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Streaming Econ 400

Many students have asked me about the types of things covered in Industrial Organization (Econ 400), and I typically respond with blah blah blah price theory blah blah blah structure-conduct-performance until the student leaves my office.  Perhaps a better response would simply be to give students a list of interesting topics that would come under an IO umbrella, such as Comcast’s dispute with Netflix. There’s many issues embedded there, including this tasty one:

A recent study found that at peak times, Netflix represented 20 percent of Internet download traffic in the United States. That makes it a de facto competitor for incumbent distributors like Comcast and Time Warner Cable, which are eager to protect both the subscription television business and the emerging video-on-demand business.

I wonder how soon cable and satellite television will be relegated to economic history courses, a la the video rental business.

Perhaps you can write a paper on that next term.

Capitalism, Socialism, & Democracy Group Read

For those of you interested in an extra unit or two, next term we are offering an independent study / tutorial reading Joseph Schumpeter’s classic, Capitalism, Socialism, and Democracy. For those of you unfamiliar with the book, here is a review by Schumpeter biographer, Thomas McCraw.

This is a thick book, so if you are interested, I would recommend that you pick up a copy and start in on it over break. The likely trajectory for this is for us to set up a weekly discussion time, and for each student to provide a review essay.   See Professor Gerard or Galambos for details.

Is this efficient or inefficient?

From the Kids Prefer Cheese blog, we have a story older than the hills — mackerel in a ball.

So you think the little fishies are cooperating? Not so much… It’s actually a straightforward prisoners’ dilemma problem: If all the little fish would scatter at the same moment, most would escape, because there are so many and the predators are few. But if I expect YOU to take off, I should stay in the ball. One or two fish trying to escape will be caught. And if I expect you to stay in the ball…I should STILL stay in the ball.

Got all that?

If so, have we got a course for you…

Plenty of seats still available.

Schumptoberfest a Success

The Schumptoberfest celebration was a smashing success, with at least one of us understanding the Williamson debt-equity financing argument a little better at the end than at the beginning.  Thanks to all those who participated, especially Professor Galambos, who took time out from his sabbatical leave to read “100” pages and keep me in line.

As per usual with these events, we received word that there were some items left behind.  Here is a partial accounting: a set of dentures, a hearing aid, “a leather whip, a live rabbit, a tuba, a ship in a bottle, 1,450 items of clothing, 770 identity cards, 420 wallets, 366 keys, 330 bags and 320 pairs of glasses, 90 cameras and 90 items of jewellery and watches.”

Thanks to Tom for the tip.

Schumptoberfest Sunday

Describe the industrial structure and to evaluate the interrelationships between firm size, market structure, and innovation in your assigned industry. You should address the following questions:

  • What are the strengths and weaknesses of using a model of “perfect competition” (many firms, homogenous products, low switching costs, price competition) to characterize the industry?
  • What is the “structure” of your industry? Is it dominated by a few firms (concentrated)? Or are there many firms?
  • How would you characterize innovation in your industry? Is it particularly dynamic or innovative? Are we observing new products or new processes? Are the firms that come up with the ideas the same as those implementing these ideas?
  • Would you say your industry characterized by managerial or entrepreneurial capitalism?  That is, how is innovation funded in this industry?

Next, determine where you come down on the “Schumpeter hypothesis” in terms of market structure and innovation. Write down a thesis statement and three supporting points to argue for or against Schumpeterian-type arguments.  These might include:

  • R&D projects have high fixed costs that can only be covered by industry with robust revenue streams.
  • Economies of scale and scope foment innovation.
  • Diversified firms are in superior position to identify and exploit unforeseen innovation opportunities.
  • Large firms are able to spread the R&D risks across many projects.
  • Large firms have more favorable treatment in obtaining external financing.
  • Firms with market power make higher profits, and can use retained earnings to finance R&D from own profits.
  • Firms with market power have fewer rivals and thus are more able to appropriate returns from innovation, bolstering the incentive to innovate.

We will spend Sunday morning talking about these industries.  We will begin by going around and providing a brief description of each industry.  After that, each group will state its thesis and then discuss its supporting arguments.

