflin, 1996.
Monopsony: Antitrust Law and Economics, Roger D. Blair and Jeffrey L. Harrison, Princeton University Press, 1993.
Economics of Strategy, Besanko, Dranove and Shanley, John Wiley and Sons, 1996.
Economics of Regulation and Antitrust, Viscusi et al. Second Edition, MIT Press, 1995.
USEFUL JOURNALS: The following journals are especially important. Most of the supplemental readings are assigned from these sources, and this list highlights some of the most useful and readable journals related to the material in this course. These journals can be found in the economics department, Pullen Library and/or the Law Library.
American Economic
Review
The Antitrust Bulletin (Law Library)
The Journal of Law and Economics (Law Library)
Review of Industrial Organization
The Journal of Business
Journal of Law, Economics and Organization (Law Library)
Antitrust Law Journal (Law Library)
Supreme Court Economic Review (Law Library)
EXAMS AND GRADING SYSTEM:
A midterm exam plus a final exam, both take-home, each constitute 40% of the
final grade. The remaining 20% of the grade is dependent on factors such as
class discussion and other in-class assignments Also, sample exams are available
on my webpage (best accessed via the Andrew Young School homepage and the "people"
link). Finally, announcements and possible supplemental lecture material and
other attachments will be posted on the Econ 8440 WebCt pages. Please check
WebCt regularly.
ATTENDANCE POLICY:
Since the class is presented in lecture/seminar format, regular attendance and
participation are important. University and federal government regulations also
require that instructors ensure that enrolled students are actually taking the
course to guarantee eligibility for any applicable financial aid. Therefore,
it is best to notify the instructor if you must miss more than one class at
a time (due to illness or scheduling conflicts) to avoid triggering the automatic
withdrawal procedures.
COURSE OBJECTIVES: This course provides a comprehensive, technical and non-technical policy oriented analysis of the microeconomics of industrial organization, including the firm and industry strategies that have come under the scrutiny of antitrust laws. Most of these topics are missed in standard microtheory courses. Students are expected to gain sophistication in the application of microtheory to IO and antitrust issues, a knowledge of the remaining controversies and doctrinal disputes, and an appreciation for the legal issues involved.
COURSE SCHEDULE AND ASSIGNMENTS: (Note: Text chapters refer to Carelton and Perloff (Cases refer to Kwoka/White). March 11 is the last day to withdraw and receive a "W."
Date Topics and Required Reading
1/7: Introduction, Divergent Approaches to IO and Antitrust;
Background to the Antitrust Laws and Institutional InformationCh. 1, "Overview"
Ch. 19, "Antitrust Laws and Policy;" pp. 601-610
Ch. 19, pp. 610-647 (read briefly as an overview of many of the issues to be discussed in this course - can be read again during the semester as a review)1/9: Welfare Economics; The Debate About Monopoly and its Effects
Ch. 3, "Competition" (this should be a review of basic concepts)
Ch. 4, "Monopolies, Monopsonies and Dominant Firms"1/14: More about the Effects of Monopoly; X-Inefficiency and Rent Seeking
Excerpts from Richard Posner, Antitrust Economics, Ch. 2, AThe Costs of Monopoly,@ Univ. of Chicago Press, 1976.
George Stigler, AThe Xistence of X-Efficiency,@ AER
66 (March,1976)
Harvey Leibenstein, AX-Inefficiency Xists - Reply to an Xorcist,@ AER 68 (March 1978).
Roger Frantz, AX-Efficiency and Allocative Efficiency: What Have We Learned?@ 82(May, 1992).
