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Industrial Organization: Contemporary Theory and Empirical Applications, 5th Edition

Book Description

Industrial Organization, 5th Edition is a complete, but concise, introduction to modern industrial economics. This book uniquely uses the tools of game theory, information economics, contracting issues, and practical examples to examine all facets of industrial organization. It enhances students' understanding of the strategic behavior of firms, the structure of markets, and imperfect competition.

Table of Contents

  1. Cover Page
  2. Title Page
  3. Copyright
  4. Contents
  5. About the Authors
  6. Preface to the Fifth Edition
    1. ACKNOWLEDGMENTS
  7. Part One: Foundations
    1. 1: Industrial Organization: What, How, and Why
      1. 1.1 WHAT IS INDUSTRIAL ORGANIZATION?
      2. 1.2 HOW WE STUDY INDUSTRIAL ORGANIZATION
      3. 1.3 WHY: ANTITRUST AND INDUSTRIAL ORGANIZATION THEORY
      4. 1.4 EMPIRICAL APPLICATION: ANTITRUST AROUND THE GLOBE
      5. Summary
      6. Problems
      7. References
      8. THE SHERMAN ACT
      9. THE CLAYTON ACT, INCLUDING KEY AMENDMENTS OF THE ROBINSON-PATMAN ACT AND CELLER-KEFAUVER ACT
    2. 2: Basic Microeconomics
      1. 2.1 COMPETITION VERSUS MONOPOLY: THE POLES OF MARKET PERFORMANCE
      2. 2.2 ECONOMIC EFFICIENCY AND THE SOCIAL SURPLUS
      3. 2.3 INTERTEMPORAL CONSIDERATIONS AND CONSTRAINTS ON MONOPOLY POWER
      4. 2.4 EMPIRICAL APPLICATION: TESTING THE COASE DURABLE GOODS MODEL
      5. Summary
      6. Problems
      7. References
    3. 3: Market Structure and Market Power
      1. 3.1 DESCRIBING MARKET STRUCTURE
      2. 3.2 MEASURING MARKET POWER
      3. 3.3 EMPIRICAL APPLICATION: MONOPOLY POWER—HOW BAD IS IT?
      4. Summary
      5. Problems
      6. References
    4. 4: Technology and Cost
      1. 4.1 PRODUCTION TECHNOLOGY AND COST FUNCTIONS FOR SINGLE PRODUCT FIRMS
      2. 4.2 SUNK COST AND MARKET STRUCTURE
      3. 4.3 COSTS AND MULTIPRODUCT FIRMS
      4. 4.4 LEARNING-BY-DOING AND EXPERIENCE CURVES
      5. 4.5 NON-COST DETERMINANTS OF INDUSTRY STRUCTURE
      6. 4.6 EMPIRICAL APPLICATION: SCALE AND SCOPE ECONOMIES IN BANKING
      7. Summary
      8. Problems
      9. References
      10. AVERAGE COST, MARGINAL COST, AND COST MINIMIZATION
      11. THE SCALE ECONOMY INDEX AND THE ELASTICITY OF TOTAL COST
      12. RAY AVERAGE COST AND MULTIPRODUCT SCALE ECONOMIES
      13. FORMAL COST FUNCTION ANALYSIS AND EMPIRICAL ESTIMATION: THE COBB-DOUGLAS CASE
  8. Part Two: Monopoly Power in Theory and Practice
    1. 5: Price Discrimination and Monopoly: Linear Pricing
      1. 5.1 FEASIBILITY OF PRICE DISCRIMINATION
