Industrial organization : contemporary theory and practice / Lynne Pepall, Daniel J. Richards, George Norman.

Format:

Book

Author/Creator:

Pepall, Lynne, 1952-

Contributor:

Richards, Daniel Jay.

Norman, George, 1946-

Language:

English

Subjects (All):

Industrial organization.

Industrial organization (Economic theory).

Local Subjects:

Industrial organization (Economic theory).

Physical Description:

xviii, 724 pages : illustrations ; 24 cm

Edition:

Second edition.

Place of Publication:

Cincinnati : South-Western/Thomson Learning, [2002]

Contents:

1.1 Competition versus Monopoly: The Poles of Market Performance 3

1.1.1 Perfect Competition 5

1.1.2 Monopoly 10

1.1.3 Profit Today versus Profit Tomorrow: Firm Decision Making over Time 15

1.2 Efficiency, Surplus, and Size Relative to the Market 22

1.2.1 The Monopolist and Surplus 25

1.2.2 The Nonsurplus Approach to Economic Efficiency 27

1.3 Competition, Monopoly, and Somewhere in between: The Evolution of Industrial Organization Theory and Antitrust Policy 30

1.3.1 Antitrust Policy: The First Thirty Years 30

1.3.2 The "New" Sherman Act and the Dominance of Structure-Based Analysis 36

1.3.3 The Chicago School and the New IO 38

Appendix Key Excerpts from Antitrust Statutes 48

Chapter 2 Technology, Costs, And Market Structure 53

2.1 Measuring Market Structure 54

2.1.1 Measuring Market Structure 55

2.1.2 Measurement Problems: What Is a Market? 57

2.2 Production Technology and Costs 62

2.2.1 The Neoclassical or Technological View of the Firm 62

2.2.2 The Single-Product Firm 64

2.2.3 Sources of Scale Economies 69

2.2.4 Scale Economies

Fixed Costs and Sunk Costs 71

2.3 Multiproduct Technology: Economies of Scale and Scope 76

2.3.1 Flexible Manufacturing: Scope Economies and Product Differentiation 85

2.4 Noncost Determinants of Industry Structure 88

2.4.1 The Size of the Market 88

2.4.2 Network Externalities and Market Structure 89

2.4.3 The Role of Government Policy 90

2.5 A Brief Note on Measuring Market Structure versus Measuring Market Performance 92

Appendix Conversion from the Standard Industrial Classification (SIC) Codes to the North American Industry Classification System (NAICS) 100

Chapter 3 Basic Monopoly Pricing And Product Strategies 102

3.1 Strategies and Degrees of Price Discrimination 103

3.1.1 First-Degree Price Discrimination 108

3.1.2 Second-Degree Price Discrimination 116

3.1.3 Third-Degree Price Discrimination 123

3.2 Price Discrimination and Social Welfare 132

3.3 Public Policy and Price Discrimination 133

3.4 Monopoly, Product Quality, and Social Welfare 137

3.5 The Multiplant Monopolist 146

Chapter 4 Product And Pricing Strategies For The Multiproduct Monopolist 154

4.1 Product Variety and Price Discrimination 156

4.2 A Spatial Approach to Product Variety 161

4.2.1 Monopoly and Product Variety without Price Discrimination 163

4.2.2 Is There Too Much Product Variety? 173

4.2.3 Monopoly and Product Variety with Price Discrimination 177

4.3 Bundling, Tie-Ins, and Price Discrimination 180

4.3.1 Commodity Bundling and Tie-In Sales 180

4.3.2 Commodity Bundling as a Mechanism for Price Discrimination 181

4.3.3 Required Tie-In Sales 190

4.3.4 Complementary Goods, Network Externalities, and Monopoly Pricing 194

4.4 Antitrust, Bundling, and Tie-In Sales 201

4.4.1 Bundling and the Microsoft Case 201

4.4.2 Antitrust Policy and Product Tying: Additional Developments 206

Appendix A Location Choice with Two Shops 216

Appendix B The Monopolist's Choice of Price When Its Shops Have Different Costs 218

