MA Industrial Organization: Theory and Experiments

In this seminar, we will study a number of models of strategic interaction between firms and check whether their predictions are verified in laboratory experiments. We will also consider whether and how findings from industrial organization are affected by limits in the rationality of the decisions of consumers and firms.

1. Organization of the course and grading

The seminars will take place as block seminars at the end of January and beginning of February. Provisional dates, times and places are as follows:

  • January 15: from 13 to 17 in room 4.157 (Carl-Zeiss-Straße 3)
  • January 22: idem
  • January 29: idem
  • February 5: idem

Please make sure to know how to find the room in advance of the first seminar!

Students will be assigned academic articles from the field of experimental industrial organization and will be asked to present them to others along some guidelines:

  1. presentation of the aim of the authors and of the basic model that is tested in the article
  2. description of the design and of the findings of the experiment
  3. overview of and comparison with related experimental literature
  4. discussion about the findings, their robustness, generalizability, relevance and applicability to real market situations.

Each student will have to write an essay about their assigned academic article after having presented it and discussed it during the seminar.

There will be 4 individual presentation of 45 minutes in each seminar. Each presentation will last 30 minutes, followed by 15 minutes of questions and discussion.

Grading will be based 60% on participation, including the quality of the presentation (30%) and of the contributions to the ensuing discussion (30%), and 40% on the essay.

2. Books

The following books may be used as references for the understanding of standard and less traditional models of strategic behavior, as well as to understand the methods of experimental economics.

  1. Tirole, Jean. 1988. The Theory of Industrial Organization. MIT Press. (for models of strategic interaction)
  2. Bardsley, Nicholas, Robin Cubitt, Graham Loomes, Peter Moffatt, Chris Starmer, and Robert Sugden. 2010. Experimental Economics: Rethinking the Rules. Princeton University Press. (for the experimental method)
  3. Spiegler, Ran. 2011. Bounded Rationality and Industrial Organization. Oxford University Press. (for models with boundedly rational economic agents).

3. Surveys

Survey articles may be useful as a first step towards getting to know the context in which articles to be presented were written.

  1. Plott, Charles R., 1982. Industrial Organization Theory and Experimental Economics, Journal of Economic Literature, 20(4), 1485-1527.
  2. Kagel, J. H. 1995. Auctions: a survey of experimental research. In The Handbook of Experimental Economics, Alvin E. Roth and John H. Kagel, Editors, Princeton University Press, 501-580.
  3. Holt, C.H., 1997. Industrial Organization: a Survey of Laboratory Research, in the Handbook of Experimental Economics, J. Kagel and A. Roth, eds., Princeton University Press, 349-444.
  4. Ellison, Glenn. 2006. Bounded Rationality in Industrial Organization. In Advances in Economics and Econometrics Theory and Applications, Ninth World Congress, edited by Torsten Persson, Richard Blundell, and Whitney K. Newey, 2:142–74. Econometric Society Monographs. Cambridge, UK: Cambridge University Press.
  5. Normann, H.-T., Ricciuti, R., 2009. Laboratory Experiments for Economic Policy Making. Journal of Economic Surveys 23, 407–432.
  6. Armstrong, M., Huck, S., 2010. Behavioral economics as applied to firms: a primer, MPRA Paper No. 20356.

4. List of articles

Articles to be presented belong to 5 categories corresponding to the following subsections. My goal is that 3 papers out of each category be presented during the semester in the order of the sections below.

Assignment of articles to students is on a first-come, first-served basis. This means that students may be asked to choose an article other than their first choice if another student already chose it or if the paper category is already covered (i.e. three students already chose a paper in that category).

Students may ask to present an article that is not in the list below (but within the categories below), but only if they can argue that the topic of their preferred article is not covered in the list below. A student may not present an article outside of the list below without approval of the seminar leader.

The deadline for sending me your choice of article is the 16th of November. After that date, those who did not make a choice will be assigned an article by me.

