Queen’s University

ECON371 - Economics of Regulation

Lecturer: Lei Xu
Email: lei.xu@queensu.ca
Course website: https://leixu.org/econ371 and onQ
Location: DUNNIN11
Time: Friday 11:30AM - 2:30PM
Office Hour: Monday 11:30AM - 12:30PM (link to attend to be provided) TA: Stefan Arsic
Email: stefan.arsic@queensu.ca
Office Hour: ???

Description

The objective of this course is to discuss the role of government in markets where competitive equilibria fail. During the course, we will go through the economic foundations of regulatory analysis, and how they are applied to real life scenarios that depart from the ideal of competitive markets. You will be able to recognize such market failures and to learn about the solutions devised over time to address them. You will be encouraged to evaluate the outcomes of such economic policies using concrete examples. Looking at different case studies, we will raise questions such as the following: Is economic regulation a necessity? Does regulation make up for market failure? What are the unintended consequences? Does it impose an even heavier burden to firms/consumers/society?

The course will be broken into three parts. In the first part, we will review the economic models of firm competition and the necessity of regulation from a theoretical point of view. In the second part, we will study various situations where antitrust analysis is applied. We will study market structure, horizontal/vertical mergers, price discrimination, and platform competition. In the third part, we will introduce economic regulation by studying the behavior of natural monopolies and regulatory options for dealing with them.

“One of the most exciting areas of economic policy is government regulation and antitrust. These efforts affect virtually all aspects of our lives ranging from the food we eat to the prices we pay.” (VHS). For example, what happens to the price of airline tickets if Air Canada acquires WestJet? Should Wal-Mart be banned because it drives local grocery stores out of business? Should car manufacturers be allowed to sell directly to consumers? Why is Halo not available on PlayStation? Is Apple abusing its market power by prohibiting apps to redirect users to their own website for purchases? There are countless cases of regulation, and we will only have time to cover a limited number, but we will cover the most basic rationales that can be applied in many of these issues.

Readings

Textbook: Economics of Regulation and Antitrust, Fifth Edition, By W. Kip Viscusi, Joseph E. Harrington, Jr. and David E. M. Sappington (VHS)

Newspaper/magazine: In addition to the textbook, you should keep informed about the regulatory issues by reading The Wall Street Journal or the Business section of The New York Times on a regular basis. A magazine such as Business Week or The Economist is also useful for this purpose.

Other readings: Other materials will be posted on the course website under each class. Please read the materials before class.

Prerequisite

Requirement

Overview

Short essays & presentation

Each student will work on three short essays and present their work in front of the class. Students can either work alone or in pairs. For each essay, each student will be assigned a broad topic (e.g., merger, collusion), then the student will choose any real-world cases related to that topic. The cases covered in each of the essays cannot be the same. The student(s) will make a short presentation during the class, followed by a brief Q&A from the audience. The goal of the essay and presentation is to relate the economic theory/reasoning to real-world cases and clearly convey the ideas in front of their peers.

The essay and presentation should contain background, arguments from both sides, how they are related to class material, and the student’s own analysis. The essay is evaluated based on the clarity and conciseness of the writing, relevance to class material, and the logic of the analysis. The presentation is evaluated on the same elements plus the understanding of the case through Q&A.

Each short essay should be no longer than 1 page. The presentation should be no longer than 3 minutes (to be finalized depending on class enrollment) and contains no more than 5 slides.

The essay will be evaluated by the lecturer or/and the TA, and the presentation will be evaluated by all the students (instructions to follow).

Due date: Both the essay and slides (used for in-class presentation) are due the night before each scheduled presentation. For example, for a presentation scheduled on Oct 8, both the essay and slides have to be submitted by 11:59PM of Oct 7.

Submission: The essay will be submitted through onQ, and the slides submitted through OneDrive.

Late submission of essay: Late submission will be penalized by 10% every day. For example, if the due date is Oct 7 and the essay was submitted on Oct 9, and if the score without penalty is 80, then the final adjusted score will be 80 x (1 - 10% x 2) = 64.

