Industry Study

One requirement for this course is to complete an industry study. In this study you will analyze the degree of competition within an industry, and the past and prospective role of public policy in promoting good economic performance. The study will consist of three homework assignments, due at intervals through the term, plus a final report based on those assignments due the Monday of the tenth week. The assignments cover three principal concerns that economists have regarding an industry:

Structure. This deals with defining economically meaningful product and geographic dimensions of the industry, and describing the number and size of firms competitng in that industry. This section should also cover the history of entry, exit, and merger in your industry.

Conduct. The conduct of firms in an industry refers to how prices are set, how and how much firms choose to advertise, when and how firms introduce new products, and any other aspect of strategy that firms employ in trying to succeed.

Performance. This category covers a number of different aspects of firm success, including profitability, price level, fairness, good citizenship, and rates of innovation and technical progress. In this project, you should be mainly concerned with the well-being of consumers, and in this context, "good" performance means performance which approximates the results of perfect competition: low profits, prices reflecting no more than marginal costs, fair treatment of employees and suppliers.

Conclusion. The conclusion of your study will address two topics. First, is the industry workably competitive? Second, what public policies (antitrust and/or regulation) have historically been applied to your industry, and what future government involvement is warranted to improve performance?

Before beginning these assignments, please refer to the tips for answering questions.

A complete list of suggested References is located at the bottom of this page.

Structure

Answer the following questions relating to the structure of your industry:

1. What is your industry? Would you characterize its output as a consumer good or a producer good? a durable good or non-durable good? a good or a service?
2. How well defined is your industry? Does it conform well to a single Standard Industrial Classification (SIC) code, or is the industry definition too broad or too narrow to fit the economic definition of industry? Consider both the product and geographic dimensions of the industry. How important are imports and exports, for example? How easily can consumers switch to a substitute good? If necessary, choose a related industry which is, in your opinion, well defined in economic terms.
3. What are the major firms in your industry? If possible report the market share of each of these top firms. (To do this requires a good market definition.) Try looking in the Business Periodicals Index, which yau can search by SIC code, and the Statistical Reference Index (SRI), which you can search in a section called BY INDUSTRY. This SRI is an extremely valuable tool, as it indexes statistics published by non-government sources, including industry trade associations. What is more, we have virtually everything indexed on microfiche in the library.
4. Try to trace the history of your industry. Look for evidence of changes in the market shares of the leading firms. Have the leaders changed over the years? Have there been important mergers? Has there been entry or exit, either domestic or foreign? When?
5. How important is international trade in your industry? Imports? Exports?
6. If possible, find or compute one or more concentration ratios in your industry. (For manufacturing industries, you can find this data in the Census of Manufacturing. In non-manufacturing, you will have to rely on news reports.)
7. In what other industries are the leading firms (from #3) active? If possible, report what share of each firm's activity (measured by employment, sales, assets, or profits) is in your industry.
8. Report any other aspects of structure you can find, such as industry growth rate, height of barriers to entry or exit, buyer concentration, etc.

Conduct

This assignment is open-ended, and deals primarily with the conduct or behavior of firms in your industry. The following questions and sources are meant to be suggestive only. Not all questions will apply to all industries. Often the best information will be found in specific articles or reports about your industry or firms in it, rather than in statistical sources.

1. What has been the pattern of price inflation in your industry, compared to the national average (use CPI or PPI, as appropriate). You may be forced to use just a 2-digit industry figure here, but be more precise if possible. Any information about specific pricing behavior would be interesting, e.g. announcements of price rises or cuts.
2. How are prices set in your industry? Is there any evidence or history of price collusion, or price leadership? What reasons are given for announced price changes?
3. What kind of distribution network exists for the products in your industry? Do industry members directly own retail outlets, do they franchise the company name? Do customers come to your firms, or do sales people try to locate customers? If you can't find industry-wide data, just concentrate on one or two of the large firms.
4. Do firms in your industry engage in non-price competition? E.g. advertising, speed of delivery, quality, convenience, finance terms, or other forms of sales and marketing?
5. How important are advertising and other forms of product differentiation in your industry? Try to find advertising budgets, or advertising-to-sales ratios. COMPUSTAT might help.
6. What major mergers have occurred in your industry in the last 5-10 years? (You may have covered this under structure.) Keep trying to find who owns the firms in your industry, and when they were acquired. (National Newspaper Index is a good source for this.)
7. Can you identify any strategic behavior to deter entry?
8. Report anything else you have found relating to industry structure and conduct not covered above.

Performance

Try to find information about as many of the performance areas listed below as you can. Review Greer, pp. 16-20.

