Empirical Industrial Organization of Credence Goods and Professional Services
Class time(currently):Mon & Thur 3:30-5:20pm
Instructor: David Ong, Office: C-402, email: dvdong@gmail.com
Office Hours:

Overview

Traditional IO

Since Cournot and Bertrand, IO has been focused upon the economic analysis of imperfect competition among manufacturers. Manufacturers, until recently, have been at the heart of most developed economies.

New Economy of Experts

In the last 30 years, there has been a great shift in developed economies to the service sector. In the last 10 years, there has been a further shift to the information service sector. In particular, more and more of the economy is now influenced by or controlled by experts. In light of this trend and the anticipation that you will be entering this economy, the focus of my course will be on the imperfect competition among experts and their firms. Some examples of what I mean by experts are doctors, lawyers,accountants, investment banker, credit rater, management consultants, movie rater, professors, priests, astrologists, and in China, Fengsui masters. The last two years has shown that many financial products such as ARMs, CDOSs are also credence goods and that these markets also suffer from an expert problem. What characterizes this area of the knowledge economy are gross asymmetric information between experts and the consumers of their services.  As products get more technical, the expert issue of sellers dealing with less well informed consumers becomes more important for all parts of IO. When the consumer cannot assess the quality of a product even after consumption, the “expert problem”/ or “credence good problem” arises. A product is called a credence good, when buyers must trust that the seller is providing the correct quality.

Credence Goods and Expert Problems in China

These problems have become important to China due to corruption and underdevelopment of the system of regulation and certification for the health and safety of products. Some examples of recent scandals are: lead in toys, antifreeze in toothpaste, toxic chemicals in dry wall, poisoned milk and baby foods, poor construction quality which caused buildings to collapse in recent earthquakes and of course, counterfeit products. The China brand was badly damaged during these scandals so that westerners and Chinese alike tend to mistrust products from China. Without such trust, there won’t be a market for high quality products and services from China. We will consider attempted solutions in the West which may open the way for solutions for China.

Objectives of the Course

This is a research orientated course. The goal of which is to generate papers that will get us into international conferences and good journals. It will be run largely like a workshop, where I will first lecture about the basics, then help you find some topic to work on for your presentations. The first presentation will be a literature review. The 2^nd will be a research proposal. There is notmethodological restriction for possible presentation topics: it can be empirical, theoretical or experimental. However, the topic must be in the area of credence goods/professional services. I will offer you a menu of papers, help you find an interesting topic, related literature and structure the proposal.

Grading

Research is risky, and the quality of an idea can be hard to judge at the beginning. Furthermore, it’s hard to come up with something interesting if it’s not fun. Thus, a lot of your grade will depend on things that require only diligence,e.g., attendance and class participation.
About 80% of the course grade will be based on two presentations: 5% for the topic, abstract, and list of papers for bibliography, 35% for the literature review and 40% for a research proposal. The literature review will be judged on your ability to present one or two papers and to answer related questions from me and the class. The research proposal will be judged on the originality and interest of the research idea, and feasibility of the research. The literature review part of the paper must be submitted to me the day before your presentation. They will then be distributed to the class. Your research design must be submitted 1 day before your presentation.The presentation of the literature review is a chance for you to check and complete your understanding, since others will already have read it. The presentation of your ideas is a chance to get feedback.
Since this is a research orientated course. The beginning of research is questioning and independent thinking. Your participation is important for your learning. To encourage you to speak up, I will give you points for questions and comments in class. About 20% will be based on class participation. 15% of this will likely be based upon quizzes to check for basic understanding of the material.

Attendance

Past experience suggests that if a student misses classes, the quality of their class participation will be poor, and their presentations will be a big waste of time for everyone. Therefore, attendance is mandatory. Materials covered during excused absence needs to be made up ; I will test you on what you missed.  Any unexcused absence or more than 3 excused absences can result in dismissal from the course.

Doing Well in the Course

This is a research oriented course. Research is full of risk. However, I am willing to largely insure you against risk. If your attend, participate, and make an honest effort with your presentations, then, you will definitely pass, and are likely to do ok, e.g., have a grade  >80%. Two students who have failed another course like this in the past had poor attendance, did terrible presentations, and one even plagiarized.

Rules for Course

Here are things that I've come to expect from students in my classes. I'm sure that you know most of these things already, but I thought I would explain it all at once to avoid case by case corrections. 
Turn off cell phones in class and during our office hours discussions. Laptop computers must be closed at all times. I will provide handouts, so there is no need for them. You are required to pay attention in class regardless of whether I or a student are presenting. To encourage you to pay attention and participate, I will often ask you questions. Lack of attention will likely attract my attention and therefore, questions.  Of course, no sleeping in class.
I will likely be quite free with office hours. However, I will ask that you make notes during and after discussion so I don’t have to repeat things, then to send me the notes through email so we have a permanent record.