William James Adams, (2006) “Markets: Beer in Germany and the United States,” Journal of Economic Perspectives, 20(1): 189-205

Emek Basker (2007) “The Causes and Consequences of Wal-Mart’s Growth.” Journal of Economic Perspectives, 21(3): 177–198

Kal Raustiala and Christopher Jon Sprigman (2009) “The Piracy Paradox Revisited,” Stanford Law Review, 61(5).


Schumptoberfest Readings: Galambos, Teece, and Blaug

Following up on Chapter VII of Capitalism, Socialism, & Democracy from last time, we move on to some rather more modern treatments of the economics of innovation.  We start with Professor Galambos’ and a slightly modified version of the primer he gives to his students in his excellent course, In Pursuit of Innovation (coming this winter).

Galambos wades through some basics of innovation policy and the industrial enlightenment before arriving at the question of allocative efficiency on pages 4 and 5. Again, the conventional treatment is that there is a tradeoff between the promise of monopoly profits and the efficiency properties of competitive industries.  And, recall, this is a tradeoff that Schumpeter explicitly rejects.

Continue reading Schumptoberfest Readings: Galambos, Teece, and Blaug

Global Climate Change, Political Climate Don’t

As I sift through material for my environmental economics course (Econ 280) this winter, I have found some very interesting material on the political economy of climate change.  Ryan Liazza in the New Yorker walks through the process by which an idea becomes a bill becomes a law — or, in this case, doesn’t become a law.  It is difficult to understand environmental economics and policy without knowledge of these tortured dealings, the underlying institutional rules, and that pesky electorate.

Over at the Economix blog, David Leonhardt has been doing yeoman’s work, provides another perspective on the political economics of climate change legislation,  looks at what EPA could reasonably do to curb CO2 emission without such enabling legislation, and has a couple of pieces (one here, one here) on so-called clean energy.

I will also use this paper on “carbon geography” to illustrate how economists go about these political economics questions.  I don’t think we as economists ever expected serious climate legislation, certainly nothing approaching the types of reductions needed to stabilize atmospheric concentrations.

Schumptoberfest Mark VII, The Gales of Creative Destruction

In the second post here, I will simply concentrate on Chapter VII of Capitalism, Socialism, and Democracy, and try to tie together some themes for the weekend.  For our purposes, I have numbered the paragraphs 1-13.

As we proceed into this chapter, it is probably useful to keep in mind that at the time of this writing, the national income accounts and measurement of economic output were even more primitive than they are today.  So, one question is how did economists in 1942 think about “growth” and “output”?

The null hypothesis is immediately stated in the opening sentence of the chapter — that there is some question that “capitalist reality” stifles economic growth.  I take “capitalist reality” to mean the consolidation of firms and increasing concentration of industries as they mature.  This is going to get at the essence of a “Schumpeterian Hypothesis,” (see the last sentence of paragraph two for a germination of this idea — “big business may have had more to do with creating that standard of life than keeping it down.” We’ll get to the efficiency implications of this in a bit, but for the moment note that he offers two possible rationales for the antagonism toward large firms.   One is the idea that growth occurs despite the “managing bourgeoisie” (that is, monopolists restricting output and jacking prices).  The second is that this worked for a while, but it cannot proceed indefinitely.

Continue reading Schumptoberfest Mark VII, The Gales of Creative Destruction

Introduction to Schumptoberfest

This is a first in a series of short posts to guide the Schumptoberfest readings.  I included these readings literally to give you an introduction to Schumpeter and the “Schumpeterian Hypotheses.”

These introductory readings shouldn’t take terribly long to read — perhaps an hour.  I will carefully go through Chapter VII of Capitalism, Socialism, and Democracy in my next post.

Paul J. McNulty “Austrian Competition,” From The New Palgrave Dictionary of Economics, 2nd edition

The first reading from Paul McNulty on how Austrian economists view competition immediately invokes Schumpeter as a critic of the model of perfect competition.  As many of you know, the model of perfect competition that I love and teach in price theory, is essentially an equilibrium construct.  That is, we expect to be moving toward a long run competitive equilibrium, where price = average costs for the marginal firm in the industry.  (Incidentally, the way that firms compete in the fourth paragraph is largely what Industrial Organization is all about).  Schumpeter, in contrast, espouses a “disequilibrium” theory, and argues that competition isn’t about allocative efficiency as much as it’s about, that’s right, creative destruction.

Continue reading Introduction to Schumptoberfest

The 300 Challenge, Parts 1 & 2

Hey, that's not Steven Landsburg

What is it with Steven Landsburg and apples?

