olic gopoly pricing(5) (4)the approaches used by economists to empirically identify market power and its determinants. Two conceptually distinct approaches are: (a)the S-c-p paradigm and (b) the new empirical lo
Oligopoly pricing(5) • (4) the approaches used by economists to empirically identify market power and its determinants. Two conceptually distinct approaches are: (a) the S-C-P paradigm and (b) the new empirical IO
Oligopoly pricing(6 Game theory: provide an intuitive, conceptual introduction to the techniques used to study oligopoly behavior and strategic competition (1)Simultaneous move game--static games (2) sequential or dynamic games
Oligopoly pricing(6) • Game theory: provide an intuitive, conceptual introduction to the techniques used to study oligopoly behavior and strategic competition. • (1)Simultaneous move game—static games. • (2)sequential or dynamic games
Strategic behavior(1) The distinction between short-run(tactical) decisions and long-run(strategic) decisions Strategic decisions, in part, determine both the possible tactical decisions and the payoffs associated with the tactical choices In the context of o the tactical decisions usually involve prices or output. The strategic variables include plant capacity, advertising, product selection, and R&D
Strategic behavior(1) • The distinction between short-run (tactical) decisions and long-run (strategic) decisions. Strategic decisions, in part, determine both the possible tactical decisions and the payoffs associated with the tactical choices. In the context of IO, the tactical decisions usually involve prices or output. The strategic variables include plant capacity, advertising, product selection, and R&D
Strategic behavior(2) ntroduction to strategic behavior and the importance of commitment Define a strategic move and explain how it converts an idle threat into a credible threat(commitment by changing incentives and expectations Early work on strategic behavior emphasized so-called indirect effects A move or action by a is strategic if it changes B's expectations of how A will behave, and as a result alters the behavior of b in a manner favorable to A In lo such a strategic move is usually associated with sunk expenditures or binding(有约束力的、有效力的) contracts supported by a legal framework. if one firm can move first and incur sunk expenditures, its production incentives will change The relationship between sunk expenditures, strategic moves, and commitments. These concepts are then used to provide a consistent game theoretic interpretation of the classic oligopoly model of Stackelberg. Show how a firm can successfully increase its market share and profits if it can commit to its level of output prior to its rivals response by sinking its costs of production This model also provides a natural starting point for considering the issue of profitable strategic entry deterrence: under what circumstances is it possible and profitable for an incumbent firm to deter the entry of an equally efficient rival? The limit-price model
Strategic behavior(2) • Introduction to strategic behavior and the importance of commitment. • Define a strategic move and explain how it converts an idle threat into a credible threat (commitment) by changing incentives and expectations. • Early work on strategic behavior emphasized so-called indirect effects. A move or action by A is strategic if it changes B’s expectations of how A will behave, and as a result alters the behavior of B in a manner favorable to A. In IO such a strategic move is usually associated with sunk expenditures or binding(有约束力的、有效力的) contracts supported by a legal framework. If one firm can move first and incur sunk expenditures, its production incentives will change. • The relationship between sunk expenditures, strategic moves, and commitments. These concepts are then used to provide a consistent game— theoretic interpretation of the classic oligopoly model of Stackelberg. Show how a firm can successfully increase its market share and profits if it can commit to its level of output prior to its rival’s response by sinking its costs of production. This model also provides a natural starting point for considering the issue of profitable strategic entry deterrence: under what circumstances is it possible and profitable for an incumbent firm to deter the entry of an equally efficient rival? • The limit-price model
Strategic behavior(3) Modern theory of entry deterrence and the synthesis k a) of the two existing views How and when investment in capacity can provide the means for an incumbent to deter entry by credibly committing it to behave aggressively if an entrant should enter, thus rendering(使得、致使 entry unprofitable. This strategic approach emphasizes how the sunk expenditures of the incumbent provide it with a strategic advantage by An alternative perspective is oftered by the theory of contestability. The contestability of a market is determined by the magnitudes(x 重要 )of sunk expenditures incurred upon entry by an entrant. When there are no sunk expenditures associated with entry, hit-and-run y potential competition. If there are sunk expenditures associate Ced entry provides a means whereby competition in the market is replac b with entry, then entrants will be reluctant(犹豫、踌躇) to enter if they anticipate that these expenditures will not be recovered
Strategic behavior(3) • Modern theory of entry deterrence and the synthesis(综合) of the two existing views. • How and when investment in capacity can provide the means for an incumbent to deter entry by credibly committing it to behave aggressively if an entrant should enter, thus rendering(使得、致使) entry unprofitable. This strategic approach emphasizes how the sunk expenditures of the incumbent provide it with a strategic advantage by reducing its economic costs. • An alternative perspective is offered by the theory of contestability. The contestability of a market is determined by the magnitudes(大小、重要 性) of sunk expenditures incurred upon entry by an entrant. When there are no sunk expenditures associated with entry, hit-and-run entry provides a means whereby competition in the market is replaced by potential competition. If there are sunk expenditures associated with entry, then entrants will be reluctant(犹豫、踌躇) to enter if they anticipate that these expenditures will not be recovered