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-epartment o. Economics EC413Competition, Monopoly, and Pu/lic Policy

Spring, 1998 Newm a rk OFFICE: Room 215, 1911 Building

Profess or C. M.

OFFICE PHONE: 515- 7680; E-MAIL: craig_new m a r k@ n c s u. e d u OFFICE HOURS: Regular hours will be from 2:45 to 4:30, Tuesd a y and Thursd a y. If you would like to see me but dont want to visit during thes e hours, pleas e se e me after class or call me to sche d ul e an appoint m e n t . COURSE WEB PAGE:
http://www 2. nc s u . e d u / u ni ty/locker s /cla s s / e c 4 1 3 0 0 1 / e c 4 1 3 . h t m l

COURSE PREREQUISITE: EC301 (Inter m e di a t e Microecon o mic s) or equivale nt. COURSE GRADING AND EXAMS: Your grad e for this cours e will be dete r min e d by a mid- ter m exa m , class participa tion, and a final. I will use plus/minu s grading for your final cours e grad e . The mak e- up of your grad e will be as follows.
Test Midterm Class Participation Final Exam Tuesday, May 12, 14 p m Scheduled Date Thursday, March 5 % of Course Grade 35 15 5!

PLEASE NOTE: You are respo n sible for taking both tests on the date s design a t e d . Only under extraordinary circu m s t a n c e s beyon d your control (such as a dea th in your imm e di a t e family or your sever e illness) will abs e n c e from an
1

exa m be excus e d . If you believe that you have a proble m sever e enou g h to warra nt special tre at m e n t , you should talk to me as soon as possible. Pleas e note that if your abs e n c e from a midter m is excus e d, no mak e- up exa m will be given. Ill put the weight for the excus e d test on the other tests. AND: Cheating will not be tolerat e d in this cours e. In accord a n c e with University policy, all stud e n t s will be require d to sign the Honor Pledg e on all tests. READINGS: The require d reading for this cours e is a packe t of readings compiled by me, Reading s for EC413. It should be available at the NCSU bookstor e .

Course Outline
( The Model o. Per.ect Competition
A. Review; contra s t with mono poly B. Omissions from the perfect com p e tition mod el; the perfect dec e n tr aliza tion mod el C. Overview of cours e: the thre e charg e s lodge d agains t big busine s s D. A note on met ho d ology 1) Joseph A. Schu m p e t e r , The Proce s s of Creative Destruction. From Capitalis m , Socialis m, and De m o crac y, Third Edition (New York: Harper & Row, Publishers, 431 pag e s), 1950, pp. 81- 86.

(( The %i0h Price o. Mar1et Concentration2 The Collusion Concern

A. Theore tic al reas on s for conc er n B. Som e proble m s with the theory 1. Measuring N 2. Measuring econo mic profits 3. The conc e p t u a l proble m C. Empirical evide nc e 1. Initial findings 2. Dems e t zs respon s e 3. The price- conc e n tr a tion exte n sion D. Relate d topics 1. Unilater al effects 2. Conce ntr a tion and productivity 3. Horizont al price fixing 4. Horizont al and conglo m e r a t e merg e r s 5. Network exter n alities 6. Puzzling pricing practic e s 2) David Heme n w a y, The Ice Trust. From David Hem e nw a y, Prices and Choices: Microecono m i c Vignett e s (Cambridg e ,

Mass.: Ballinger Publishing Comp a n y, 196 page s), 1977, pp. 153- 169. 3) Harold Dems e tz, Industry Structur e, Market Rivalry, and Public Policy. Journal of Law and Econo mic s , April 1973, pp. 1- 9. 4) Donald F. Barnett and Robert W. Crand all, Ste el: Decline and Renew al. From Larry L. Duetsc h, editor, Industry Studies (Englewoo d Cliffs, NJ: Prentice- Hall, Inc.), 1993, pp. 138- 154. 5) Ronald W. Cotterill, Food Retailing: Mergers, Levera g e d Buyouts, and Perform a n c e . From Larry L. Duets c h, editor, Industry Studie s (Englewoo d Cliffs, NJ: Prentice- Hall, Inc.), 1993, pp. 157- 181. 6) Craig M. Newm a rk, A New Test of the Price- Conce n tr a tion Relations hip in Grocery Retailing. Econo mic s Letters , August 1990, 369- 373. 7) Jame s M. MacDon ald, Does Import Comp e tition Force Efficient Production? Revie w of Econo mic s and Statistics , Nove m b e r 1994, pp. 721- 727. 8) Craig M. Newm a rk, Does Horizont al Price Fixing Raise Price? A Look at the Bakers of Washingto n Case. Journal of Law and Econo mic s , Octob er 1988, pp 469- 484. 9) Willard F. Mueller and Russell C. Parker, The Bakers of Washingto n Cartel: Twenty- Five Years Later. Revie w of Industrial Organization , # 1, 1992, pp. 75- 82. 10) Micha el F. Sproul, Antitrust and Prices. Journal of Political Econo m y , August 1993, pp. 741- 754. 11) S. J. Liebowitz and Steph e n E. Margolis, The Fable of the Keys. Journal of Law and Econo mic s , April 1990, pp. 1- 26. 12) Steve n A. Morrison, Airline Services: Evolution of Price Comp e tition Since Dereg ulation. From Larry L. Duets c h, editor, Industry Studie s (Englewoo d Cliffs, NJ: Prentice- Hall, Inc.), 1993, pp. 225- 249.