Mica Gisser, "Dynamic Gains and Static Losses in Oligopoly: Evidence from the Beer Industry," Economic Inquiry, July 1999, pp. 554-575.1/16: Conclude Welfare Debate; Begin Market Definition Analysis
Excerpts from William Schugart, III ,The Organization of Industry, Irwin, 1990, Chapter on A Market Definition@
The Joint FTC/Justice Dept. Merger Guidelines (updated)1/21: No class: Martin Luther King, Jr. Holiday
1/23: Market Definition contd.; Distribution of Homework Problem on Market Definition
Survey of Market Definition Approaches from Kaserman and Mayo,Government and Business: The Economics of Regulation and Antitrust, Dryden, 1995
Excerpts from AThe Renaissance of Market Definition,@ Simons and Williams, Antitrust Bulletin, Winter 1993
Ch. 19, Re-read pp. 610-6151/28: More on Market Definition; Discussion of Homework Problem)
1/30 Clarification of the Relationship between Market Power and Market Definition
"Market Power in Antitrust Cases," Landes and Posner, Harvard Law Review, (excerpts), March 1981 (this is a classic article that serves as a foundation for much of the debate on this topic)
"Critical Loss Analysis in Evaluating Mergers," James Langenfeld and Wenqing Li, The Antitrust Bulletin, Summer 2001
Ch. 8, "Industry Structure and Performance"2/4: Initial Cases: Mergers Round 1
Ch. 2, "The Firm and Its Costs"
Case 6: Staples and Office Depot
Case 12: Visa and Discover Cards2/6 Further Discussion of Entry Barriers; Lags vs. Barriers, Potential Competition; Cost Defenses in Merger Policy
AThe Economics of Entry Lags,@ Hilke and Nelson, Antitrust Law Journal, Vol. 61, #3, 1993
Case 5: Local Telephone Competition and Entry
AEase of Entry: AHas the Concept Been Applied Too Readily?@ Richard Schmalensee, and AComments on Presentation of Richard Schmalensee, Thomas J. Campbell, from a conference in 1996
"Scale Economies and Synergies in Horizontal Merger Analysis," Joseph Farrell and Carl Shapiro, Antitrust Law Journal, Vol. 68, Issue 3, 2001, pp. 685-7102/11: The Contestability Debate: AUltra-Free Entry@ and its Critics
(the "classic" literature in the debate)AContestability vs. Competition,@ Shepherd, AER, Sept. 1984
Articles from AER debate on contestability from issue of June 1983, AContestable Markets: An Uprising in the Theory of Industry Structure,@ William J. Baumol, AER, March 1982; pp. 486-496.2/13: Conclude Contestability; Limits of Potential Competition
Conclude above reading
AUncertain Contestability,@ Robert Cairns, Journal of Economic Behavior and Organization, July 19962/18: Monopoly Behavior: Dominant Firm Strategies/Intro to Predation
Ch. 11, "Strategic Behavior" (Skip Appendix until later)
2/20: Initial Predation Cases; Distribute Exam I (due beginning of class Monday, 2/25)
Case 9: Matsushita v. Zenith
Case 10: The Tobacco Case - Liggett2/25: Exam I due; Conclude Discussion of Predatory Strategies
AThe Supreme Court=s Predation Odyssey: From Fruit Flies to Cigarettes,@ Boudreaux, Elzinga, and Mills, Supreme Court Economic Review, Vol. 4, 1995
AMatsushita: Myth v. Analysis in the Economics of Predation,@ Franklin Fisher, in Collected Papers of Franklin Fisher, edited by John Monz, MIT Press, 19912/27: Return and Discuss Exam I
3/4: No Class: Spring Break3/6: No Class: Spring Break
3/11: Collusion and Cartels: Background to Oligopoly Models (Last day to withdraw with a "W")
Ch. 5, "Cartels: Oligopoly Joint Decision-Making
3/13: More on Collusion Models; "Testing for Collusion"
Ch. 6, "Noncooperative Oligopoly"
"Testing for Collusion During Periods of Input Supply Disruptions; The Case of Allocations," Beard and Kaserman, The Antitrust Bulletin, Spring 20003/18: The Policy Debate About Collusion; Discuss MIT and NCAA cases
Richard Posner analysis (from webpage) of ARational Collusion Policy@
Henry Einhorn, AThe Use of Economic Analysis in Establishing Market Collusion,@ Contemporary Studies in Economic and Financial Analysis, Vol. 74, JAI Press, 1993, pp. 227-47.
Case 11: MIT and Financial Aid
Case 8: The NCAA case (see webpage for guide to reading)3/20: Optimal Collusion Policy contd.