Appendix C Formal Proof of the Inefficiency Induced by the Marketing of Complementary Goods by Separate Monopolists 221

Chapter 5 Theories Of Business Strategy In Oligopoly Markets 223

5.1 Strategic Interaction: Introduction to Game Theory 225

5.1.1 Dominated and Dominant Strategies 230

5.1.2 The Nash Equilibrium as a Solution Concept 232

5.2 Single-Period Models of Oligopoly 237

5.3 The Cournot Duopoly Model 238

5.3.1 Variations on the Cournot Theme: Many Firms and Different Costs 247

5.3.2 Concentration and Profitability: Implications of the Cournot Model 254

5.4 Price Competition: The Bertrand Duopoly Model 258

5.4.1 Bertrand Reconsidered 263

5.4.2 Price Competition and Product Differentiation: Bertrand in a Spatial Setting 266

5.5 A Sequential Model of Oligopoly: The Stackelberg Model 271

Chapter 6 Monopoly Power And Predatory Conduct 282

6.1 Monopoly Power and Market Entry: Some Basic Facts 284

6.2 Predatory Conduct: Limit Pricing versus Predatory Pricing 286

6.2.1 Limit Pricing 287

6.2.2 Predatory Pricing 289

6.3 Credibility of Threats in Dynamic Games 297

6.3.1 A Simple Dynamic Game of Market Entry 298

6.3.2 The Chain Store Paradox 302

6.4 Capacity Expansion as a Credible Entry-Deterring Commitment 304

6.4.1 Capacity, Commitment, and Credible Entry Deterrence 305

6.4.2 Preemption and the Persistence of Monopoly 318

6.4.3 Anecdotal Evidence on Predatory or Preemptive Capacity Expansion 320

6.5 Limit Pricing and Imperfect Information 323

6.6 Contracts as a Barrier to Entry 329

6.6.1 Long-Term Contracts to Deter Entry 330

6.6.2 Tying as a Predatory Contractual Arrangement 333

6.7 Predatory Conduct and Public Policy 335

Chapter 7 Collusion And Cartels 349

7.1 Challenges Facing Cartels 351

7.2 Cartels: Cooperation versus Conflict 353

7.3 Repeated Games 357

7.3.1 Modeling a Repeated Game 358

7.3.2 Repeated Games with a Finite Horizon 360

7.3.3 Repeated Games with an Infinite Horizon 368

7.3.4 A Digression: What We Mean by the Discount Factor 369

7.3.5 Trigger Strategies, Successful Collusion, and the Folk Theorem 370

7.4 Where Is Collusion Most Likely to Occur? 377

7.4.1 The Potential for Monopoly Profit 377

7.4.2 Costs of Reaching a Cooperative Agreement 378

7.4.3 Costs of Maintaining a Cooperative Agreement 383

7.4.4 Stable Market Conditions 384

7.5 An Illustration: Possible Collusion on the NASDAQ Exchange 386

7.6 Detecting Collusion among Firms 393

Chapter 8 Mergers 407

8.1 Horizontal Mergers 410

8.1.1 The Merger Paradox 410

8.1.2 Merger and Cost Synergies 414

8.1.3 The Merged Firms as Stackelberg Leaders

Paradox Lost 418

8.2 Horizontal Mergers and Product Differentiation 426

8.2.1 No Price Discrimination 428

8.2.2 Price Discrimination 434

8.3 Vertical Mergers 436

8.3.1 Mergers of Firms That Produce Complementary Goods 436

8.3.2 Vertical Mergers: Resolving a Complementarity 437

8.3.3 Vertical Merger to Facilitate Price Discrimination 443

8.3.4 Vertical Merger to Facilitate Market Foreclosure 445

8.4 Conglomerate Mergers 449

8.4.1 Possible Economies Associated with Conglomeration 449

8.4.2 Managerial Motives 451

8.5 A Brief Digression on Mergers and the Theory of the Firm 453

8.6 Mergers and Public Policy 455

Appendix Equilibrium Prices in the Spatial Model 469

Chapter 9 Vertical Relations And Restraints 471

