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G604 IO IIG604 IO II Eric Rasmusen, erasmuse@indiana.eduEric Rasmusen, erasmuse@indiana.edu

20 April 200620 April 2006

Milyo and WaldfogelMilyo and Waldfogel

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ReadingsReadings 11 April, Tuesday. 11 April, Tuesday. Exclusive Dealing Exclusive Dealing

    John Asker,     John Asker, "Diagnosing Foreclosure Due to Exclusive Dealing,""Diagnosing Foreclosure Due to Exclusive Dealing," October 14, 2004, Leonard N. Stern School of Business, NYU. October 14, 2004, Leonard N. Stern School of Business, NYU.

13 April, Thursday. 13 April, Thursday. File Sharing and Record Sales, File Sharing and Record Sales,     Felix Oberholzer and Koleman Strumpf,     Felix Oberholzer and Koleman Strumpf, "The Effect of File Sharing on Record Sales An Empirical Analysis,""The Effect of File Sharing on Record Sales An Empirical Analysis," Harvard Business School (March Harvard Business School (March 2004).2004).

Week 14 Week 14 18 April, Tuesday. 18 April, Tuesday. Antitrust Law.Antitrust Law.

        "Statutory Provisions and Guidelines of the Antitrust Division,""Statutory Provisions and Guidelines of the Antitrust Division," 3rd edition (April 2001) 3rd edition (April 2001)    Microsoft case:     Microsoft case: "Conclusions of Law,""Conclusions of Law," United States District Court for the District of Columbia, Civil action 98-1232 United States District Court for the District of Columbia, Civil action 98-1232        Lawrence White Lawrence White (1999) "Present at the Beginning of a New Era for Antitrust: Reflections on 1982-1983,"March 16, 1999. (1999) "Present at the Beginning of a New Era for Antitrust: Reflections on 1982-1983,"March 16, 1999. http://http://papers.ssrn.com/paper.taf?abstract_idpapers.ssrn.com/paper.taf?abstract_id=167208=167208         PowerpointPowerpoint lecture slides lecture slides

20 April, Thursday. 20 April, Thursday. Prices, Ads, and Search Prices, Ads, and Search         Jeffrey Jeffrey MilyoMilyo and and Joel Joel WaldfogelWaldfogel "The Effect of Price Advertising on Prices: Evidence in the Wake of 44 "The Effect of Price Advertising on Prices: Evidence in the Wake of 44 LiquormartLiquormart,"," American Economic American Economic Review,Review, 89(5): 1081-1096 (December 1999). 89(5): 1081-1096 (December 1999).     You might be interested in reading the Supreme Court decision in     You might be interested in reading the Supreme Court decision in 44 44 LiquormartLiquormart..Here are my Here are my powerpointpowerpoint slides. slides.

Week 15 Week 15 25 April, Tuesday. 25 April, Tuesday. Mandatory Disclosure Mandatory Disclosure

    Ginger Jin and     Ginger Jin and Phillip Leslie Phillip Leslie (2003): (2003): "The Effect of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards,""The Effect of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards," Quarterly Quarterly Journal of Economics,Journal of Economics, 118(2): 409-451 (May 2003). 118(2): 409-451 (May 2003).    Here are my     Here are my transparencies. transparencies.

27 April, Thursday. 27 April, Thursday. Contracts Contracts     P.A. Chiappori and B. Salanie "Testing Contract Theory: A Survey of Some Recent Work,"     P.A. Chiappori and B. Salanie "Testing Contract Theory: A Survey of Some Recent Work," Advances in Economics and Econometrics - Theory Advances in Economics and Econometrics - Theory and Applications, Eighth World Congress,and Applications, Eighth World Congress, M. Dewatripont, L. Hansen and P. Turnovsky, ed., Econometric Society Monographs, Cambridge M. Dewatripont, L. Hansen and P. Turnovsky, ed., Econometric Society Monographs, Cambridge University Press, Cambridge, 2003, 115-149 and my powerpoint slides. University Press, Cambridge, 2003, 115-149 and my powerpoint slides.

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Does Price Advertising Does Price Advertising Reduce Average Price? Reduce Average Price?

Stigler (1961, JPE, “The Value of Information”) Ads reduce Stigler (1961, JPE, “The Value of Information”) Ads reduce prices at all stores. prices at all stores.

Salop and Stiglitz, (1977 REStud, “Bargains and Ripoffs”) Ads Salop and Stiglitz, (1977 REStud, “Bargains and Ripoffs”) Ads have complicated effects. have complicated effects.

Benham (1972) Eyeglass paper, empirical. State laws. Ads Benham (1972) Eyeglass paper, empirical. State laws. Ads reduce prices. reduce prices.

Glazer (1981) empirical. Groceries. Newspaper strike. Glazer (1981) empirical. Groceries. Newspaper strike. Conclusion: Advertising reduces the price of advertised Conclusion: Advertising reduces the price of advertised products at stores that advertise, but has not effect on products at stores that advertise, but has not effect on prices at smaller stores that never advertise. (i.e.: during the prices at smaller stores that never advertise. (i.e.: during the strike, the big stores’ prices went up)strike, the big stores’ prices went up)

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The y-VariablesThe y-Variables

PRICE: Log of pricePRICE: Log of price

MARKUP: Log(retail price – wholesale price)MARKUP: Log(retail price – wholesale price)

Why not the following? Why not the following?

MARKUP*(Retail Price)/(Wholesale price)MARKUP*(Retail Price)/(Wholesale price)

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Which Stores Chose to Advertise?Which Stores Chose to Advertise? Was it the low-price stores that chose to advertise after the Supreme Court Was it the low-price stores that chose to advertise after the Supreme Court

said it was legal? said it was legal?

MW regressed MW regressed

Log OldPrice = Product Dummies +_Time Dummies + JustWindow Ads + Log OldPrice = Product Dummies +_Time Dummies + JustWindow Ads + NewspaperAdsNewspaperAds

Stores that advertised just in the windows (24 of 58) had 5.61% lower prices Stores that advertised just in the windows (24 of 58) had 5.61% lower prices before May 1996 (t=9.92)before May 1996 (t=9.92)

Stores that advertised in newspapers (?? of 58) had 7.71% lower prices Stores that advertised in newspapers (?? of 58) had 7.71% lower prices before May 1996 (t=9.83)before May 1996 (t=9.83)

(9 of 58, earlier on the page)(9 of 58, earlier on the page)

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ConclusionsConclusions 1.Prices of advertised products fell 20% at stores 1.Prices of advertised products fell 20% at stores

that advertised them, but their other prices did not that advertised them, but their other prices did not change. change.

2. Newspaper-advertising stores reduced their prices 2. Newspaper-advertising stores reduced their prices of a product if rivals advertised it. of a product if rivals advertised it.

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A link to the course websiteA link to the course website

http://www.rasmusen.org/http://www.rasmusen.org/g604/0.g604.htmg604/0.g604.htm