Case 7: Ethyl and Facilitating Practices
"Fifteen Years After Ethyl: The Past and Future of Facilitating Practices," Michael G. Vita, Antitrust Law Journal, Vol. 68, Issue 3, 2001, pp. 991-10063/25: Is There a Case Favoring Collusion? The Dewey Debate
Donald Dewey, AInformation, Entry, and Welfare,@ AER, Sept. 1979
AWelfare and Collusion,@ 6 short comments plus Dewey=s reply, pp. 256-281, AER, March 19823/27: Mergers: Round 2; Intro to Vertical Integration and Vertical Restrictions
Ch. 12,"Vertical Integration and Vertical Restrictions"
Case 19: Time-Warner and Turner Broadcasting
Case 15: Monsanto and RPM4/1: More Theoretical Background to Vertical Issues; Tying Contracts
Ch. 10, "Advanced Topics in Pricing"
Ch. 11, Appendix 11A, "The Strategic Use of Tie-In Sales and Product Compatibility....."4/3: Conclude Vertical Principles; Case Discussion
Case 14: Jefferson-Parish Hospital
Ch. 19, review pp. 633-641
"Network Economic Effects and the Limits of GTE Sylvania's Efficiency Analysis," Stephen F. Ross, Antitrust Law Journal, Vol. 68, Issue 3, 2001, pp. 945-9664/8: Essentials of Price Discrimination; Legal Issues
Ch. 9, "Price Discrimination"
"Refusals to Deal, Price Discrimination and Independent Service Organizations" Chen and Ross, Journal of Economics and Management Strategy, Winter 19934/10: Kodak and Post-Chicago Analysis; More on Schools of Thought
Case 16: Kodak
"Theory and Fact in Antitrust Doctrine: Summary Judgment Standards, Single-Brand Aftermarkets and the Clash of Microeconomic Models," Rudolph J.R. Peritz, The Antitrust Bulletin, Winter 20004/15: More on Network Externalities: The Debate and Application to Antitrust; Intro to Microsoft Issues
Appendix 11A; review pp. 373-376
ASystems Competition and Network Effects,@ Michael Katz and Carl Shapiro, Journal of Economic Perspectives, Vol. 8, No. 2, Spring 19944/17: "Essential Facilities:" The Economics and Applications
'The Role of the Essential Facilities Doctrine," Mats A. Bergman, The Antitrust Bulletin, Summer 2001
4/22: The Microsoft Controversy
Case 17: "Networks, Standards and the Use of Market Dominance: Microsoft"
"Did Microsoft Engage in Antiticompetitive Exclusionary Conduct?" Benjamin Klein, The Antitrust Bulletin, Spring 20014/24: Critical "New" Issues in the Microsoft Debate
"How Digital Economics Revises Antitrust Thinking," Richard B. McKenzie and Dwight R. Lee, The Antitrust Bulletin, Summer 2001
"Antitrust in the New Economy," Richard Posner, Antitrust Law Journal, Vol. 68, Issue 3, 2001, pp. 925- 9444/29: Summary and Review; Distribution of Final Exam;
Catch-up on ReadingFinal Exam Due: Monday, May 6, Noon at my office wall box, or mailbox
The Modern Theory of the Firm; The X-Inefficiency Debate; The Welfare Costs of
Monopoly and Measurement Issues; Concepts of Competition.
Ch. 2 (especially to page 25)
Ch. 4 to page 115.
Ch. 5 to page 152.
"The Modern Theory of the Firm," Ch. 3 from The Organization of Industry,
William F. Shugart, II, Irwin, 1990.
1/25: Market Definition and Market Power; Residual Demand Analysis
Ch. 20, pages 801-807.
Case 2, "International Joint Venture: General Motors and Toyota (1983)
AMarket Power in Antitrust Cases,@ William Landes and Richard Posner,
Harvard Law Review, March 1981 (selected sections)
Ch. 5, Appendix 5A.
Ch. 9, Appendices 9B and 9C.1/27: Market Definition and Market Power contd. The Role of Entry
"The Renaissance of Market Definition," Joseph J. Simons and Michael A. Williams,
The Antitrust Bulletin, Winter 1993.