The deadline for sending me the essay on your chosen article is the 19th of February, i.e. two weeks after the last seminar. Guidelines for the writing of essays can be downloaded here: essay guidelines.

4.1 Market behavior

  1. Chamberlin, Edward H., 1948. An Experimental Imperfect Market, Journal of Political Economy, 56(2), 95-108.
  2. Smith, Vernon L., 1962. An Experimental Study of Competitive Market Behavior, Journal of Political Economy, 70, 111-37.
  3. Charles R. Plott and Vernon L. Smith, 1978, An Experimental Examination of Two Exchange Institutions, The Review of Economic Studies, 45(1), 133-153.
  4. Forsythe, Robert, Thomas R. Palfrey, and Charles R. Plott. 1982. Asset Valuation in an Experimental Market. Econometrica 50 (3): 537–67.
  5. Joyce, P., 1983. Information and behavior in experimental markets, Journal of Economic Behavior and Organization, 4, 411-424.
  6. Smith, Vernon L., Gerry L. Suchanek, and Arlington W. Williams, 1988. Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets. Econometrica 56(5), 1119–51.
  7. Roth, A.E., Prasnikar, V., Okuno-Fujiwara, M., Zamir, S., 1991. Bargaining and market behavior in Jerusalem, Ljubljana, Pittsburgh, and Tokyo: An experimental study. The American Economic Review, 81(5), 1068–1095.
  8. Kirchsteiger, G., Niederle, M., Potters, J., 2005. Endogenizing market institutions: An experimental approach. European Economic Review 49, 1827–1853.
  9. Miller, R.M., 2008. Don’t let your robots grow up to be traders: Artificial intelligence, human intelligence, and asset-market bubbles. Journal of Economic Behavior & Organization 68, 153–166.

4.2 Auctions

  1. Smith, Vernon L., Arlington W. Williams, W. Kenneth Bratton, and Michael G. Vannoni, 1982. Competitive Market Institutions: Double Auctions vs. Sealed Bid-Offer Auctions, American Economic Review, 72, 58-77.
  2. Dyer, D., Kagel, J.H., Levin, D., 1989. A comparison of naive and experienced bidders in common value offer auctions: A laboratory analysis. The Economic Journal, 99(394), 108–115.
  3. Lucking-Reiley, David., 1999. Using Field Experiments to Test Equivalence between Auction Formats: Magic on the Internet. American Economic Review, 89(5) 1063-1080.
  4. Neugebauer, T., Selten, R., 2006. Individual behavior of first-price auctions: The importance of information feedback in computerized experimental markets. Games and Economic Behavior 54, 183–204.
  5. Hossain, Tanjim, and John Morgan. 2007. …Plus Shipping and Handling: Revenue (Non) Equivalence in Field Experiments on eBay. The B.E. Journal of Economic Analysis & Policy 6 (2).
  6. Filiz-Ozbay, Emel, and Erkut Y Ozbay. 2007. Auctions with Anticipated Regret: Theory and Experiment. American Economic Review 97(4): 1407–18.
  7. Brown, J., Hossain, T., Morgan, J., 2010. Shrouded attributes and information suppression: Evidence from the field. The Quarterly Journal of Economics 125, 859–876.
  8. Kirchkamp, Oliver, and J. Philipp Reiß. 2011. Out-Of-Equilibrium Bids in First-Price Auctions: Wrong Expectations or Wrong Bids? The Economic Journal 121 (557): 1361–97.