((( The (ne..iciency o. 3i0 Companies2 The )lac1 )urmise

A. Theory of the surmis e B. Separ a tion of owners hip and control and mark e t for corpor a t e control C. Progre s sive n e s s in R & D

13) Armen A. Alchian, Comp e tition, Monopoly and the Pursuit of Money. From Armen A. Alchian, Econo mic Forces at Work (Indian a p olis: Liberty Fund, Inc., 523 page s), 1977, pp. 151176. 14) Harold Dems e t z and Kennet h Lehn, "The Structur e of Corpora t e Owners hip: Caus e s and Conse q u e n c e s . " Journal of Political Econo m y , Dece m b e r 1985, pp. 1155- 1177. 15) Charles R. Knoeb er, "Golde n Parac h u t e s , Shark Repellent s, and Hostile Tender Offers." Am erican Econo mic Revie w , March 1986, pp. 155- 167. 16) Harold Dems e t z, Perfec t Comp e tition, Regulation, and the Stock Market. From Henry G. Manne, editor, Econo mic Policy and the Regulation of Corporat e Securite s (Washingt o n, D.C.: America n Enterprise Institute , 385 pag e s ), 1969, pp. 225- 241. 17) Larry L. Duetsc h, Phar m a c e u tic als: The Critical Role of Innovation. From Larry L. Duetsc h, editor, Industry Studies (Englewoo d Cliffs, NJ: Prentice- Hall, Inc.), 1993, pp. 116- 137.

(+ The Po4er o. 3i0 3usiness2 The Coercion Complaint

A. Advertising and product differe ntia tion 1. Advertising as ma nipula tive, monop olizing, and exce s sive 2. Another theory: advertising as quality assur a n c e , inform a tion, and com p e titive entry B. Vertical constr aint s 1. Gener al conc e p t s; vertical integr a tion 2. Resale price maint e n a n c e 3. Exclusive dealing, franchis e agre e m e n t s , and territorial constr aints C. Preda t ory pricing; non- price pred a tion D. Price discrimin a tion 18) Benja min Klein and Keith Leffler, The Role of Market Force s in Assuring Contrac t u al Perform a n c e . Journal of Political Econo m y , August 1981, pp. 615- 641. 19) Clem e n t G. Krouse, Brand Nam e as a Barrier to Entry: The ReaLe m o n Case. South ern Econo mic Journal , Octob er 1984, pp. 495- 502. 20) Douglas F. Greer, Beer: Caus e s of Structur al Chang e . From Larry L. Duetsc h, editor, Industry Studie s (Englewoo d Cliffs, NJ: Prentice- Hall, Inc.), 1993, pp. 85- 115.

21) Richard T. Rogers, Broilers: Differentia ting a Com m o dity. From Larry L. Duetsc h, editor, Industry Studies (Englewood Cliffs, NJ: Prentic e- Hall, Inc.), 1993, pp. 3- 32. 22) Benja min Klein, Robert G. Crawford, and Armen A. Alchian. Vertical Integr a tion, Appropriable Rents, and the Comp e titive Contra c ting Proce s s. Journal of Law and Econo mic s , Octob er 1978, pp. 297- 326. 23) Stanley I. Ornst ein, Liquor: An Evaluation of Resale Price Mainten a n c e . From Larry L. Duetsc h, editor, Industry Studie s (Englewoo d Cliffs, NJ: Prentice- Hall, Inc.), 1993, pp. 206- 221. 24) Donald J. Boudre a u x , Turning Back the Antitrust Clock: Nonprice Preda tion in Theory and Practice. Regulation: Cato Revie w of Busine s s & Govern m e n t , Fall 1990, pp. 45- 52. 25) Benja min Klein, Market Power in Afterm a rk e t s . Manag erial and Decision Econo mic s , 17 (1996), pp. 143- 164.

+ &ntitrust and the Pu/lic (nterest

A. What are 1. The 2. The B. Empirical the goals of antitrus t? public intere s t theory public choice theory studie s

26) William F. Shugh a r t II, Using Antitrust to Subvert Comp e tition. From William F. Shugh a rt II, Antitrust Policy and InterestGroup Politics (New York: Quoru m Books, 208 pag e s), 1990, pp. 157- 176. 27) Thom a s J. DiLorenzo, The Origins of Antitrust: An Intere s tGroup Persp e c tive. International Revie w of Law and Econo mic s , June 1985, pp. 73- 90. 28) Roger L. Faith, Donald R. Leaven s , and Robert D. Tollison, Antitrust Pork Barrel. Journal of Law and Econo mic s , Octob er 1982, pp. 329- 342. 29) David Levy and Steve Welzer, Syste m Error: How the IBM Antitrust Suit Raise d Comput e r Prices. Regulation: AEI Journal on Govern m e n t and Society , Octob er 1985, pp. 27- 30. 30) Thom a s W. Hazlett, Is Antitrust Anticom p e titive? Harvard Journal of Law & Public Policy , 1986, pp. 277- 336.