Economics 267
The Organization of
Industry
Summer 2003
Tu-Th
9:00-12:30 Castleman 201
R.
N. Langlois
About the course.
In
introductory economics you learned that the supply side of the economy
production is carried out in units called firms. But what are firms? How
are they organized? Why and when is
economic activity carried out within business firms rather than through market
transactions or other forms of organization?
Why do firms behave the way they do for example, why do they
advertise, and how do they innovate?
This course will address these kinds of questions by opening up the
black box of the firm to see whats inside.
This course is
a companion to Economics 232 ("Government and Industry"), which deals
explicitly with public policy, especially antitrust policy and government
regulation of business. The two courses overlap a bit, but their emphases are
different
Course requirements.
Your grade in the course
will be based on two in-class exams.
The first will take place on July 22, the second on August 7, the last
day of class. The exams will count
equally. I will discuss the structure and
coverage of the exams during the course of the semester.
Read my
lips: no makeups.
Readings.
I have asked
the Coop to order Lynne Pepall, Daniel Richards, and George Norman, Industrial
Organization: Contemporary Theory and Practice. (South-Western, second edition, 2002). The book provides a deeper background of
theory than the lectures will cover, and it also offers a glimpse of how the
field or industrial organization is viewed by the mainstream of professional
economists. In fact, however, I will
not follow the book closely, and my emphasis will also be rather
different. Moreover, there are links on
the online and CD versions of the syllabus to many other useful readings. The more reading you do, the better you
will do in the course. But the readings are an adjunct to, not a substitute
for, the class lectures. You will not do very well in this course if you don't
come to class regularly.
Many articles
available on the web are in Adobe Acrobat (PDF) format. To read them, you will
need the Adobe Acrobat reader. This should already be installed on University
microlab computers. But if you don't have it, you can download it for free.
Sequence of topics.
Competition
and monopoly: a review.
- Pepall,
et al., Chapter 1.
- Review
the theory of perfect competition and monopoly in your 112 or 218
textbook, or read
pp. 14-47 of Don E. Waldman and Elizabeth J. Jensen, Industrial
Organization: Theory and Practice. Addison-Wesley, second edition,
2000. Another online reference is
David Friedman, Price
Theory: An Intermediate Text. South-Western, 1990, chapter 10.
- Paul
J. McNulty, "Economic
Theory and the Meaning of Competition," Quarterly Journal of
Economics, vol. 82, 1968.
Oligopoly:
a beautiful minefield.
- Pepall, et al., Chapters 5, 6, and 7.
- David Friedman, Price
Theory: An Intermediate Text. South-Western, 1990, chapter 11.
- Joseph A. Schumpeter, Capitalism,
Socialism, and Democracy. New York: Harper and Brothers, third
edition, 1950, chapters VII and VIII.
Barriers to entry.
- George Stigler, The
Organization of Industry. Homewood,
Ill.: R. D. Irwin, 1968, chapter 6.
- Harold Demsetz, "Barriers to
Entry," American
Economic Review 72(1): 47-57 (1982).
- Sidney G. Winter, Four Rs of
Profitability: Rents, Resources, Routines and Replication, in Cynthia A. Montgomery, ed.,
Resource-Based and Evolutionary Theories of the Firm: Towards a
Synthesis. Boston: Kluwer Academic
Publishers, 1995, pp. 159-167.
Advertising.
- Pepall,
et al., Chapter 10.
- Robert
B. Ekelund, Jr. and David S. Saurman, Advertising and the Market
Process A Modern Economic View. San Francisco: Pacific Research
Institute, chapters 1-6.
Innovation and intellectual property rights.
- Pepall,
et al., Chapter 11.
- F.
M. Scherer and David Ross, The
Logic of Patent Protection, excerpt from chapter 17 of Industrial
Market Structure and Economic Performance. Houghton-Mifflin, third
edition, 1990, pp. 621-630.
- Roberto
Mazzoleni and Richard R. Nelson, Economic Theories
about the Benefits and Costs of Patents, Journal of Economic
Issues 32(4): 1031-52 (December 1998).
- Heller,
Michael A., and Rebecca S. Eisenberg.
Can
Patents Deter Innovation? The Anticommons in Biomedical Research, Science 280: 698-701 (1 May 1998).
The theory
of networks.
- Pepall,
et al., Section 12.1.
- Paul
A. David, "Clio and the
Economics of QWERTY," American Economic Review 75(2):
332-337 (1985).
- S. J. Liebowitz and
Stephen E. Margolis, "The Fable of the
Keys," Journal of Law and Economics 33(1): 1-25
(April 1990).
- S. J. Liebowitz and
Stephen E. Margolis, "Path-dependence,
Lock-in, and History," Journal of Law, Economics, and
Organization 11: 205-226 (1995).
- Carl
Shapiro and Hal R. Varian, "The Art of
Standards Wars," California Management Review 41(2):
8-32 (Winter 1999).
Introduction to the economics of
organization.
Structure
of production.
- Adam Smith,
excerpts from The
Wealth of Nations (1776).
- George
Stigler, "The Division
of Labor Is Limited by the Extent of the Market," Journal of
Political Economy 59(3): 185-193 (1951).
- Axel
Leijonhufvud, "Capitalism
and the Factory System," in R. N. Langlois, ed., Economic as a
Process: Essays in the New Institutional Economics. New York:
Cambridge University Press, 1986, chapter 8.
The
market and the firm.
- Ronald
Coase, The
Nature of the Firm, Economica (N.S.) 4:
386-405 (November 1937).
- Oliver
E. Williamson, The
Economics of Organization: The Transaction Cost Approach, American
Journal of Sociology 87(3): 548-577 (November 1981).
- Oliver
E. Williamson, Credible
Commitments: Using Hostages to Support Exchange, The American
Economic Review 73(4): 519-540 (September 1983).
- Symposium
on the General Motors-Fisher Body case, Journal of Law and
Economics, Vol. 43, No. 1, April 2000, especially the papers by Klein
and Freeland.
Monitoring, agency costs, and ownership structure.
- Armen
Alchian and Harold Demsetz, Production, Information Costs, and Economic
Organization, American
Economic Review 62(5), December 1972).
- Eugene
F. Fama and Michael Jensen, The
Separation of Ownership and Control, Journal of Law and Economics 26(2):
301-27 (June 1983).
- Eugene
F. Fama and Michael Jensen, Agency
Problems and Residual Claims, Journal of Law and Economics 26(2):
327-50 (June 1983).
- Henry
Hansmann, The
Ownership of Enterprise, Journal of Law, Economics, and Organization
4(2): 267-304 (Fall 1988).
Capabilities
and knowledge.
- F.
A. Hayek, The
Use of Knowledge in Society, American Economic Review 35(4):
519-530 (1945) (JStor
version.)
- G.
B. Richardson, "The
Organisation of Industry," Economic Journal 82(327):
883-896 (1972).
The old economy and the new economy.
- Alfred
D. Chandler, Organizational
Capabilities and the Economic History of the Industrial Enterprise, Journal
of Economic Perspectives 6(3): 79-100 (1992).
- Richard
N. Langlois, The
Vanishing Hand: the Changing Dynamics of Industrial Capitalism, Industrial
and Corporate Change 12(2): 351-385 (April
2003).