      2. 5.2 THIRD-DEGREE PRICE DISCRIMINATION OR GROUP PRICING
      3. 5.3 IMPLEMENTING THIRD-DEGREE PRICE DISCRIMINATION OR GROUP PRICING
      4. 5.4 PRODUCT VARIETY AND THIRD-DEGREE PRICE DISCRIMINATION OR GROUP PRICING
      5. 5.5 THIRD-DEGREE PRICE DISCRIMINATION OR GROUP PRICING AND SOCIAL WELFARE
      6. 5.6 EMPIRICAL APPLICATION: PRICE DISCRIMINATION IN THE NEW CAR MARKET
      7. Summary
      8. Problems
      9. References
      10. DISCRIMINATORY AND NONDISCRIMINATORY PRICING
    2. 6: Price Discrimination and Monopoly: Nonlinear Pricing
      1. 6.1 FIRST-DEGREE PRICE DISCRIMINATION OR PERSONALIZED PRICING
      2. 6.2 SECOND-DEGREE PRICE DISCRIMINATION OR MENU PRICING
      3. 6.3 SOCIAL WELFARE WITH FIRST- AND SECOND-DEGREE PRICE DISCRIMINATION
      4. 6.4 EMPIRICAL APPLICATION: PRICE DISCRIMINATION AND MONOPOLY VERSUS IMPERFECT COMPETITION
      5. Summary
      6. Problems
      7. References
    3. 7: Product Variety and Quality Under Monopoly
      1. 7.1 A SPATIAL APPROACH TO HORIZONTAL PRODUCT DIFFERENTIATION
      2. 7.2 MONOPOLY AND HORIZONTAL DIFFERENTIATION
      3. 7.3 IS THERE TOO MUCH PRODUCT VARIETY?
      4. 7.4 MONOPOLY AND HORIZONTAL DIFFERENTIATION WITH PRICE DISCRIMINATION
      5. 7.5 VERTICAL PRODUCT DIFFERENTIATION
      6. 7.6 EMPIRICAL APPLICATION: PRODUCT QUALITY AND MARKET SIZE
      7. Summary
      8. Problems
      9. References
      10. LOCATION CHOICE WITH TWO SHOPS
      11. THE PROFIT MAXIMIZING NUMBER OF RETAIL OUTLETS
      12. OPTIMAL PARTIAL MARKET PRICE
      13. THE SOCIALLY OPTIMAL NUMBER OF RETAIL OUTLETS
      14. OPTIMAL CHOICE OF OUTPUT AND QUALITY
    4. 8: Commodity Bundling and Tie-In Sales
      1. 8.1 COMMODITY BUNDLING AND CONSUMER VALUATION
      2. 8.2 REQUIRED TIE-IN SALES
      3. 8.3 COMPLEMENTARY GOODS, NETWORK EXTERNALITIES, AND MONOPOLY PRICING
      4. 8.4 ANTITRUST, BUNDLING, AND TIE-IN SALES
      5. 8.5 EMPIRICAL APPLICATION: BUNDLING IN CABLE TV
      6. Summary
      7. Problems
      8. References
      9. OPTIMAL PURE BUNDLE PRICE
      10. ENTRY-DETERRING LIMIT PRICE
      11. OPTIMAL ENTRY PRICE WITH PURE BUNDLING
      12. OPTIMAL MIXED BUNDLING PRICES
      13. FIRMS WITH COMPLEMENTARY GOODS AND NONZERO MARGINAL COSTS
  9. Part Three: Strategic Interaction and Basic Oligopoly Models
    1. 9: Static Games and Cournot Competition
      1. 9.1 STRATEGIC INTERACTION: INTRODUCTION TO GAME THEORY
      2. 9.2 DOMINANT AND DOMINATED STRATEGIES
      3. 9.3 NASH EQUILIBRIUM AS A SOLUTION CONCEPT
      4. 9.4 STATIC MODELS OF OLIGOPOLY: THE COURNOT MODEL
      5. 9.5 VARIATIONS ON THE COURNOT THEME: MANY FIRMS AND DIFFERENT COSTS
      6. 9.6 CONCENTRATION AND PROFITABILITY IN THE COURNOT MODEL