Late submission of slides: The slides used for in-class presentation have to be submitted before the deadline by uploading it to the appropriate folder. If not, the presenter will have to make the presentation without slides. Due to COVID protocols and time constraints, all slides will be compiled in the order of presentation before class.

Term paper & presentation

The format of the term paper is similar to the short essay, but requires more in-depth treatment. Students can also choose to work alone or in pairs. Students are free to analyze any one or multiple cases/industries for the term paper. To get a good mark, you are expected to demonstrate knowledge of a wider reading beyond the course material, and be able to connect the economic theory of regulation with the practice of regulation. It should include a significant amount of one’s original analysis. It also should include references and a bibliography.

Length:???
Presentation???
Due date: Similar to the essay, the term paper is also due the day before the assigned presentation date. For example, for a presentation scheduled on Dec 3, the term paper is due by 11:59PM of Dec 2. Note that there is no due date of the slides. At the time of presentation, the slides stored in the shared folder will be used. In other words, the presenter can keep editing the slides until the last minute as long as the slides are updated to the appropriate folder.

Late submission of term paper: Same policy as late submission of essay.

Empirical project

We will examine a particular industry through data analysis.

The project is similar to a very long homework. Students are expected to work on this throughout the semester.

Knowledge of data analysis software is necessary to successfully complete the empirical project. One can choose any of the most commonly used software such as Python, Stata, R, or Matlab. 

Students are encouraged to discuss with others, but have to write their own answers for all questions.

Submission System

We will use both OneDrive and onQ for this course.

Submission Through onQ

Students have different due dates for their essays and term paper. There will be one “Assignment” for every week. For students who have scheduled presentation in that week, they should submit their essays or term papers through the particular “Assignment”.

Submission Through OneDrive

Each student will receive invitations to join two shared folders: ECON371 and FirstLastName.

ECON371 is a view-only folder shared to all students. It contains presentation schedules of short essays and term papers. The project questions will also be updated to this folder.

FirstLastName folder is an editable folder shared between the lecturer, the TA, and the student only. The submissions of slides will be made in this folder. For example, a student Adam Smith has his first essay presentation scheduled on October 8. The essay and slides are due by 11:59PM of October 7. The essay needs to be submitted on onQ, and the slides need to be uploaded to the AdamSmith/Essay/ folder.

Please note the shared folder is used strictly for submission purposes. For other course-related files or files that are not final submissions, please keep them in a separate local folder.

Peer Evaluation of Presentation

The evaluations of presentations are made through the shared OneDrive folder FirstLastName/Evaluation folder. After the presentation, students need to leave their evaluation using the file FirstLastName/Evaluation/week3.xlsx (for presentations in the 3rd week). Later, the lecturer/TA collects all the evaluations in each student’s folder and calculates the score for each presenter. Each presenter will get notified of their grades in FirstLastName/Essay/score1.txt file.

Course Outline & Reading List

Week 1 (September 10)
Introduction of Economics of Regulation
Reading: VHS Chapters 1, 2

Week 2 (September 17)
Competition Theory (Industrial Organization)
Reading: VHS Chapters 3, 4

Week 3 (September 24)
Market Structure, Dynamic Competition and Horizontal Mergers
Reading: VHS Chapters 5, 6

Week 4 (October 1)
Empirical Industrial Organization, Vertical Markets
Reading: VHS Chapters 7

Week 5 (October 8)
Monopolization and Price Discrimination
Reading: VHS Chapters 8

Week 6 (October 15)
No classes (mid-term break)

Week 7 (October 22)
Digital Economy and Platform Competition
Reading: VHS Chapters 9

Week 8 (October 29)
Economic Regulation
Reading: VHS Chapters 10, 11

Week 9 (November 5)
Telecommunications Industry, Estimation Methods
Reading: VHS Chapters 14, 15

Week 10 (November 12)
Airline and Finance Industries
Reading: VHS Chapters 16, 18

Week 11 (November 19)
Term Paper Presentation

Week 12 (November 26)
Term Paper Presentation

Week 13 (December 3)
Term Paper Presentation

Others