Industrial Organization Contemporary Theory and Practice

, by Pepall, Lynne; Richards, Daniel J.; Norman, George

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ISBN: 9780324067729 | 0324067720
Cover: Hardcover
Copyright: 8/6/2001

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This textbook brings modern I/O analysis to the undergraduate level. Consistent with modern analysis, the authors focus explicitly on the nature of strategic interaction and make extensive use of game theoretic tools. At the same time, they never lose sight of the policy motivation behind much IO analysis. Formal analysis is combined with many practical applications, and the presentation does not assume familiarity with calculus, rather it relies on the ability to work through algebraic equations.

Introduction

(52)

Competition versus Monopoly: The Poles of Market Performance

(19)

Perfect Competition

(5)

Monopoly

(5)

Profit Today versus Profit Tomorrow: Firm Decision Making over Time

(7)

Efficiency, Surplus, and Size Relative to the Market

(8)

The Monopolist and Surplus

(2)

The Nonsurplus Approach to Economic Efficiency

(3)

Competition, Monopoly, and Somewhere in Between: The Evolution of Industrial Organization Theory and Antitrust Policy

(23)

Antitrust Policy: The First Thirty Years

(6)

The ``New'' Sherman Act and the Dominance of Structure-Based Analysis

(2)

The Chicago School and the New IO

(5)

Summary

(2)

Problems

(2)

References

(1)

Appendix: Key Excerpts from Antitrust Statutes

(5)

Technology, Costs, and Market Structure

(49)

Measuring Market Structure

(8)

Measuring Market Structure

(2)

Measurement Problems: What Is a Market?

(5)

Production Technology and Costs

(14)

The Neoclassical or Technological View of the Firm

(2)

The Single-Product Firm

(5)

Sources of Scale Economies

(2)

Scale Economies---Fixed Costs and Sunk Costs

(5)

Multiproduct Technology: Economies of Scale and Scope

(12)

Flexible Manufacturing: Scope Economies and Product Differentiation

(3)

Noncost Determinants of Industry Structure

(4)

The Size of the Market

(1)

Network Externalities and Market Structure

(1)

The Role of Government Policy

(2)

A Brief Note on Measuring Market Structure versus Measuring Market Performance

(10)

Summary

(1)

Problems

(3)

References

(2)

Appendix: Conversion from the Standard Industrial Classification (SIC) Codes to the North American Industry Classification System (NAICS)

100

(2)

Basic Monopoly Pricing and Product Strategies

102

(52)

Strategies and Degrees of Price Discrimination

103

(29)

First-Degree Price Discrimination

108

(8)

Second-Degree Price Discrimination

116

(7)

Third-Degree Price Discrimination

123

(9)

Price Discrimination and Social Welfare

132

(1)

Public Policy and Price Discrimination

133

(4)

Monopoly, Product Quality, and Social Welfare

137

(9)

The Multiplant Monopolist

146

(8)

Summary

149

(2)

Problems

151

(2)

References

153

(1)

Product and Pricing Strategies for the Multiproduct Monopolist

154

(69)

Product Variety and Price Discrimination

156

(5)

A Spatial Approach to Product Variety

161

(19)

Monopoly and Product Variety without Price Discrimination

163

(10)

Is There Too Much Product Variety?

173

(4)

Monopoly and Product Variety with Price Discrimination

177

(3)

Bundling, Tie-Ins, and Price Discrimination

180

(21)

Commodity Bundling and Tie-In Sales

180

(1)

Commodity Bundling as a Mechanism for Price Discrimination

181

(9)

Required Tie-In Sales

190

(4)

Complementary Goods, Network Externalities, and Monopoly Pricing

194

(7)

Antitrust, Bundling, and Tie-In Sales

201

(22)

Bundling and the Microsoft Case

201

(5)

Antitrust Policy and Product Tying: Additional Developments

206

(4)

Summary

210

(1)

Problems

211

(4)

References

215

(1)

Appendix A: Location Choice with Two Shops

216

(2)

Appendix B: The Monopolist's Choice of Price When Its Shops Have Different Costs

218

(3)

