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    Industrial Organization: Contemporary Theory and Practice (3 Edition)

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    kcp123
    This document provides an overview of the textbook "Industrial Organization: contemporary theory and practice" which examines how firms behave in markets through strategic interaction. It discusses key topics like pricing, market entry decisions, and merger analysis. Examples of strategic interactions between firms like Microsoft, ADM, and American Airlines are provided. The document also summarizes the development of antitrust policy in the US and how the "New Industrial Organization" approach departed from prior theories by recognizing the connection between market structure and firm behavior.

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    Industrial Organization: Contemporary Theory and Practice (3 Edition)

    Uploaded by

    kcp123
    38 views11 pages
    This document provides an overview of the textbook "Industrial Organization: contemporary theory and practice" which examines how firms behave in markets through strategic interaction. It discusses key topics like pricing, market entry decisions, and merger analysis. Examples of strategic interactions between firms like Microsoft, ADM, and American Airlines are provided. The document also summarizes the development of antitrust policy in the US and how the "New Industrial Organization" approach departed from prior theories by recognizing the connection between market structure and firm behavior.

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    This document provides an overview of the textbook "Industrial Organization: contemporary theory and practice" which examines how firms behave in markets through strategic interaction. It discusses key topics like pricing, market entry decisions, and merger analysis. Examples of strategic interactions between firms like Microsoft, ADM, and American Airlines are provided. The document also summarizes the development of antitrust policy in the US and how the "New Industrial Organization" approach departed from prior theories by recognizing the connection between market structure and firm behavior.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    38 views11 pages

    Industrial Organization: Contemporary Theory and Practice (3 Edition)

    Uploaded by

    kcp123
    This document provides an overview of the textbook "Industrial Organization: contemporary theory and practice" which examines how firms behave in markets through strategic interaction. It discusses key topics like pricing, market entry decisions, and merger analysis. Examples of strategic interactions between firms like Microsoft, ADM, and American Airlines are provided. The document also summarizes the development of antitrust policy in the US and how the "New Industrial Organization" approach departed from prior theories by recognizing the connection between market structure and firm behavior.

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    © All Rights Reserved
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    of 11

    Industrial Organization: contemporary theory

    and practice (3rd edition)


    Lynne Pepall
    Dan Richards
    George Norman

    Industrial

    Introduction
    How firms behave in markets
    Whole range of business issues
    price of flowers; payment to be official sponsor of
    major events
    which new products to introduce
    merger decisions
    methods for attacking or defending markets

    Strategic view of how firms interact


    Industrial

    How should a firm price its product given the


    existence of rivals?
    How does a firm decide which markets to enter?
    Incredible richness of examples:

    Microsoft/Netscape/Sun
    ADM (collusion)
    Toys R Us (exclusive dealing)
    American Airlines (predatory pricing)
    Merger wave

    At the heart of all of this is strategic interaction


    Industrial

    Rely on the tools of game theory


    focuses on strategy and interaction

    Construct models: abstractions


    well established tradition in all science
    physics
    engineering
    are SUVs safe?
    Do seat-belts/Volvos save lives?

    Industrial

    The New Industrial Organization


    The New Industrial Organization is something of
    a departure
    theory in advance of policy
    recognition of connection between market structure and
    firms behavior

    Contrast pricing behavior of:

    grain farmers at first point of sale


    gas stations: Texaco, Mobil, Exxon
    computer manufacturers
    pharmaceuticals (proprietary vs. generics)

    Industrial

    Do not say much about the internal organization


    of firms
    vertical organization is discussed
    internal contracts are not

    Industrial

    Anti-trust Policy: an overview


    Developments in modern IO are sensitive to the
    policy context
    Microsoft and ADM
    highlight aspects of developments in policy/law and economic
    theory

    Need for anti-trust policy recognized by Adam


    Smith (1776)
    The monopolists, by keeping the market constantly
    understocked, by never fully supplying the effectual
    demand, sell their commodities much above the natural
    price.
    Industrial

    People of the same trade seldom meet together, even


    for merriment or diversion, but the conversation ends in
    a conspiracy against the public, or in some contrivance
    to raise prices.

    Sherman Act 1890


    Section 1: prohibits contracts, combinations and
    conspiracies in restraint of trade
    Section 2: makes illegal any attempt to monopolize a
    market
    contrast per se rule
    collusive agreements/price fixing

    rule of reason
    unreasonable conduct

    Industrial

    Clayton Act (1914)


    intended to prevent monopoly in its incipiency
    makes illegal practices that may substantially lessen
    competition or tend to create a monopoly

    Federal Trade Commission established in the same


    year
    However, application affected by rule of reason
    proof of intent
    the law does not make mere size an offence or the
    existence of unexerted power an offence - it does not
    compel competition nor require all that is possible.
    Industrial

    Robinson-Patman (1936)
    prohibits price discrimination that is intended to lessen
    competition
    intended to prevent aggressive price discounting

    The Alcoa case (1945) was also important


    90% market share
    expanded capacity in advance of market expansion
    inferred anti-trust violation from structure and conduct
    without overt evidence

    More relaxed attitude in last two decades


    emergence of large firms: merger waves
    importance of global competition
    Industrial

    10

    The New Industrial Organization


    Dissatisfaction with the structure-conductperformance approach
    collect profit data on firms in an industry
    explain differences using information on size,
    organization, R&D, financial leverage etc.
    but what is the direction of causation?

    The old IO has limited treatment of product


    differentiation
    representative firm, little strategic interaction

    New IO: strategic decision-making (Hotelling)


    scheduling of blockbuster and Disney movies
    Industrial

    11

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