PART 1: Audrey shops at Wegman’s supermarket, where she spends $20 a week to buy 10 apples and 5 bananas.  IF she bought the same 10 apples and 5 bananas at Top’s supermarket, she’d pay $30.   True or False:  Audrey is wise to continue shopping at Wegman’s.  (Hint: This is easy).

PART 2: You earn $100.  You can use your $100 to buy 100 current apples, 200 future apples, or any combination in between.

Consider a 50% tax on wages versus a 40% tax on all income (that is, wages and interest income)  and assume both taxes raise the same amount of revenue.

Which tax do you prefer?  Under which tax do you consume more (and save less) today? (Hint: I’m not sure if this is easy or not).

Schumptoberfest Sign Up Continues

I have logged several folks for the Schumptoberfest weekend weekend, October 22 to 24, at Björklunden.  If you are interested and would like IS credit, please sign up with me by Friday.  I have some IS forms tacked on the board outside my office.  it is best that you sign up by Friday.

Again, the requirements are:

  • Complete the assigned readings.
  • Travel to Björklunden over reading period (Friday evening until Sunday afternoon) and participate in our workshop.
  • Write a short response paper (3-5 pages) to the ideas and discussions from the weekend.

We would like to engage students who have a good understanding of micro theory and are interested in innovation and entrepreneurship. The readings dovetail nicely with my Economics 400 (IO) and 450 (theory of the firm) courses.

I am in the process of completing the reading list and will provide both PDFs and reading guides for the materials within the next week.

Schumptoberfest IS Coming

As an addition to the burgeoning I&E program, the inaugural Schumptoberfest™ is coming to Björklunden over reading period weekend, October 22-24.  If interested, you need to sign up with Professor Gerard.

What is Schumptoberfest ?  In short, it is a celebration of the ideas of economist Joseph Schumpeter, the subject of our first I&E Reading Group earlier this year.  Through reading and discussion, we will develop a better understanding of innovation and entrepreneurship generally, and particularly the importance of economic organization fomenting or retarding entrepreneurial activities.  Of course, we also hope to develop a rapport among the students and faculty interested in these topics.

To encourage and reward participation, we are offering a two-credit independent study.  The expectations for the IS are as follows:

  • Complete the required readings.
  • Travel to Björklunden over reading period (Friday evening until Sunday afternoon) and participate in our workshop.
  • Produce a short response paper (3-5 pages) to material and ideas discussed over the weekend.*

The target audience for Schumptoberfest is students who have a firm grasp of micro theory and have an interest in the scholarship on innovation and entrepreneurship. The course should be an exceptionally good fit for students who have taken or are planning to take Industrial Organization and The Economics of the Firm.

Those interested need to sign up with Professor Gerard as soon as possible.  Those interested in receiving the two independent study credits need to sign up with him by Friday, September 24.  We expect 10-15 students and 3-5 faculty members to participate.

*Professor Gerard will provide the readings and reading guides over the course of the next few weeks.  We will set the parameters of the writing assignment during the retreat.

Schumptoberfest design by K. Richter

Welcome Back, Econofolks

Hello and welcome to the friendly Appletonian confines for the 2010-2011 academic year.   A few noteworthy elements:

  • The first Economics TeaBA will be Monday, September 20 at 4:20.  The location is TBA, but it will certainly be somewhere on Briggs 2nd.
  • Professor Gerard is out of town until Wednesday, and may be difficult to locate around campus until then.
  • There is plenty of room in Economics 300.   If you are interested, register or put your name on the waiting list, and enroll in The Moodle (enrollment code 0300).  It will meet Monday this week, but not Tuesday.  There is a quiz Wednesday.  The class meets M, Tu, W, F at 3:10.
  • Notice the fall course offerings include history of economic thought with professor emeritus, Jules LaRocque.  This could be a one-shot deal as far as history of thought goes for many of you, so you might poke your head in there on Tuesday and see how it sounds.
  • Schumptoberfest™ is October 22-24 up at the Björklunden facility. I will post more about this later in the week.  Those of you interested, should see Professor Gerard (when he gets back; see above).

It’s shaping up as a good year.

Looking Ahead

Here’s the rest of the economics schedule for the year:

Winter Term 2011

Spring Term 2011

We will be meeting shortly, so if you have questions about offerings in 2012, please let us know.