      7. 9.7 EMPIRICAL APPLICATION: COURNOT COMPETITION IN AN AIRLINE DUOPOLY
      8. Summary
      9. Problems
      10. References
    2. 10: Oligopolistic Price Competition
      1. 10.1 THE BERTRAND DUOPOLY MODEL
      2. 10.2 BERTRAND RECONSIDERED
      3. 10.3 BERTRAND IN A SPATIAL SETTING
      4. 10.4 STRATEGIC COMPLEMENTS AND SUBSTITUTES
      5. 10.5 EMPIRICAL APPLICATION: BRAND COMPETITION AND CONSUMER PREFERENCES—EVIDENCE FROM THE CALIFORNIA RETAIL GASOLINE MARKET
      6. Summary
      7. Problems
      8. References
    3. 11: Dynamic Games and First and Second Movers
      1. 11.1 THE STACKELBERG MODEL OF QUANTITY COMPETITION
      2. 11.2 SEQUENTIAL PRICE COMPETITION
      3. 11.3 CREDIBILITY OF THREATS AND NASH EQUILIBRIA FOR DYNAMIC GAMES
      4. 11.4 THE CHAIN STORE PARADOX
      5. 11.5 EMPIRICAL APPLICATION: STACKELBERG BEATS COURNOT
      6. Summary
      7. Problems
      8. References
  10. Part Four: Anticompetitive Behavior and Antitrust Policy
    1. 12: Entry Deterrence and Predation
      1. 12.1 MARKET STRUCTURE OVER TIME: RANDOM PROCESSES & STYLIZED FACTS
      2. 12.2 PREDATORY CONDUCT AND LIMIT PRICING
      3. 12.3 PREEMPTION AND BUNDLING
      4. 12.4 PREDATORY ENTRY DETERRENCE: HISTORICAL CASES
      5. 12.5 EMPIRICAL APPLICATION: EXCESS CAPACITY EXPANSION IN TEXAS HOTELS
      6. Summary
      7. Problems
      8. References
    2. 13: Predatory Conduct: More Recent Developments
      1. 13.1 PREDATORY PRICING: MYTH OR REALITY?
      2. 13.2 PREDATION AND IMPERFECT INFORMATION
      3. 13.3 CONTRACTS AS A BARRIER TO ENTRY
      4. 13.4 PREDATION AND REPUTATION
      5. 13.5 PREDATION AND ANTITRUST POLICY
      6. 13.6 EMPIRICAL APPLICATION: ENTRY DETERRENCE IN THE PHARMACEUTICAL INDUSTRY
      7. Summary
      8. Problems
      9. References
    3. 14: Price Fixing, Repeated Games, and Antitrust Policy
      1. 14.1 THE PRISONER'S DILEMMA, REPEATED GAMES, AND THE FOLK THEOREM
      2. 14.2 REPEATED GAMES
      3. 14.3 THE FOLK THEOREM AND FACTORS THAT FACILITATE COLLUSION
      4. 14.4 COLLUSION: THE ROLE OF THE ANTITRUST AUTHORITIES
      5. 14.5 EMPIRICAL APPLICATION: ESTIMATING THE EFFECTS OF PRICE-FIXING
      6. Summary
      7. Problems
      8. References
  11. Part Five: Contractual Relations Between Firms
    1. 15: Horizontal Mergers
      1. 15.1 HORIZONTAL MERGERS AND THE MERGER PARADOX
      2. 15.2 MERGERS AND COST SYNERGIES
      3. 15.3 THE MERGED FIRM AS A STACKELBERG LEADER
      4. 15.4 SEQUENTIAL MERGERS
      5. 15.5 HORIZONTAL MERGERS AND PRODUCT DIFFERENTIATION
      6. 15.6 PUBLIC POLICY TOWARD HORIZONTAL MERGERS
      7. 15.7 EMPIRICAL APPLICATION: EVALUATING THE IMPACT OF MERGERS WITH COMPUTER SIMULATION
