Economics 345 Le Moyne College

Dr. Paul Blackley Fall 2014

Office: RH334 (Hours: MW 12:30-1:20, T 10:30-11:20, by appointment)

Phone: 445-4439

email: black_p@lemoyne.edu

Academic Support Center (ASC): The College makes accommodations for students with disabilities. If you have a disability, please register with the ASC for disability assessment or verification and determination of necessary accommodations. The ASC is located on the first floor of the Noreen Falcone Library [445-4118 (voice) or 445-4104 (TDD)]. Please meet with me to review your status and discuss the arrangements we will use to meet your needs if that is required.

SYLLABUS

Course Description: Economics 345 is a course that assesses strategic competition in market economies. At the outset we will develop the basic concepts of value maximization and market concentration along with the dynamics of market entry and exit as they influence, and are influenced by, market structure. This will be followed by an assessment of the various strategic behaviors engaged in by actual and potential competitors in modern market economies. These will be used as a basis for studying business practices such as product differentiation, the pursuit of technological change, and price discrimination. Throughout the course we will review the antitrust and regulatory activities of the U.S. government, with a close look at current practices in each area. We will also use case studies of individual industries to illustrate the usefulness of economic analysis for learning about contemporary business practices and policy issues.

Required Books (available from Le Moyne College Bookstore):

Industrial Organization, 4th edition, by Don Waldman and Elizabeth Jensen, published by Addison Wesley, 2013.

The Structure of American Industry, 12th edition, by James Brock, published by Waveland Press, 2013.

Additional required readings are indicated below. I will email to you the links that can be used to access these articles.

Grading: There will be three exams. Preparation for exams on your part should include attending class with the intent of engaging in active learning, doing all assigned readings, and doing the study questions distributed prior to each exam. Exams will be announced in class with at least a week's notice in advance. Each exam will comprise 22% of your course grade. An in-class presentation that is described below will comprise 24% of your course grade. The remaining 10% will be determined by your participation in class lectures and discussion of the assigned readings.

COURSE READING LIST

Readings for Exam 1:

1. Waldman and Jensen, Chapters 1-4.

2. Spulber, "Market Microstructure and Intermediation," Journal of Economic Perspectives, Summer 1996.

http://0-www.jstor.org.library.lemoyne.edu/stable/pdfplus/2138524.pdf

3. Gilbert and Katz, "An Economist's Guide to U.S. v. Microsoft," Journal of Economic Perspectives, Spring 2001.

http://0-www.jstor.org.library.lemoyne.edu/stable/pdfplus/2696590.pdf

4. Andrade, Mitchell, and Stafford, "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, Spring 2001.

http://0-www.jstor.org.library.lemoyne.edu/stable/pdfplus/2696594.pdf

5. Paul Gompers and Josh Lerner, "The Venture Capital Revolution," Journal of Economic Perspectives, Spring 2001.

http://0-www.jstor.org.library.lemoyne.edu/stable/pdfplus/2696596.pdf

Readings for Exam 2:

1. Waldman and Jensen, Chapters 5, 6 (6.1, 6.3.1, 6.3.2, 6.10.3),7,9 (omit 9.2),10.

2. Brock, Chapter 6 - Automobiles

Chapter 7 - Music Recording

Chapter 8 - Telecommunications

3. Klein, "What Can a Dominant Firm Do to Defend Its Market Position?" Journal of Economic Perspectives, Spring 2001.

http://0-www.jstor.org.library.lemoyne.edu/stable/pdfplus/2696591.pdf

4. Montgomery, "Corporate Diversification," Journal of Economic Perspectives, Summer 1994. http://0-www.jstor.org.library.lemoyne.edu/stable/pdfplus/2138225.pdf

Readings for the Exam 3:

1. Waldman and Jensen, Chapters 11-16.

Note:

a. in 12.1, omit math example

b. omit 13.2, 13.3, 13.6

c. omit 14.3.1, 14.3.2

d. omit 15.3

e. omit 16.2.1, 16.2.2

2. Brock, Chapter 5 - Beer

Chapter 9 - Airlines

Chapter 11 - Health Care

3. Basker, "The Causes and Consequences of Wal-Mart's Growth," Journal of Economic Perspectives, Summer 2007.

http://0-www.jstor.org.library.lemoyne.edu/stable/pdfplus/30033740.pdf

4. Lemley and Shapiro, "Probabilistic Patents," Journal of Economic Perspectives, Spring 2005.

http://0-www.jstor.org.library.lemoyne.edu/stable/pdfplus/4134938.pdf

5. Moser, "Patents and Innovation: Evidence from Economic History," Journal of Economic Perspectives, Winter 2013.

http://0-pubs.aeaweb.org.library.lemoyne.edu/doi/pdfplus/10.1257/jep.27.1.23

6. Gilbert, "The Role of Potential Competition in Industrial Organization," Journal of Economic Perspectives, Summer 1989.

http://0-www.jstor.org.library.lemoyne.edu/stable/pdfplus/1942764.pdf

Presentation

In-class presentations will be made by groups of 4 students based upon chapters from Brock, The Structure of American Industry (12th ed.). You can select with whom you want to work and the industry you want to study from those listed below. Working arrangements are to be determined by group members, but each member must contribute to the basic research and participate in the presentation. One grade may be assigned for the entire group, or individuals within the same group may get different grades if there is significant variation in the quantity and quality of work among group members. I will assist in forming groups if need be, and try to assign each group one of its top 3 industry choices.

Industry Choices from Brock:

Ch. 5 The Beer Industry

Ch. 6 The Automobile Industry

Ch. 8 The Telecommunications Industry

Ch. 9 The Airline Industry

Scenario: Suppose you are a research analyst at a Wall Street financial services company. For your industry and the major firms in your industry, you are scheduled to make a presentation on the relevant market conditions to a group of mutual fund managers (i.e., your classmates). You may organize and present your material according to your own plans. These are the items your presentation should include:

1. A summary of the major items contained in the chapter in Brock's book. This should be brief, no more than 5-8 minutes.

2. An update of recent news events in your industry (since the chapter was written), including items such as entry and exit behavior; major changes in demand, cost, and/or technology; and changes in market structure related to merger and acquisition activities. Each of the industries listed have recently had significant interaction with the government. Financial bailouts, bankruptcies, antitrust cases, merger review, regulation, and protection versus foreign competition may be areas to address. For each item, you should present the relevant facts and provide explanations for what occurred.

3. For each major company, potential investors may want to know:

a. What are its major products and how do they compare to their competitors' products?

b. The company's behavior with respect to any of the following that is important:

-pricing and sales practices and trends -entry and creating barriers to entry

-product differentiation, advertising, and marketing -vertical integration

-mergers and acquisitions -divestitures and spinoffs

-research and development

c. What are the industry's and major companys' performances in areas such as return on equity, achieving product and process innovations, and consideration of social issues such as environmental protection, and workplace and product safety?

4. Conclusion:

a. Based on your work, provide a general summary of the future of your industry. This may include emerging product lines, anticipated entries and exits, technological innovation, changes in strategic behavior, and the role of government intervention.

b. Make a recommendation regarding the appeal of making a financial investment in your industry and its individual companies. Provide a brief explanation based on your presentation and describe what changes in specific circumstances might lead you to change your recommendation.

Resources

In addition to the chapter in Brock, there are many internet and library resources which may be helpful in your research. .

These include information on the economy, specific industries, and individual firms. To get you started, here are some sources at the library that contain all or much of what you will need for your work. From the Library Homepage, click on Research Guides, and then select Subject Guides from the list below. On the next page, select Business. From here, there are two good options. Use them both! Explore others!

1. Select Business and Management.

On the next page, you will see across the top:

Home Books Databases Reference Books Web sites Statistics Articles

Select Databases. On the next page, you should find the following are very helpful:

-Mergent Online: Backfile and Moody's Investors Services

-Standard and Poor's Net Advantage

2. Select Companies and Industries.

Using the same steps as those above, the following source should be helpful:

-Market Line Advantage

The library also subscribes to many fine periodicals, newspapers, and hardcopy resources.

For example, at the library's home page, select Find Articles and then click on W under the Data Bases heading. This will take you to a list of newspapers beginning with W. Use 'Wall Street Journal: 1984 to Present' to find articles relevant to your industry and its firms. Try others as well.