Appendix C: Formal Proof of the Inefficiency Induced by the Marketing of Complementary Goods by Separate Monopolists

221

(2)

Theories of Business Strategy in Oligopoly Markets

223

(59)

Strategic Interaction: Introduction to Game Theory

225

(12)

Dominated and Dominant Strategies

230

(2)

The Nash Equilibrium as a Solution Concept

232

(5)

Single-Period Models of Oligopoly

237

(1)

The Cournot Duopoly Model

238

(20)

Variations on the Cournot Theme: Many Firms and Different Costs

247

(7)

Concentration and Profitability: Implic;ations of the Cournot Model

254

(4)

Price Competition: The Bertrand Duopoly Model

258

(13)

Bertrand Reconsidered

263

(3)

Price Competition and Product Differentiation: Bertrand in a Spatial Setting

266

(5)

A Sequential Model of Oligopoly: The Stackelberg Model

271

(11)

Summary

276

(1)

Problems

277

(3)

References

280

(2)

Monopoly Power and Predatory Conduct

282

(67)

Monopoly Power and Market Entry: Some Basic Facts

284

(2)

Predatory Conduct: Limit Pricing versus Predatory Pricing

286

(11)

Limit Pricing

287

(2)

Predatory Pricing

289

(8)

Credibility of Threats in Dynamic Games

297

(7)

A Simple Dynamic Game of Market Entry

298

(4)

The Chain Store Paradox

302

(2)

Capacity Expansion as a Credible Entry-Deterring Commitment

304

(19)

Capacity, Commitment, and Credible Entry Deterrence

305

(13)

Preemption and the Persistence of Monopoly

318

(2)

Anecdotal Evidence on Predatory or Preemptive Capacity Expansion

320

(3)

Limit Pricing and Imperfect Information

323

(6)

Contracts as a Barrier to Entry

329

(6)

Long-Term Contracts to Deter Entry

330

(3)

Tying as a Predatory Contractual Arrangement

333

(2)

Predatory Conduct and Public Policy

335

(14)

Summary

343

(1)

Problems

344

(2)

References

346

(3)

Collusion and Cartels

349

(58)

Challenges Facing Cartels

351

(2)

Cartels: Cooperation versus Conflict

353

(4)

Repeated Games

357

(20)

Modeling a Repeated Game

358

(2)

Repeated Games with a Finite Horizon

360

(8)

Repeated Games with an Infinite Horizon

368

(1)

A Digression: What We Mean by the Discount Factor

369

(1)

Trigger Strategies, Successful Collusion, and the Folk Theorem

370

(7)

Where Is Collusion Most Likely to Occur?

377

(9)

The Potential for Monopoly Profit

377

(1)

Costs of Reaching a Cooperative Agreement

378

(5)

Costs of Maintaining a Cooperative Agreement

383

(1)

Stable Market Conditions

384

(2)

An Illustration: Possible Collusion on the NASDAQ Exchange

386

(7)

Detecting Collusion among Firms

393

(14)

Summary

400

(1)

Problems

401

(4)

References

405

(2)

Mergers

407

(64)

Horizontal Mergers

410

(16)

The Merger Paradox

410

(4)

Merger and Cost Synergies

414

(4)

The Merged Firms as Stackelberg Leaders---Paradox Lost

418

(8)

Horizontal Mergers and Product Differentiation

426

(10)

No Price Discrimination

428

(6)

Price Discrimination

434

(2)

Vertical Mergers

436

(13)

Mergers of Firms That Produce Complementary Goods

436

(1)

Vertical Mergers: Resolving a Complementarity

437

(6)

Vertical Merger to Facilitate Price Discrimination

443

(2)

Vertical Merger to Facilitate Market Foreclosure

445

(4)

Conglomerate Mergers

449

(4)

Possible Economies Associated with Conglomeration

449

(2)

Managerial Motives

451

(2)

A Brief Digression on Mergers and the Theory of the Firm

453

(2)

Mergers and Public Policy

455

(16)

Summary

461

(1)

Problems

462

(5)

References

467

(2)

