Economics 232
Industry and Government

Fall 2001
MWF 10:00-10:50, FS 103
R. N. Langlois

Office hours MWF 11-12 or by appointment

About the course.

This course is about government regulation of business firms. Unlike its companion course, Economics 267 (Industrial Organization), this course focuses on understanding public policy rather than exploring theoretical questions in depth. We will still discuss — and use — economic theory, of course, since theory is essential to understanding the policy issues.

Note: Class will not meet on September 14, September 19, and November 30.

Course requirements.

Your grade will be based on two midterms and a final.

Midterm 1	30%
Midterm 2	30%
Final	40%

The final will be cumulative, but will stress the material covered after the second midterm. The exams will be mostly essay, but they may also contain some matching, identification, or true/false components.

 

Read my lips: no makeups.

Readings.

I have asked the bookstore to order:

• Dennis W. Carlton and Jeffrey M. Perloff, Modern Industrial Organization, third edition. Addison-Wesley-Longman, 1999.

In addition, I’ve asked the bookstore to order as “recommended”:

• Richard A. Posner, Antitrust Law: An Economic Perspective. University of Chicago Press, 1978.

Although I have not ordered it at the bookstore, you may also want to get:

• Robert Bork, The Antitrust Paradox: A Policy at War with Itself. The Free Press, 1995.

I will also place some readings on reserve in Babbidge Library, and there are links below to as many readings as I can place on line. (Please keep checking for updates.) 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.

In addition, there is quite a lot of information on the Internet about antitrust law and economics. Here are a few key links to get you started.

• Antitrust Policy: An Online Resource.
• The Antitrust Division of the Justice Department.
• The Federal Trade Commission.
• FindLaw: Internet Legal Resources.
• The Microsoft Case.
• Antitrust Case Summary Browser.

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.

Note also that, for copyright reasons, some links are accessible only from computers connected to the Internet through the UConn domain. If you live off campus and are connecting through a private ISP, check with the computer center about something called a proxy server.

Sequence of topics.

Part 1. Economic theory and antitrust.

Introduction and perspective.

• Carlton and Perloff, chapter 1.
• Posner, Antitrust Law: An Economic Perspective, chapter 2.

Traditional theory.

The neoclassical theory of the firm and its critics.

• Carlton and Perloff, chapters 2-7.
• David Friedman, Price Theory: An Intermediate Text. South-Western, 1990, chapters 10 and 11.
• Paul J. McNulty, “Economic Theory and the Meaning of Competition,” Quarterly Journal of Economics, vol. 82, 1968.
• Harold Demsetz, “Two Systems of Belief About Monopoly,” in Harvey Goldschmid, et al., eds., Industrial Concentration: the New Learning. Boston: Little-Brown, 1974. (On reserve.)
• Joseph A. Schumpeter, Capitalism, Socialism, and Democracy.  New York: Harper and Brothers, third edition, 1950, chapters VII and VIII.

Industrial concentration and concentration indices.

• Carlton and Perloff, pp. 246-250 and p. 268.

Barriers to entry.

• Carlton and Perloff, pp. 76-82, 98-103, and 343-361.

• 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.

The theory of networks.

• Paul A. David, “Clio and the Economics of QWERTY,” American Economic Review75(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).
• David Teece and Mary Coleman, “The Meaning of Monopoly: Antitrust Analysis in High-Technology Industries,“ Antitrust Bulletin, September 22, 1998, p. 801.
• David S. Evans and Richard Schmalensee, “Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries,” NBER Working Paper No. W8268, May 2001

Part 2. Antitrust law and policy.

The historical and legal basis of antitrust policy.

• Carlton and Perloff, chapter 19.
• Robert H. Bork, The Antitrust Paradox: A Policy at War with Itself, The Free Press, 1995, chapters 1, 2, and 3.  (On reserve.)
• Thomas W. Hazlett, “The Legislative History of the Sherman Act Re-examined,” Economic Inquiry 30(2): 263-76 (April 1992).

Mergers and market definition.

• Carlton and Perloff, pp. 610-615.

• Posner, Antitrust Law, chapter 6.

• Bork, Antitrust Paradox, chapters 9 and 10.

• U. S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines.

Price discrimination and predatory pricing.

• Carlton and Perloff, chapter 9, pp. 334-342, and pp. 641-644.
• Bork, Antitrust Paradox, chapter 20.

Tying and leveraging.

• Carlton and Perloff, pp. 302-319.
• Bork, Antitrust Paradox, chapter 19.

• Posner, Antitrust Law, chapter 8.

• R. Kenney and Benjamin Klein, “The Economics of Block Booking,” Journal of Law and Economics 26: 497-540 (October 1983).

Exclusive dealing and boycotts.

• Carlton and Perloff, pp. 405-407, 638-641.

• Scott E. Masten and Edward A. Snyder, “United States versus United Shoe Machinery Corporation: On the Merits,” Journal of Law and Economics 36(1): 33-70 (Part 1, April 1993).

• Bork, Antitrust Paradox, chapters 15 and 17.

• Posner, Antitrust Law, pp. 201-211.

Resale price maintenance.

• Carlton and Perloff, pp. 400-412, 637-638.

• Bork, Antitrust Paradox, chapter 14.

• Posner, Antitrust Law, pp. 147-167.

Summing up: Antitrust enforcement today.

• Mark J. Roe, “From Antitrust to Corporation Governance? The Corporation and the Law: 1959-1994,” in Carl Kaysen, ed., The American Corporation Today. New York : Oxford University Press, 1996.
• William E. Kovacic and Carl Shapiro, “Antitrust Policy: A Century of Economic and Legal Thinking,” Journal of Economic Perspectives, forthcoming.

Part 3. Regulation and deregulation.

The economic theory of regulation.

• Carlton and Perloff, chapter 20.
• Harold Demsetz, “Why Regulate Utilities?” Journal of Law and Economics 11: 55-66 (April 1968). (On reserve.)
• Richard A. Posner, “Taxation by Regulation,” Bell Journal of Economics 2(1): 22-50 (Spring 1971). (On reserve.)Government regulation: case studies.

Electricity regulation.

• Paul Joskow, “Restructuring, Competition and Regulatory Reform in the U.S. Electricity Sector,” Journal of Economic Perspectives 11(3): 119-138 (Summer 1997).
• Vernon Smith, “Regulatory Reform in the Electric Power Industry,” Regulation 19(1) (1996).

Telecommunications regulation.

• Richard H. K. Vietor, Contrived Competition. Cambridge: Harvard University Press, 1994. (Chapter on telecommunications.) (On reserve.)
• Robert W. Crandall, “Halfway Home: U.S. Telecommunications (De)Regulation in the 1970s and 1980s,” in Jack C. High, ed., Regulation: Economic Theory and History. Ann Arbor: University of Michigan Press, 1991. (On reserve.)
• Lawrence J. White, “ The Deregulation of the Telephone Industry: The Lessons from the U.S. Railroad Deregulation Experience,” Working Paper, New York University, 1998.