1. Allocative efficiency: What is the profitability of your industry? (Try to find industry statistics, not just firm statistics.) Is there any indication that your industry, or selected firms are more or less profitable than normal? (Recall that firms exercising monopoly power may do so by raising price, cutting output, and enjoying excess profits. Thus high profits may be an indicator of monopoly power.)
2. Productive efficiency: Have you discovered any evidence of X-inefficiency, such as announcements of "cost-cutting" moves, or re-structuring the management of firms, or possibly hostile takeover attempts aimed at replacing ineffective management? (Another possible symptom of monopoly power is the ability of a firm to incur excessive cost without being forced out of business.)
3. Dynamic efficiency: What is the record of research and development, in terms of new products or new production processes? You may be able to find some information regarding new patents issued, dollars spent on R&D, employment of scientists and engineers employed, etc.
4. Macroeconomic stability: Comment on your industry's contribution to full employment and/or macroeconomic price stability. Have wage increases in your industry been in line with inflation? Is there any evidence of improvements in worker productivity (output per worker)? Have there been massive layoffs or plant closings, or other evidence of downsizing or contracting out?
5. Equity: Is there evidence of your industry or its members being particularly fair or unfair to a) owners, b) employees, c) customers, d) competitors, e) suppliers, f) anyone else? Look for evidence of lawsuits brought by any one group against another.
6. Public policy: Outline the effects of government policy on your industry, including antitrust, price or entry regulation, environmental or safety and health regulation, international trade regulation, special tax treatment.

Conclusion and Final Paper

The final paper is due Monday, November 10, 1997. In writing the final paper, use your answers to the three assignments. The paper should be an assessment of the state of competition in your industry, addressing the questions of whether your industry is workably competitive, and what government policies have been directed toward your industry.

Your paper should include a description of the structure, conduct and performance of your industry. Try to draw conclusions regarding the links between the categories (they need not always run from S > C > P). Discuss your industry in the economic terms of this course: What is the relevant market, in both the product and geographic dimension? How high are barriers to entry? What are those barriers? What competitive strategies (price and non-price) do firms employ? Do firms possess monopoly power? What public policies have been directed at your industry, particularly antitrust and regulation, and why?

The conclusion of your paper should be an assessment of whether your industry is "workably competitive". To the extent that it is not, recommend policies to remedy the shortcomings.

The paper should be 8-10 pages long (double spaced, 12-point type, one-inch margins). If you have tables, charts, or other data, they may be included as appendices. I encourage you to put lists of data in table or graphic form; it is much easier to read and interpret that way. Include a complete bibliography, and be sure to footnote (or endnote) all of your sources, including the data in charts or tables, with complete references.

When you turn in your paper, also turn in the structure, conduct, and performance assignments. It would help if you could clip it all together. The paper is due on Monday, November 10, 1997, in class. Earlier submissions are certainly welcome. Late papers will be penalized one full letter grade per day. After class on November 10 counts as one day late.

Executive Summary:

Prepare a one page (single-spaced) Executive Summary of your paper which covers whatever you find most interesting about your industry, and presents your policy prescriptions. Be sure to include a definition of your industry, and the identity of the leading firms. If there are one or two references which are particularly useful or interesting for someone wishing to learn more about your industry, include them on this page.

DO NOT ATTACH THE EXECUTIVE SUMMARY PAGE TO YOUR PAPER. Place the following information in the upper-right-hand corner of your summary:

Tips for Answering Questions

I realize that not everyone will be able to answer all questions. If you are having trouble with a particular question, check with me.

Please keep careful track of the sources you use for answers to each question. Note that "Econlit", or "Social Sciences Index", or "National Newspaper Index" or are not sufficient references. These are merely indexes. You must cite the actual source of the information. For Internet sources, please supply the full URL (i.e., http://...). Where possible give a full bibliographic citation (including web sources), including author, title, date, pages. The key is to give me enough information that I could easily find your source.