      8. Summary
      9. Problems
      10. References
      11. STACKELBERG LEADER-FOLLOWER MODEL WITH SEVERAL LEADERS
      12. PROOF THAT AN ADDITIONAL MERGER IS PROFITABLE IN THE LEADER-FOLLOWER MODEL
      13. BERTRAND COMPETITION IN A SIMPLE LINEAR DEMAND SYSTEM
      14. EQUILIBRIUM PRICES IN THE SPATIAL MODEL WITHOUT A MERGER
      15. EQUILIBRIUM PRICES IN THE SPATIAL MODEL AFTER FIRMS 2 AND 3 MERGE
    2. 16: Vertical and Conglomerate Mergers
      1. 16.1 PRO-COMPETITIVE VERTICAL MERGERS
      2. 16.2 POSSIBLE ANTICOMPETITIVE EFFECTS OF VERTICAL MERGERS
      3. 16.3 FORMAL OLIGOPOLY MODELS OF VERTICAL INTEGRATION
      4. 16.4 REAPPRAISAL AND APPLICATION: THE GE-HONEYWELL MERGER
      5. 16.5 CONGLOMERATE MERGERS
      6. 16.6 A BRIEF DIGRESSION ON MERGERS AND THE THEORY OF THE FIRM
      7. 16.7 EMPIRICAL APPLICATION: VERTICAL INTEGRATION IN THE READY-MIXED CONCRETE INDUSTRY
      8. Summary
      9. Problems
      10. References
    3. 17: Vertical Price Restraints
      1. 17.1 ANTITRUST POLICY TOWARD VERTICAL PRICE CONSTRAINTS: HISTORY AND THEORY
      2. 17.2 VERTICAL PRICE RESTRAINTS AS A RESPONSE TO DOUBLE-MARGINALIZATION
      3. 17.3 RPM AGREEMENTS AND RETAIL PRICE DISCRIMINATION
      4. 17.4 RPM AGREEMENTS TO INSURE THE PROVISION OF RETAIL SERVICES
      5. 17.5 RETAIL PRICE MAINTENANCE AND UNCERTAIN DEMAND
      6. 17.6 RPM AGREEMENTS AND COLLUSION
      7. 17.7 EMPIRICAL APPLICATION: RPM AND PRICES—EVIDENCE AFTER LEEGIN
      8. Summary
      9. Problems
      10. References
      11. MANUFACTURER'S OPTIMAL CONTRACT WHEN SELLING TO A PRICE-DISCRIMINATING RETAILER
      12. EFFICIENT SERVICE PROVISION AND PROFIT MAXIMIZATION AT THE INTEGRATED FIRM
      13. SERVICE PROVISION AND PROFIT MAXIMIZATION BY COMPETITIVE RETAILERS
    4. 18: Non-Price Vertical Restraints
      1. 18.1 UPSTREAM COMPETITION AND EXCLUSIVE DEALING
      2. 18.2 EXCLUSIVE SELLING AND TERRITORIAL ARRANGEMENTS
      3. 18.3 VERTICAL RESTRAINTS AND MARKET FORECLOSURE
      4. 18.4 VERTICAL RESTRICTIONS IN AFTERMARKETS
      5. 18.5 PUBLIC POLICY TOWARD VERTICAL RESTRAINTS
      6. 18.6 A BRIEF DISCUSSION OF FRANCHISING AND DIVISIONALIZATION
      7. 18.7 EMPIRICAL APPLICATION: EXCLUSIVE DEALING IN THE US BEER INDUSTRY
      8. Summary
      9. Problems
      10. References
  12. Part Six: Non-Price Competition
    1. 19: Advertising, Market Power, and Information
      1. 19.1 ADVERTISING: PRACTICE AND THEORY
      2. 19.2 ADVERTISING AND MARKET POWER
      3. 19.3 THE MONOPOLY FIRM'S PROFIT-MAXIMIZING LEVEL OF ADVERTISING
      4. 19.4 THE ECONOMIC ROLE OF ADVERTISING
      5. 19.5 ADVERTISING: COMPLEMENTS, COORDINATION, AND INDUSTRY DYNAMICS