"The Economics of Entry Lags: A Theoretical and Empirical Overview," John C. Hilke and Philip B. Nelson, Antitrust Law Journal, Vol. 61, #3, 1993.
AThe Roles of Areeda, Turner and Economic Theory in Measuring Monopoly Power,@
Roger Blair and Amanda Esquibel, Antitrust Bulletin, Winter 19962/1: The Entry Barrier Debate Extended; Contestability
Review pp. 108-109, Ch. 4.
"Contestable Markets: An Uprising in the Theory of Industry Structure,"
William J. Baumol, AER, March 1982.
"Contestability vs. Competition," William G. Shepherd, AER, Sept. 1984.
"Contestable Markets: An Uprising in the Theory of Industry Structure: Comment
Marius Schwartz and Robert Reynolds, AER, June 1983.
Reply to Critics by Baumol, AER, June 1983.
AUncertain Contestability,@ Robert Cairns, Journal of Economic Behavior and
Organization, July 1996.
AThe Robustness of Contestability Theory,@ Elettra Agliardi, International Journal of Industrial Organization, September 1990, OPTIONAL4/20: Non-Cooperative and Cooperative Strategic Behavior; Horizontal Issues.
Predation, Entry Deterrence and Related Issues.
Ch. 10 (to page 415).
Case 9, "Collusive Predation: Matsushita v. Zenith (1986)
Case 10, "Predation by a Non-dominant Firm: The Liggett Case (1993)4/22: Additional Commentary on Predation;
"The Supreme Court's Predation Odyssey: From Fruit Flies to Cigarettes,"
Donald J Boudreaux, Kenneth G. Elzinga and David E. Mills, Supreme Court
Economic Review, Volume 4, 1995.
AMatsushita: Myth v. Analysis in the Economics of Predation,@ Franklin Fisher,
in Collected Papers of Franklin Fisher, edited by John Monz, MIT Press, 1991.4/27: Collusion Theory and Review of Oligopoly Models.
Ch. 6; Include both Appendices.
Ch. 7; Include all Appendices.
Ch. 10, pp. 415-end of chapter.
4/29 Continuation of Collusion Theory; Antitrust Law Treatment and Selected
Cases; The "Section 1 Dilemma." EXAM I DISTRIBUTED; DUE MONDAY MAY 4 (Beginning of Class)
Case 7, "Practices that Facilitate Cooperation: Ethyl Case."
Case 8, "The Reasonableness of Horizontal Restraints: The NCAA Case."
"Practices That (Credibly) Facilitate Oligopoly Coordination," Steven
Salop, Ch. 9 from New Developments in the Analysis of Market Structure, ed. by
Stiglitz and Mathewson.5/4: EXAM DUE; Lecture and Discussion re: Preemptive Capacity Expansion; Non-price Predation.
Case 6, "Strategic Capacity Preemption: Dupont (1980)
5/6: Conclusion of Collusion Theory; The "Dewey" Debate: When Can Collusion
be Efficient (further discussion of NCAA case).
"Information, Entry, and Welfare: The Case for Collusion, Dewey, AER, September 1979.
"Welfare and Collusion: Comments," 6 short comments plus the reply, pp. 256-281,
AER, March 1982.
"The Inefficiencies of 'Unsuccessful' Price Fixing Agreements," Don Waldman,
Antitrust Bulletin, Spring 1988.
AThe Use of Economic Analysis in Establishing Market Collusion,@ Henry Einhorn,
Contemporary Studies in Economic and Financial Analysis, Vol. 74, JAI Press,
1993, pp. 227-47.
5/11: The Microsoft Debate: Leveraging and Exclusionary Behavior; Intro to Price
Discrimination Applications; The Debate regarding Network Externalities.
Ch. 11
"Microsoft Plays Hardball: The Use of Exclusionary Pricing and Technical
Incompatability to Maintain Monopoly Power in Markets for Operating System
Software," Baseman, Warren-Boulton, and Woroch, The Antitrust Bulletin, Summer 1995.
"Microsoft, Monopolization, and Network Externalities: Some Uses and Abuses of Economic Theory in Antitrust Decision-Making,"John Lopatka, The Antitrust Bulletin, Summer 1995.