References

1. The web site Economics: Guide to Information Resources for Thesis Students, prepared by David Gerhan of the Schafer Library staff is an excellent place to start. It includes many of sources which follow, along with information on how to do research in the library.
2. Schaffer Library catalog.
3. Standard Industrial Classification (SIC) manual - lists industries and products, as defined by the Census Bureau. (Shaffer Library reference desk). A list of these codes is also on the web. Note that as of 1997, the SIC system is being phased out, in favor of the North American Industry Classification System (NAICS). I suspect that data will continue to be reported by SIC for some time, but a conversion table between the two systems has been prepared by the Census Bureau.
4. Business Periodicals Index (BPI); Social Sciences Index (SSI); Reader's Guide - look for articles about your industry, or firms in your industry, which might discuss aspects of structure, conduct or performance. Look especially for market shares. (Available on CD-ROM in the library. Be sure to give specific source in citations. Note that the CD-ROM version of the BPI, located in the Library, can be searched by SIC number, see the HOW TO sheet.)
5. Mueller, Charles E., "Elements of an Antitrust Case: Structure, Conduct, and Performance", Antitrust Law & Economics Review, Vol. 26, No. 4, 1996. Contains a detailed discussion of how an industry study is done in preparation for an antitrust case. Mueller is editor of the Antitrust Law and Economics Review, which has a good web site on the subject.
6. U.S. Industrial Outlook, published by the Department of Commerce. Good industry data, but no specific firm information. (Print version available at reference desk.)
7. Funk and Scott (F&S) Index - articles in business publications, indexed by SIC number. Many of these articles will have to be requested through Inter-Library Loan. (Be sure to give specific source in citations, and allow 1-2 weeks for delivery of ILL articles.)
8. Standard & Poor's Industry Surveys - not all industries covered, but good data on firms, grouped by industry, for those there. Reference desk. Some reports available on the Internet.
9. Dun & Bradstreet Million Dollar Directory - lists major firms by industry. Also lists in which industries a firm operates.
10. Moody's Industrial Manual - detailed financial information about individual firms. Shows in which industries a firm operates, but you have to know what firms you are looking for first.
11. Poor's Register of Corporations - similar to Million Dollar Directory.
12. Concentration Ratios in Manufacturing, in the Census of Manufacturing (Read the explanatory text on concentration ratios and industry definitions.) Provides concentration ratios and Herfindahl indices for manufacturing industries (SIC 2000-3999). Also on the Web at U.S. Department of Commerce, Bureau of the Census, "Concentration Ratios in Manufacturing."
13. ValueLine, similar to Moody's, except more concise reports. Sometimes identifies lines of business. Reference desk.
14. National Newspaper Index - Annual index of eight major U.S. newspapers. Library, CD-ROM.
15. EconLit, CD-ROM in Shaffer Library, or on the Web; contents of the Journal of Economic Literature since 1969. Indexes several hundred leading economics journals. If you are using this on the Web, go through OCLC FirstSearch, and choose the area Business and Economics, and the database EconLit.
16. Expanded Academic Index covers several thousand periodicals (not just business and economcis), and offers full text for a number of these.
17. Facts on File-annual news digest. Library.
18. Statistical Reference Index (SRI): indexes non-government statistical data, including data from trade associations. (Be sure to give specific source in citations.) You can search this index BY INDUSTRY (see the back of the index volume).
19. American Statistical Index (ASI): indexes government published data. Most SRI and ASI source documents are in the basement, on Microfiche. (Be sure to give specific source in citations.)
20. Congressional Information Service index (CIS): covers all Congressional documents, including hearings and special studies. (Be sure to give specific source in citations.)
21. Advertising Age; contains tables of leading advertisers.
22. Mergers and Acquisitions ; library has on microfiche. Catalogs major mergers (although I suspect you will do as well with one of the Business and Economics indices in FirstSearch).
23. COMPUSTAT; a CD-ROM database of financial statistics for publicly traded companies available in the Stat Lab, contains data for existing companies, plus a "research" file with data for all companies which disappeared in the last 20 years. The Compustat Library, accessed through Compustat, gives brief descriptions of each company.
24. NYU Stern School of Business Information Systems Department, "EDGAR Development Project", on the Web at http://edgar.stern.nyu.edu . This site contains all corporate SEC filings since 1994. It also has links to the SEC itself. To search for companies in your industry, go to Get Corporate SEC Filings. I suggest searching by company and form, and look only for 10-K forms, which have the most information. PLEASE DO NOT PRINT THE ENTIRE 10-K FORM. Each can run to several hundred pages. Cut and paste relevent parts into a smaller file, then print the file if you must.
25. Brands and their Companies (NY: Gale Research) Ref T223.U4.A25.1992. Good source if you can’t find the parent company of a brand, or want to know what brands your companies own. Three years out of date, so will not reflect recent mergers.
26. Hoover’s Handbook of American Business (Austin, TX: Reference Press, Inc.) Ref. HG 4057.A2862
27. Hoover’s Handbook of World Business (Austin, TX: Reference Press, Inc.) Ref. HG 4057.A2863
28. Hoover’s Handbook of Emerging Companies (Austin, TX: Reference Press, Inc.) Ref. HG 4057.A28618
29. Martin, Susan B., Notable Corporate Chronologies (in 2 volumes) (NY: Gale Research) HD 2721.N670.1995 Excellent for company and industry histories, mergers.
30. Mattera, Philip, World Class Business (NY: Henry Holt) Ref HD 2755.5.M384
31. Moskowitz, Milton, et al., Everyone’s Business (NY: Harper and Rowe) Ref HD 2785.E88. A bit dated, but funny, informative company histories.
32. U.S. Department of Commerce, Stat-USA While we do not subscribe to full service at this site, there is a "Free test drive" section, with search capability, which seems to have quite a bit of information. Give it a try.
33. U.S. Department of Commerce, U.S. Global Trade Outlook: Toward the 21st Century (Washington, DC: USGPO) (at the reference desk; also on CD, which may not be installed yet). Of limited use. Talks mostly about countries, not industries. In a few cases (medical equipment is one), lists imports and exports. See also U.S. Global Trade Outlook 1995-2000 .
34. Antitrust Policy: An On-Line Resource Linking Economic Research, Policy and Cases. This site is maintained at Vanderbilt University, and contains links to many other sites with information about public policy toward industry. This is an excellent site for policy issues.
35. U.S. Department of Justice, Antitrust Division. Contains details on all current and recent antitrust cases, as well as statements regarding current antitrust policies, such as the 1992 Merger Guidelines, and the 1997 revisions. This site also has links to other antitrust-related site.
36. Links to other federal regulatory agencies, including CFTC, CPSC, DOE (FERC), DOL (OSHA), DOT (NHTSA), EPA, FCC, FTC, NRC, SEC

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