1. 1 G604 IO II G604 IO II Eric Rasmusen, erasmuse@indiana.edu Eric Rasmusen, erasmuse@indiana.edu 20 April 2006 Milyo and Waldfogel

2. 2Readings 11 April, Tuesday. Exclusive Dealing John Asker, "Diagnosing Foreclosure Due to Exclusive Dealing," October 14, 2004, Leonard N. Stern School of Business, NYU. 11 April, Tuesday. Exclusive Dealing John Asker, "Diagnosing Foreclosure Due to Exclusive Dealing," October 14, 2004, Leonard N. Stern School of Business, NYU."Diagnosing Foreclosure Due to Exclusive Dealing,""Diagnosing Foreclosure Due to Exclusive Dealing," 13 April, Thursday. File Sharing and Record Sales, Felix Oberholzer and Koleman Strumpf, "The Effect of File Sharing on Record Sales An Empirical Analysis," Harvard Business School (March 2004). 13 April, Thursday. File Sharing and Record Sales, Felix Oberholzer and Koleman Strumpf, "The Effect of File Sharing on Record Sales An Empirical Analysis," Harvard Business School (March 2004)."The Effect of File Sharing on Record Sales An Empirical Analysis,""The Effect of File Sharing on Record Sales An Empirical Analysis," Week 14 Week 14 18 April, Tuesday. Antitrust Law. "Statutory Provisions and Guidelines of the Antitrust Division," 3rd edition (April 2001) Microsoft case: "Conclusions of Law," United States District Court for the District of Columbia, Civil action 98-1232 Lawrence White (1999) "Present at the Beginning of a New Era for Antitrust: Reflections on 1982-1983,"March 16, 1999. http://papers.ssrn.com/paper.taf?abstract_id=167208 Powerpoint lecture slides 18 April, Tuesday. Antitrust Law. "Statutory Provisions and Guidelines of the Antitrust Division," 3rd edition (April 2001) Microsoft case: "Conclusions of Law," United States District Court for the District of Columbia, Civil action 98-1232 Lawrence White (1999) "Present at the Beginning of a New Era for Antitrust: Reflections on 1982-1983,"March 16, 1999. http://papers.ssrn.com/paper.taf?abstract_id=167208 Powerpoint lecture slides"Statutory Provisions and Guidelines of the Antitrust Division,""Conclusions of Law,"Lawrence White http://papers.ssrn.com/paper.taf?abstract_id=167208Powerpoint "Statutory Provisions and Guidelines of the Antitrust Division,""Conclusions of Law,"Lawrence White http://papers.ssrn.com/paper.taf?abstract_id=167208Powerpoint 20 April, Thursday. Prices, Ads, and Search Jeffrey Milyo and Joel Waldfogel "The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart," American Economic Review, 89(5): 1081-1096 (December 1999). You might be interested in reading the Supreme Court decision in 44 Liquormart. Here are my powerpoint slides. 20 April, Thursday. Prices, Ads, and Search Jeffrey Milyo and Joel Waldfogel "The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart," American Economic Review, 89(5): 1081-1096 (December 1999). You might be interested in reading the Supreme Court decision in 44 Liquormart. Here are my powerpoint slides.Jeffrey Milyo Joel Waldfogel "The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart,"44 Liquormart.powerpoint slides.Jeffrey Milyo Joel Waldfogel "The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart,"44 Liquormart.powerpoint slides. Week 15 Week 15 25 April, Tuesday. Mandatory Disclosure Ginger Jin and Phillip Leslie (2003): "The Effect of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards," Quarterly Journal of Economics, 118(2): 409-451 (May 2003). Here are my transparencies. 25 April, Tuesday. Mandatory Disclosure Ginger Jin and Phillip Leslie (2003): "The Effect of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards," Quarterly Journal of Economics, 118(2): 409-451 (May 2003). Here are my transparencies.Phillip Leslie "The Effect of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards,"transparencies.Phillip Leslie "The Effect of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards,"transparencies. 27 April, Thursday. Contracts P.A. Chiappori and B. Salanie "Testing Contract Theory: A Survey of Some Recent Work," Advances in Economics and Econometrics - Theory and Applications, Eighth World Congress, M. Dewatripont, L. Hansen and P. Turnovsky, ed., Econometric Society Monographs, Cambridge University Press, Cambridge, 2003, 115-149 and my powerpoint slides. 27 April, Thursday. Contracts P.A. Chiappori and B. Salanie "Testing Contract Theory: A Survey of Some Recent Work," Advances in Economics and Econometrics - Theory and Applications, Eighth World Congress, M. Dewatripont, L. Hansen and P. Turnovsky, ed., Econometric Society Monographs, Cambridge University Press, Cambridge, 2003, 115-149 and my powerpoint slides.P.A. Chiappori B. Salanie "Testing Contract Theory: A Survey of Some Recent Work,"powerpoint slides.P.A. Chiappori B. Salanie "Testing Contract Theory: A Survey of Some Recent Work,"powerpoint slides.

3. 3 Does Price Advertising Reduce Average Price? Stigler (1961, JPE, The Value of Information) Ads reduce prices at all stores. Stigler (1961, JPE, The Value of Information) Ads reduce prices at all stores. Salop and Stiglitz, (1977 REStud, Bargains and Ripoffs) Ads have complicated effects. Benham (1972) Eyeglass paper, empirical. State laws. Ads reduce prices. Glazer (1981) empirical. Groceries. Newspaper strike. Conclusion: Advertising reduces the price of advertised products at stores that advertise, but has not effect on prices at smaller stores that never advertise. (i.e.: during the strike, the big stores prices went up)

4. 4 The y-Variables PRICE: Log of price PRICE: Log of price MARKUP: Log(retail price – wholesale price) MARKUP: Log(retail price – wholesale price) Why not the following? MARKUP*(Retail Price)/(Wholesale price)

5. 5 Which Stores Chose to Advertise? Was it the low-price stores that chose to advertise after the Supreme Court said it was legal? Was it the low-price stores that chose to advertise after the Supreme Court said it was legal? MW regressed Log OldPrice = Product Dummies +_Time Dummies + JustWindow Ads + NewspaperAds Stores that advertised just in the windows (24 of 58) had 5.61% lower prices before May 1996 (t=9.92) Stores that advertised in newspapers (?? of 58) had 7.71% lower prices before May 1996 (t=9.83) (9 of 58, earlier on the page)

6. 6 Conclusions 1.Prices of advertised products fell 20% at stores that advertised them, but their other prices did not change. 1.Prices of advertised products fell 20% at stores that advertised them, but their other prices did not change. 2. Newspaper-advertising stores reduced their prices of a product if rivals advertised it.

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17. 17 A link to the course website http://www.rasmusen.org/g604/0.g604.htm