      6. 19.6 EMPIRICAL APPLICATION: ADVERTISING, INFORMATION, AND PRESTIGE
      7. Summary
      8. Problems
      9. References
      10. WASTEFUL COMPETITION
      11. INFORMATIVE ADVERTISING AND PRICE COMPETITION
    2. 20: Research and Development
      1. 20.1 A TAXONOMY OF INNOVATIONS
      2. 20.2 MARKET STRUCTURE AND THE INCENTIVE TO INNOVATE
      3. 20.3 A MORE COMPLETE MODEL OF COMPETITION VIA INNOVATION
      4. 20.4 EVIDENCE ON THE SCHUMPETERIAN HYPOTHESIS
      5. 20.5 R&D COOPERATION BETWEEN FIRMS
      6. 20.6 EMPIRICAL APPLICATION: R&D SPILLOVERS IN PRACTICE
      7. Summary
      8. Problems
      9. References
      10. EQUILIBRIUM NONCOOPERATIVE R&D EFFORT IN THE PRESENCE OF SPILLOVERS
      11. EQUILIBRIUM R&D EFFORT WITH R&D COOPERATION
      12. EQUILIBRIUM R&D EFFORT WITH A RESEARCH JOINT VENTURE (RJV)
    3. 21: Patents and Patent Policy
      1. 21.1 OPTIMAL PATENT LENGTH
      2. 21.2 OPTIMAL PATENT BREADTH
      3. 21.3 PATENT RACES
      4. 21.4 MONOPOLY POWER AND “SLEEPING PATENTS”
      5. 21.5 PATENT LICENSING
      6. 21.6 RECENT PATENT POLICY DEVELOPMENTS
      7. 21.7 EMPIRICAL APPLICATION: PATENT LAW AND PATENT PRACTICE IN THE SEMICONDUCTOR INDUSTRY
      8. Summary
      9. Problems
      10. References
  13. Part Seven: Networks, Auctions, and Strategic Policy Commitment
    1. 22: Network Issues
      1. 22.1 MONOPOLY PROVISION OF A NETWORK SERVICE
      2. 22.2 NETWORKS, COMPETITION, AND COMPLEMENTARY SERVICES
      3. 22.3 SYSTEMS COMPETITION AND THE BATTLE OVER INDUSTRY STANDARDS
      4. 22.4 NETWORK GOODS AND PUBLIC POLICY
      5. 22.5 EMPIRICAL APPLICATION: NETWORK EXTERNALITIES IN COMPUTER SOFTWARE—SPREADSHEETS
      6. Summary
      7. Problems
      8. References
      9. PRICE FOR A MONOPOLIST
    2. 23: Auctions: Basic Theory and Applications
      1. 23.1 AUCTIONS: A TAXONOMY
      2. 23.2 PRIVATE VALUES AUCTIONS AND THE REVENUE EQUIVALENCE THEOREM
      3. 23.3 COMMON VALUE AUCTIONS AND THE WINNER'S CURSE
      4. 23.4 AFFILIATED VALUES
      5. 23.5 AUCTIONS AND INDUSTRIAL ORGANIZATION
      6. 23.6 EMPIRICAL APPLICATION: SCHOOL MILK AUCTIONS, COMPETITION, AND COLLUSION
      7. Summary
      8. Problems
      9. References
      10. OPTIMAL BIDDING IN FIRST-PRICE AUCTIONS
      11. OPTIMAL BIDDING IN OLIGOPOLISTIC BERTRAND COMPETITION WITH INCOMPLETE INFORMATION
    3. 24: Strategic Commitments and International Trade
      1. 24.1 STRATEGIC COMMITMENTS IN INTERNATIONAL MARKETS
      2. 24.2 TRADE AGREEMENTS AS COMMITMENT DEVICES
      3. 24.3 EMPIRICAL APPLICATION: STRATEGIC SUBSIDIES AT THE CANADIAN WHEAT BOARD
      4. Summary
      5. Problems
      6. References
  14. Answers to Practice Problems
  15. Index