Department of Economics

ECON 5301 F
Industrial Organization I
Fall 2014

Instructor: Zhiqi Chen
Office: D895 Loeb Building
Phone: 520-2600 extension 7456
Email: zhiqi.chen@carleton.ca
Office Hours: Wednesdays 3:00pm 5:00pm


Course Description

An examination of theories pertaining to industrial organization and their application by way of empirical
studies. Topics include oligopoly theory, product differentiation, and strategic behaviour.

Text

There is no required text for this course.

Useful References

Belleflamme, Paul and Martin Peitz, Industrial Organization: Markets and Strategies, Cambridge
University Press 2010

Church, J effrey and Roger Ware, Industrial Organization: A Strategic Approach, Boston: Irwin McGraw-
Hill 1999 (available online at http://homepages.ucalgary.ca/~jrchurch/page4/page4.html)

Martin, Stephen, Advanced Industrial Economics, 2
nd
edition, Oxford: Blackwell Publishing, 2001

Tirole, J ean, Theory of Industrial Organization, Cambridge: MIT Press, 1988

Topics

I. Introduction

Church and Ware Ch.1; Martin Ch.1

R. Schmalensee Industrial economics: An overview, The Economic Journal, 98 (September
1988), 643-81

II. Oligopoly Theory

Church and Ware Ch. 8 and 10; Martin Ch. 2 and 3; Belleflamme and Peitz Ch. 3 and 4
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III. Dominant Firm and Market Power

Church and Ware, Chapter 4

Berck, P. and J . Perloff (1988) The dynamic annihilation of a rational competitive fringe by a
low-cost dominant firm, Journal of Economic Dynamics and Control, 12: 659 678

Chen, Z. (2003) Dominant retailers and countervailing power hypothesis, RAND Journal of
Economics, 34: 612 - 625

IV. Horizontal Product Differentiation

Church and Ware Ch. 11; Martin 4.1 4.2; Tirole 7.1; Belleflamme and Peitz Ch. 5

Hotelling, H.H. Stability in competition, Economic Journal, 39 (1929), 41-57; reprinted in G.
Stigler and K. Boulding (eds.) Readings in Price Theory, 1952

DAspremont, C., J .J . Gabszewicz, and J .-F. Thisse, On Hotellings stability in competition,
Econometrica, 47 (1979): 1045 - 1050

V. Monopolistic Competition

Church and Ware 11.2; Tirole 7.2
Spence, M. Product selection, fixed costs and monopolistic competition, Review of Economic
Studies, 43 (1976), 217-35

Dixit A. and J . Stiglitz Monopolistic competition and optimum product diversity, American
Economic Review, 67 (1977), 297-308

Salop, S. (1979), Monopolistic competition in with outside goods, Bell Journal of Economics,
10: 141 - 156

VI. Vertical Product Differentiation

Church and Ware 11.6; Martin 4.3; Belleflamme and Peitz 5.3

Gabszewicz, J .J . and J .F. Thisse (1979) Price competition, quality and income disparities,
Journal of Economic Theory, 20: 340 359

Shaked, A. and J . Sutton (1982) Relaxing price competition through product differentiation,
Review of Economic Studies, 49: 3 13

Shaked, A. and J . Sutton (1983) Natural Oligopolies, Econometrica, 51: 1469 1484

VII. Entry Deterrence

Church and Ware Ch.14; Martin Ch. 8; Belleflamme and Peitz Ch. 16

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Spence, A.M., Entry, capacity investment, oligopolistic pricing, Bell Journal of Economics 8
(1977) 534-44

Dixit, A., The role of investment in entry-deterrence, Economic Journal, 90 (March 1980), 95-
106

Klemperer, P.D., Entry deterrence in markets with consumer switching costs, Economic
Journal, 97 (1987), 99 117

Rasmusen, E.B., J .M. Ramseyer and J .S. Wiley, J r. (1991) Naked Exclusion, American
Economic Review, 81: 1137 1145

Segal, I.R. and M.D. Whinston (2000) Naked Exclusion: Comment, American Economic
Review, 90: 296 - 309

Chen, Z. and T. Ross, Strategic alliances, shared facilities, and entry deterrence, RAND Journal
of Economics, 31 (Summer 2000), 326 - 344

VIII. Strategic Behaviour

Church and Ware Ch. 15 and 16; Martin Ch. 8

Fudenberg, D. and J . Tirole The fact-cat effect, the puppy-dog ploy, and the lean and hungry
look, American Economic Review Papers and Proceedings, 74 (May 1984), 361 - 66

Bulow, J .I, J .D. Geanakoplos, P.D. Klemperer Multimarket oligopoly: Strategic substitutes and
complements, Journal of Political Economy, 93 (J une 1985), 488 511

Aghion, P. and P. Bolton (1987) Contracts as Barriers to Entry, American Economic Review,
77: 388 - 401

IX. Empirical Studies of Market Performance

Church and Ware Ch. 12; Martin Ch. 5, 6, 7

Nickell, S.J ., Competition and corporate performance, Journal of Political Economy, 104
(1996), 724 746


Evaluation

Midterm Examination: 40% (To be held in class on October 22)
Final Examination: 40% (To be scheduled by Scheduling and Examination Services)
Term Paper: 20% (Due on December 3)

About the Term Paper: Each student will write a literature review on a topic related to industrial
organization.

Standing in a course is determined by the course instructor, subject to the approval of the Faculty Dean.
This means that grades submitted by the instructor may be subject to revision. No grades are final until
they have been approved by the Dean.
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Plagiarism

Please be aware that plagiarism is serious offence at Carleton and should be recognized and avoided. The
University Senate defines plagiarism as presenting, whether intentionally or not, the ideas, expression of
ideas or work of others as ones own. For further information, see Pammett on Plagiarism and
Paraphrasing at www.carleton.ca/economics/courses/writing-preliminaries.

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