(Note: For further background on network externalities, see the three papers in the section "Network Externalities" in Journal of Economic Perspectives, Spring 1994
5/13: Current Applications of Price Discrimination to AntitrustA How U.S. Antitrust Can Be On Target: The Brand Name Prescription Drug
Litigation,@ Roy Weinstein and John Culbertson, International Journal of
the Economics of Business, November 1997.
APrice Discrimination for Pharmaceuticals: Welfare Effects in the US and the EU,@
Patricia Danzon, International Journal of the Economics of Business, November 1997.
ACartels, Spontaneous Price Discrimination and International Pharmacy Retailing,@
W. Duncan Reekie, International Journal of the Economics of Business, 11/97.
5/18: Market Power and Product Durability: Renting vs. Selling. The United Shoe Case.Ch. 16, Appendices optional.
"United States versus United Shoe Machinery Corporation: On the Merits,"
Scott E. Masten and Edward A. Snyder, Journal of Law and Economics, April 1993.
5/20: Non-Linear Pricing; Tie-in Sales; Cases.
Ch. 12 (appendices optional).
Case 13, "Tying and Exclusive Dealing: Jefferson Parish Hospital v. Hyde" (1984)
"The Northern Pacific Case," F. Jay Cummings and Wayne E. Ruhter, Journal of Law and Economics, October 1979.5:25: NO CLASS: Memorial Day Holiday
5/27: Complementarity and Market Definition; The Kodak Case and Its Effect on
Contemporary Antitrust and the Chicago School Debate.
"Market Power in Antitrust: Economic Analysis After Kodak," Benjamin Klein,
Supreme Court Economic Review, Vol. 3, 1993.
"Kodak: Enlightened Antitrust Analysis and Traditional Tying Law," Gordon B. Spivack and Carolyn T. Ellis, Antitrust Law Journal, Vol. 62, 1993.
ARefusals to Deal, Price Discrimination and Independent Service Organizations,@
Chen and Ross, Journal of Economics and Management Strategy, Winter 1993.6/1: Vertical Integration and Vertical Restraints; Cases
Ch. 13, include Appendix A.
Case 11, GTE Sylvania
Case 14, Monsanto v. Spray Rite6/3: Additional Issues re: Vertical Restraints; Additional Commentary on Previous Cases. Distribute FINAL EXAM
"The Ghost of Albrecht: Caribe BMW, Inc. v. Bayerische Motoren Werke
Aktiengesellshaft," Roger Blair, The Antitrust Bulletin, Spring 1995.
"Vertical Restraints in the 1990's: Is There a 'Thermidorian Reaction' to
the Post-Sylvania Orthodoxy?" M. Laurence Popofsky and Mark S. Popofsky,
Antitrust Law Journal, Vol.62, 1994.Final Exam due in my office (636 CBA, or mailbox) by Noon, Monday, June 8.
(Note: Despite
the extensive reading and topic coverage, a few topics have had to be eliminated.
In the event that you are interested and are able to read further, here are
the
basic omissions. Quite a few of these topics are covered in Ec 843, taught summers.
1. Product
differentiation and location theory. This includes modern application of monopolistic
competition theory, incorporating information costs and deals with interesting
modern reevaluations of "basing point pricing" (which is handled briefly
at various points in the course, but too incompletely). See, e.g. Chs. 8 and
14.
2. The advertising debate and entry barriers. Ch. 15.
3. Methodological issues in the conceptualization and calculation of private
firm antitrust damages and antitrust Astanding.@ Not really treated in the text;
partially covered in the casebook. See me for references on this important practical
issue in antitrust enforcement, especially in private litigation.
4. The debate about antitrust reform. This is implicit in much of our discussions
and in Ch. 20. But issues such as the effects of treble damages, optimal punishment
(fines vs. imprisonment), the pros and cons of having two antitrust agencies
(partially competing and partially cooperating), coordination of antitrust laws
internationally, the "public choice model of antitrust," etc. deserve
more thorough treatment.
5. A fuller treatment of information exchange - when is it potentially anticompetitive?
A partial treatment is Ch. 14.