4.3 Bertrand, Cournot, Stackelberg and other models of competition

  1. Holt, Charles A. 1985. “An Experimental Test of the Consistent-Conjectures Hypothesis.” The American Economic Review 75 (3): 314–25.
  2. Brown-Kruse, Jamie L., Mark B. Cronshaw, and David J. Schenk, 1990. Theory and Experiments on Spatial Competition, Economic Inquiry, 31, 139-165.
  3. Keser, Claudia. 1993. Some Results of Experimental Duopoly Markets with Demand Inertia. The Journal of Industrial Economics 41 (2): 133–51.
  4. Kruse, Jamie Brown, Steven Rassenti, Stanley S. Reynolds, and Vernon L. Smith, 1994. Bertrand-Edgeworth Competition in Experimental Markets, Econometrica, 62(2), 343-71.
  5. Huck, Steffen, Hans-Theo Normann, and Jörg Oechssler, 1999. Learning in Cournot Oligopoly – An Experiment. The Economic Journal 109(454), C80–95.
  6. Collins, R., Sherstyuk, K., 2000. Spatial competition with three firms: an experimental study. Economic Inquiry 38, 73–94.
  7. Offerman, Theo, Jan Potters, and Joep Sonnemans, 2002. Imitation and Belief Learning in an Oligopoly Experiment. The Review of Economic Studies 69(4), 973–97.
  8. Huck, S., Konrad, K.A., Müller, W., Normann, H.-T., 2007. The Merger Paradox and why Aspiration Levels Let it Fail in the Laboratory. The Economic Journal 117, 1073–1095.

4.4 Collusion

  1. Dolbear, F. Trenery, Lester B. Lave, G. Bowman, A. Lieberman, E. Prescott, F. Rueter, and Roger Sherman, 1968. Collusion in Oligopoly: An Experiment on the Effect of Numbers and Information. The Quarterly Journal of Economics, 82(2), 240-59.
  2. Feinberg, Robert M. and Thomas A. Husted, 1993. An Experimental Test of Discount-Rate Effects on Collusive Behavior in Duopoly Markets, Journal of Industrial Economics, 41(2), 153-60.
  3. Huck, S., Müller, W., Normann, H.-T., 2001. Stackelberg Beats Cournot: On Collusion and Efficiency in Experimental Markets, Economic Journal, 111, 749–765.
  4. Huck, S., Normann, H.-T., Oechssler, J., 2004. Two Are Few and Four Are Many: Number Effects in Experimental Oligopolies, Journal of Economic Behavior & Organization, 53, 435–446.
  5. Suetens, Sigrid, and Jan Potters, 2007. Bertrand Colludes More than Cournot. Experimental Economics 10(1), 71–77.
  6. Aoyagi, Masaki and Frechette, Guillaume, 2009. Collusion as public monitoring becomes noisy: Experimental evidence, Journal of Economic Theory, 144(3), 1135-1165.
  7. Bigoni, M., Fridolfsson, S.-O., Le Coq, C. and Spagnolo, G., 2012. Fines, leniency, and rewards in antitrust. The RAND Journal of Economics, 43, 368–390.

4.5 Limited information and boundedly rational consumers and managers

  1. Miller, Ross M. and Charles R. Plott, 1985. Product Quality Signaling in Experimental Markets, Econometrica, 53, 837-72.
  2. Kahneman, Daniel, Jack L. Knetsch, and Richard Thaler. 1986. Fairness as a Constraint on Profit Seeking: Entitlements in the Market. The American Economic Review, 76(4), 728–41.
  3. Bester, H., 1993. Bargaining versus price competition in markets with quality uncertainty. The American Economic Review, 83(1), 278–288.
  4. Theo Offerman, Jan Potters and Joep Sonnemans, 2002. Imitation and belief learning in an oligopoly experiment, Review of Economics Studies, 69(4), 973-997.
  5. Selten, R., Apesteguia, J., 2005. Experimentally observed imitation and cooperation in price competition on the circle. Games and Economic Behavior, 51, 171–192.
  6. Morgan, John, Henrik Orzen, and Martin Sefton, 2006. An Experimental Study of Price Dispersion. Games and Economic Behavior, 54(1), 134-58.
  7. Kenan Kalayci and Jan Potters, 2011. Buyer Confusion and Market Prices, International Journal of Industrial Organization, 29(1), 14-22.