Seminar in Industrial Organization (Econ 307)

Breakfast Cereal Aisle Target Stores 5/2014 pics by Mike Mozart

Instructor: Professor Katherine Schmeiser

Have you walked into the cereal aisle of a grocery store and wondered why there were so many (similar!) options? Looking closer, you'll notice there are probably only 3 brands represented along a long row of shelving. You might be curious how this shelf space is allocated, how decisions on production or advertising are made, and wonder how proliferation of cereal choices even among a single firm might affect each sales of each cereal type. The theories we learn in industrial organization help us to understand these types choices made by firms.

The purpose of this course is to understand how manufacturing firms operate in different types of market structures. Industrial organization (IO) is particularly concerned with how firms compete with each other within existing legal frameworks. We make use of game theoretic micro economic models (a background in game theory is not needed, however a solid understanding of intermediate micro theory is necessary).

There are two attributes of IO that differentiate it from other fields in economics: 1) it is one of the few fields in economics that has a direct impact on policy and laws, and 2) because IO consists of firm and industry studies, no two firms or industries can be modeled the same and so IO is made up of case studies. Throughout the course, you will be required to read (and argue) many case studies, as well as follow a semester long case study on the brewing industry. Additionally, the semester culminates in students' own industry case studies.

We study the historic context of laws used by the Department of Justice and Federal Trade Commission, gaining understanding of how economic theory and empirical IO studies affect the legal system use and determination of anti-trust laws. Students will be able to analyze decisions such as how much firms should produce and at what price, what locations firms should place their firms, how firms use price to deter entrants, how much advertising should be used, when a firm should participate in research and development, etc. We also will look at issues such as airline mergers, big box stores, predatory pricing, and bid rigging.

Anyone who is interested in a legal or consulting career will find this course beneficial both to the interview process (particularly for consulting firms) as well as for practical work experience. Additionally, anyone considering graduate studies in economics would benefit from the course as we will be studying upper-level micro models.