Categories
Chicago Exam Questions Fields

Chicago. Industrial Organization Prelim. 1977

 

The following five questions come from what appears to be a draft of the prelim exam in industrial organization for the Spring of 1977 that is found in the George Stigler papers at the University of Chicago. The draft clearly has the title “Industrial Organization Prelim” but the date is a handwritten addition. Also there is no explicit “University of Chicago”  to be found, though given the location in George Stigler’s papers, this identification seems rather certain.

___________________

[handwritten note:  5-2-77]

Industrial Organization Prelim

Answer all questions:

  1. It is sometimes alleged that periods of economic depression are more conducive to the growth of economic regulation than prosperity. Develop a theory which elaborates the link between the level of economic activity and the propensity to regulate. Include a discussion of whether the goals of regulatory agencies (old as well as new) are likely to differ with the level of economic activity.
  2. Sales of some firms are occurring at prices below average variable cost. Suppose there were no legal restrictions on merger. Under what conditions, if any, would the firms in the industry prefer merger as a means of reducing industry output?
  3. A recent treatise on antitrust law lists the following as among the factors favorable to collusion in an industry.
    1. No fringe of small buyers.
    2. Inelastic demand at competitive price.
    3. Entry takes a long time.
    4. Many customers.
    5. A standardized product.
    6. High ratio of fixed to variable costs.

Discuss for each factor the effect, if any, it has on probability of collusion.

  1. What problems for profit maximizing collusion among the firms in the book publishing industry would arise because of each of the following conditions:
    1. There are two classes of books, fiction and nonfiction. Publishers generally publish both types although some publishers specialize in nonfiction.
    2. Sales and profits from n fictional books behave like n independent random variables drawn from the same distribution. Sales of a given fictional book in a given year are independent of the sales in the previous year. There is a positive probability of sales coming to a halt in a given year and remaining zero thereafter.
    3. Nonfiction is of two types, textbooks and “how-to-do-it” books. The expected number of years of positive sales for a nonfiction book is greater than for a fiction book.
    4. Retail outlets and mail order sales are the only channels of distribution to the final users of books.
    5. The cost function of a book publisher is proportional to the number of titles and the quantity printed of each title.
    6. Every title has the protection of a copyright. Assume that the Xerox machine and similar devices do not exist.
    7. Anyone can arrange to have a book printed by a printing company and can arrange for its distribution.
  2. How do you explain the following empirical findings for manufacturing industries?

Let

Nit= number of companies in the 4-digit industry i in year t
Cit= 4-firm concentration ratio, industry i, year t.
Qit= index of real output industry i, year t
Rit= measured rate of return of all firms in industry i, year t.

    1. For each t, holing log Nitconstant, Ritis an increasing function of Cit.
    2. For each t, holding Citconstant, Ritis an increasing function of log Nit.
    3. For each t, Cit and log Nitare negatively correlated.
    4. Between 1947 and 1967 the correlation between the change in Citand the change in log Nitis 0.55.
    5. Between 1947 and 1967 the correlation between the change in Citand the change in log Nitis zero. The correlation is also zero between the change in log Qitand the change in Cit.
    6. There has recently been renewed interest in the social optimality of various devices for the public regulation of pollution. Among popular proposals to deal with the problem: emission taxes, subsidies for pollution control, transferable rights to emit pollutants, maximum limits on pollution discharges from each source. Assume that the optimality conditions for public regulation have been met. Evaluate the relative efficiency of these four devices and any others you wish to add to the list.

Source: University of Chicago Archives. George Stigler Papers, Addenda. Box 33, Folder “Exams & Prelim Questions”.

Image Source:  George Stigler page at the University of Chicago Booth School of Business website.