Strategic behavior(4) The theory of 2-stage games or strategic competition Generalize from the modern theory of entry deterrence to the development of the full taxonomy of business strategies. This taxonomy provides a guide to understanding how firms can identify capture, and protect rents A Wide range of strategies include learning by doing tying, choice of managerial incentives, lease-or-sell decisions, direct distribution or use of independent retailers, and switching costs Two areas of corporate strategy (a)advertising informative and persuasive advertising; the incentives and effects, as well as the social desirability, for both kinds of advertising (b the economics of R&D: the special nature of knowledge and the implications of that nature for its production the relationship between market structure and innovative activity the rationale for patents and the determination of the characteristics of an optimal patent, and the efficiency implications of patent races
Strategic behavior(4) • The theory of 2-stage games or strategic competition. • Generalize from the modern theory of entry deterrence to the development of the full taxonomy of business strategies. This taxonomy provides a guide to understanding how firms can identify, capture, and protect rents. • A wide range of strategies include learning by doing, tying, choice of managerial incentives, lease-or-sell decisions, direct distribution or use of independent retailers, and switching costs. • Two areas of corporate strategy: (a) advertising: informative and persuasive advertising; the incentives and effects, as well as the social desirability, for both kinds of advertising. • (b) the economics of R&D: the special nature of knowledge and the implications of that nature for its production, the relationship between market structure and innovative activity, the rationale for patents and the determination of the characteristics of an optimal patent, and the efficiency implications of patent races
Issues in antitrust economics(1) Public policy responses to the exercise of market power-issues in antitrust enforcement and regulation Market definition, highlighting the differences between economic markets and antitrust markets. market definition in antitrust is a search for market power Without market power, firm conduct will not raise efficiency concems Various techniques to define antitrust markets and identify market power in practice The theory of strategic behavior-direct strategic effects. Direct strategic effects arise when the profits of a rival firm depend directly on actions or investments by the firm practices that cause a direct negative effect on the profits of rival firms are termed exclusionary. There are two types of exclusionary practices associated with strategic investments. These types of in vestment either raise the costs of rivals or reduce their revenues The effectiveness and profitability of several specific types of behavior are considered. These include the foreclosure effects when a firm merges with an input supplier and withholds supply from its rivals, outbidding rivals for scarce inputs, raising industry-wide input prices, controlling access to complementary products, advertising, and control of compatability standards
Issues in antitrust economics(1) • Public policy responses to the exercise of market power-issues in antitrust enforcement and regulation. • Market definition, highlighting the differences between economic markets and antitrust markets. Market definition in antitrust is a search for market power. Without market power, firm conduct will not raise efficiency concerns. Various techniques to define antitrust markets and identify market power in practice. • The theory of strategic behavior-direct strategic effects. Direct strategic effects arise when the profits of a rival firm depend directly on actions or investments by the firm. Practices that cause a direct negative effect on the profits of rival firms are termed exclusionary. There are two types of exclusionary practices associated with strategic investments. These types of investment either raise the costs of rivals or reduce their revenues. The effectiveness and profitability of several specific types of behavior are considered. These include the foreclosure effects when a firm merges with an input supplier and withholds supply from its rivals, outbidding rivals for scarce inputs, raising industry-wide input prices, controlling access to complementary products, advertising, and control of compatability standards
Issues in antitrust economics(2) A second type of exclusionary: predatory pricing. Predatory pricing involves a firm setting prices to induce the exit of rival firms.Its motivation is to reduce competition and increase its market power or become a monopolist. We identify the circumstances when predatory pricing will be a successful and profitable exclusionary strategy Vertical restraints Vertical restraints refers to contractual restrictions imposed by manufacturers on the retailers that comprise their distribution channels. The main vertical restraints franchise fees resale price maintenance, quantity forcing, exclusive territories, and exclusive dealing It provides an economic analysis of why they are utilized and a determination of their impact on efficiency Horizontal merges It contains a discussion of the motivation and effects of merges. The modern analysis of merges suggests that the effects of a merge depend on the impact on and response of non merging firms. An extended discussion of the antitrust treatment and analysis of merges
Issues in antitrust economics(2) • A second type of exclusionary: predatory pricing. Predatory pricing involves a firm setting prices to induce the exit of rival firms. Its motivation is to reduce competition and increase its market power or become a monopolist. We identify the circumstances when predatory pricing will be a successful and profitable exclusionary strategy. • Vertical restraints. Vertical restraints refers to contractual restrictions imposed by manufacturers on the retailers that comprise their distribution channels. The main vertical restraints: franchise fees, resale price maintenance, quantity forcing, exclusive territories, and exclusive dealing. It provides an economic analysis of why they are utilized and a determination of their impact on efficiency. • Horizontal merges. It contains a discussion of the motivation and effects of merges. The modern analysis of merges suggests that the effects of a merge depend on the impact on and response of nonmerging firms. An extended discussion of the antitrust treatment and analysis of merges
Issues in requlatory economics An overview of regulatory economics Economic justifications for price and entry regulation Optimal pricing in a natural monopoly. Anumber of issues in regulation: (1)the implications for optimal pricing when there are asymmetries of information between the firm and the regulator, (2)the practice of regulation (entry by regulated firms into unregulated markets, (4)access pricing to essential facilities
Issues in regulatory economics • An overview of regulatory economics. • Economic justifications for price and entry regulation. • Optimal pricing in a natural monopoly. • A number of issues in regulation: (1)the implications for optimal pricing when there are asymmetries of information between the firm and the regulator, (2)the practice of regulation, (3)entry by regulated firms into unregulated markets, (4)access pricing to essential facilities
Ch.2 The welfare economics of market power Profit maximization Perfect Competition Efficiency · Market power Market power and public policy
Ch.2 The welfare economics of market power • Profit Maximization • Perfect Competition • Efficiency • Market Power • Market Power and Public Policy