Ready or Not

The term is upon us and that means it’s time to start posting things that might actually have some utility for someone (for instance, me).

So let’s start out with an easy one — are you registered yet? No better time to start thinking about it. Here are some potentially useful links:

And, as long as you are registering, you might as well check out our offerings for the Fall term.  There is still room as of this posting, unless otherwise noted:

I will also be offering an independent study associated with Schumptoberfest™ weekend, October 22-24.  Check with me for details.

See you on Briggs 2nd.

Landsburg on Reinhart on Efficiency

Last week, Professor Finkler posted some preliminary thoughts on Uwe Reinhart’s “Is ‘More Efficient” Always Better?” This week, everybody’s favorite textbook author, Steven Landsburg, chimes in with a nice exposition on why it’s worthwhile for economists to beat the drum for efficiency analysis.

First, emphasizing efficiency forces us to concentrate on the most important problems. Second, emphasizing efficiency forces us to be honest about our goals.

He then runs through some nice examples (that Econ 300 students will be looking at when we get to Chapter 9), and concludes with this:

The advantage of an efficiency analysis (along, say, the lines suggested here) is that it would force Professor Reinhardt’s colleague to be clear about his priorities. Is he, for example, concerned primarily about increasing current output or about redistributing current output? Either might be a worthy goal, but we can’t have a useful debate with someone who won’t tell us what his goals are.

Wow, I’m getting excited just thinking about this.

Didje See that Dean Pertl Article?

Speaking of careers in business, Dean of the Conservatory, Brian Pertl, poses the question, “What on earth could playing a Mozart symphony have to do with leading a budget proposal meeting?”

Plenty is his response at the Entrepreneur The Arts blog.

Coming on the heels of the successful Entrepreneurship in the Arts and Society class this past term, this is a very encouraging message indeed.  And especially so for those of us who believe in the mission and the viability of the liberal arts.

Don’t forget, former Fed Chair Alan Greenspan was a clarinet student at Julliard before dropping out to tour with Stan Getz. Is that why they called him Maestro?

Henry George Rises from the Dead

Who is Henry George? you might ask.  A good question.  A simple answer would be a 19th century printer who believed that a single tax on land would be an effective social liberator.  As students of Urban Economics might recall, George argued that rises in land value (as distinct from the structures put on land) come largely from social rather than private investments; thus, such rises should be taxed and used to meet various public purposes.

In today’s Financial Times, Martin Wolf opines that we (at least policy makers in the US and UK)  provide both cheap capital and insufficient taxation on these “unearned” increments in land value.  Furthermore, he believes that such value increments should be taxed if we seek to avoid credit cycles of the sort we have recently experienced.  One might view existent policies as the opposite of  “think global, act local” since the resulting credit booms and busts (based on securitized loan packages sold to an integrated, world financial system) have spread well beyond their their initial homes.  “Freemarketeer” Wolf, acting as a reincarnated “socialist” Henry George, sees the need to halt these land and credit cycles with a land increment tax.

As noted in my comment on Michael Spence’s opinion piece, also in today’s FT,  in the previous LU Econblog entry, it’s not clear to me how political logic will help us to break these destructive cycles.

America Needs a Growth Strategy

Michael Spence, 2001 Nobel Prize winner and chair of the Commission on Growth Development established by the World Bank, has just authored a sobering editorial on the lack of a growth strategy in the United States.  Students in both Econ 200 and Econ 430 will  have the opportunity to read and discuss the summary report of the Growth Commission this fall.

Spence, similar to Raghu Rajan in the recently published book Fault Lines, argues that America’s social contract is breaking done.  That “contract” married a flexible open economy with the promise of improved living standards for the “motivated and diligent.”   Its foundation based on a stable, growing economy seems very much in question.  Economists debate about what the “New Normal” might look like, but most argue it won’t be as attractive as the old (or at least perceived old) normal.  They differ as to why things are coming undone and what one should do about it, but Spence argues persuasively that without well thought out and implemented policy, “the new normal may be as unpleasant as the journal.”

In my view, this means we must transcend the vacuous discussion that arises from Krugman vs. the Tea Party.  In a world of 30 second sound bites (except for vavuzelas and LeBron James announcements), it’s not clear how we will do so.