9.1 Vertical Restraints as a Response to Double Marginalization 475

9.1.1 Double Marginalization, Royalties, and Moral Hazard 477

9.1.2 Two-Part Tariffs as a Solution to the Double Marginalization Problem 481

9.1.3 Resale Price Maintenance and Double Marginalization 483

9.2 Vertical Price Restrictions to Ensure Provision of Retail Services 486

9.2.1 Optimal Provision of Retail Services 488

9.2.2 The Case of a Monopoly Retailer and a Monopoly Manufacturer 490

9.2.3 The Case of Competitive Retailing 493

9.2.4 Resale Price Maintenance, Customer Services, and Free Riding 495

9.3 Resale Price Maintenance as a Response to Variable Demand 498

9.4 RPM Agreements in Historical Perspective 505

9.5 Nonprice Vertical Agreements 508

9.5.1 Exclusive Selling and Territory Arrangements 508

9.5.2 Competition Upstream and Exclusive Dealing 512

9.6 Franchising and Divisionalization 514

9.7 A Note on Vertical Relations and the Theory of the Firm 519

Chapter 10 Advertising 528

10.1 Consumer Fraud and Truth in Advertising 533

10.2 Advertising: Some Basic Analysis 536

10.2.1 The Extent of Advertising in the United States 536

10.2.2 Early Views on the Effect of Advertising Expenditures 537

10.3 Advertising and Signaling 542

10.4 A Complementary View of Advertising and Monopoly Power 547

10.4.1 Advertising and Crowd Appeal 551

10.4.2 Advertising, Brand Recognition, and Information 554

10.4.3 The Monopolist's Profit-Maximizing Choice of Advertising 555

10.4.4 Monopoly Power: Too Much or Too Little Advertising 562

10.4.5 Competition and the Extent of Advertising 563

10.5 Advertising and Brand Competition 566

10.6 Cooperative Advertising 578

Chapter 11 Research And Development 589

11.1 A Taxonomy of Innovations 593

11.2 Market Structure and the Incentive to Innovate 596

11.2.1 R&D as Direct Interfirm Competition 600

11.2.2 Some Evidence 604

11.3 Patents and Patent Policy 606

11.3.1 The Optimal Patent Length 607

11.3.2 The Optimal Breadth of Patents 611

11.4 Patents, Patent Races, and Innovation as Influences on Structure 613

11.4.1 Patent Races 613

11.4.2 Patents and Innovative Activity as an Influence on Market Structure 620

11.4.3 Monopoly Power and "Sleeping Patents" 622

11.5 Technology Licensing 626

11.5.1 The Incentive for an Oligopolist to License a Nondrastic Innovation 627

11.5.2 Licensing, Drastic Innovations, and Monopoly Power 628

11.5.3 Patent Licensing, Social Welfare, and Public Policy 630

11.6 Cooperation on R&D between Firms 634

11.6.1 Noncooperative R&D: Profit, Prices, and Social Welfare 636

11.6.2 Technology Cooperation 641

Chapter 12 Current Critical Issues: Network Externalities, Auctions, And Strategic Trade Policy 654

12.1 Network Externalities 655

12.1.1 Monopoly Provision of a Network Service 657

12.1.2 Systems Competition and the Battle Over Industry Standards 666

12.1.3 Public Policy and Network Markets 674

12.2 Auction Markets 677

12.2.1 Private Value Auctions 678

12.2.2 Common Value Auctions 683

12.2.3 Auction Theory and Antitrust Policy 686

12.3 Strategic Trade Policy 690

12.3.1 Unilateral Intervention in International Markets 690

12.3.2 International Trade Agreements as Cooperative Mechanism 695.

Notes:

Includes bibliographical references and index.

ISBN:

0324067720

9780324067729

OCLC:

46791115