IO Field Exam Instructor: Ben Handel
This exam is comprised of two sections. The first section is for material covered in IO, 220A
taught in the spring of 2012 by Ben Handel. The second section is for material covered in
IO, 220C taught in the fall by Denis Nekipelov. Each section is worth 50 points.
Part 1
Question 1 (30 points) Bresnahan (1987) and Berry, Levinsohn, and Pakes (1995) study
market structure in the automobile industry. This question asks about specific details
pertaining to each of these papers, and asks you to discuss the relationship between them.
1. (10 points) Describe the models of product differentiation in the auto industry pre-
sented in each paper, in detail. Why does Bresnahan choose to model product differ-
entiation in the way he does? What does his model imply for cross-price elasticities
and substitution patterns? What are the benefits of using BLP as compared to Bres-
nahan’s approach?
2. (5 points) What assumptions does BLP make about competition between firms and
what key quantity does the supply side model identify? Write down the firm first
order condition in BLP (if you can’t recall exactly, describe this equation).
3. (15 points) What instruments does BLP rely on to deal with the endogeneity of prices?
Present their formal / detailed argument for why these are valid instruments. What
instruments does Nevo (2001) to deal with price endogeneity in the ready to eat cereal
industry? Why are they valid (according to him) and why are they different than those
used in BLP?
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