Appendix: Equilibrium Prices in the Spatial Model

469

(2)

Vertical Relations and Restraints

471

(57)

Vertical Restraints as a Response to Double Marginalization

475

(11)

Double Marginalization, Royalties, and Moral Hazard

477

(4)

Two-Part Tariffs as a Solution to the Double Marginalization Problem

481

(2)

Resale Price Maintenance and Double Marginalization

483

(3)

Vertical Price Restrictions to Ensure Provision of Retail Services

486

(12)

Optimal Provision of Retail Services

488

(2)

The Case of a Monopoly Retailer and a Monopoly Manufacturer

490

(3)

The Case of Competitive Retailing

493

(2)

Resale Price Maintenance, Customer Services, and Free Riding

495

(3)

Resale Price Maintenance as a Response to Variable Demand

498

(7)

RPM Agreements in Historical Perspective

505

(3)

Nonprice Vertical Agreements

508

(6)

Exclusive Selling and Territory Arrangements

508

(4)

Competition Upstream and Exclusive Dealing

512

(2)

Franchising and Divisionalization

514

(5)

A Note on Vertical Relations and the Theory of the Firm

519

(9)

Summary

523

(1)

Problems

524

(2)

References

526

(2)

Advertising

528

(61)

Consumer Fraud and Truth in Advertising

533

(3)

Advertising: Some Basic Analysis

536

(6)

The Extent of Advertising in the United States

536

(1)

Early Views on the Effect of Advertising Expenditures

537

(5)

Advertising and Signaling

542

(5)

A Complementary View of Advertising and Monopoly Power

547

(19)

Advertising and Crowd Appeal

551

(3)

Advertising, Brand Recognition, and Information

554

(1)

The Monopolist's Profit-Maximizing Choice of Advertising

555

(7)

Monopoly Power: Too Much or Too Little Advertising

562

(1)

Competition and the Extent of Advertising

563

(3)

Advertising and Brand Competition

566

(12)

Cooperative Advertising

578

(11)

Summary

583

(2)

Problems

585

(1)

References

586

(3)

Research and Development

589

(65)

A Taxonomy of Innovations

593

(3)

Market Structure and the Incentive to Innovate

596

(10)

R&D as Direct Interfirm Competition

600

(4)

Some Evidence

604

(2)

Patents and Patent Policy

606

(7)

The Optimal Patent Length

607

(4)

The Optimal Breadth of Patents

611

(2)

Patents, Patent Races, and Innovation as Influences on Structure

613

(13)

Patent Races

613

(7)

Patents and Innovative Activity as an Influence on Market Structure

620

(2)

Monopoly Power and ``Sleeping Patents''

622

(4)

Technology Licensing

626

(8)

The Incentive for an Oligopolist to License a Nondrastic Innovation

627

(1)

Licensing, Drastic Innovations, and Monopoly Power

628

(2)

Patent Licensing, Social Welfare, and Public Policy

630

(4)

Cooperation on R&D between Firms

634

(20)

Noncooperative R&D: Profit, Prices, and Social Welfare

636

(5)

Technology Cooperation

641

(6)

Summary

647

(1)

Problems

648

(3)

References

651

(3)

Current Critical Issues: Network Externalities, Auctions, and Strategic Trade Policy

654

(49)

Network Externalities

655

(22)

Monopoly Provision of a Network Service

657

(9)

Systems Competition and the Battle Over Industry Standards

666

(8)

Public Policy and Network Markets

674

(3)

Auction Markets

677

(13)

Private Value Auctions

678

(5)

Common Value Auctions

683

(3)

Auction Theory and Antitrust Policy

686

(4)

Strategic Trade Policy

690

(13)

Unilateral Intervention in International Markets

690

(5)

International Trade Agreements as Cooperative Mechanism

695

(2)

Summary

697

(1)

Problems

698

(2)

References

700

(3)

Answers to Practice Problems

703

(10)

Glossary

713

(4)

Index

717

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Industrial Organization Contemporary Theory and Practice

Summary

Author Biography

Table of Contents

Supplemental Materials