Industrial organization : contemporary theory and practice / 2nd ed.

Chapter 1 Introduction p. 1
1.1 Competition versus Monopoly: The Poles of Market Performance p. 3
1.1.1 Perfect Competition p. 5
1.1.2 Monopoly p. 10
1.1.3 Profit Today versus Profit Tomorrow: Firm Decision Making over Time p. 15
1.2 Efficiency, Surplus, and Size Relative to the Market p. 22
1.2.1 The Monopolist and Surplus p. 25
1.2.2 The Nonsurplus Approach to Economic Efficiency p. 27
1.3 Competition, Monopoly, and Somewhere in between: The Evolution of Industrial Organization Theory and Antitrust Policy p. 30
1.3.1 Antitrust Policy: The First Thirty Years p. 30
1.3.2 The "New" Sherman Act and the Dominance of Structure-Based Analysis p. 36
1.3.3 The Chicago School and the New IO p. 38
Appendix Key Excerpts from Antitrust Statutes p. 48
Chapter 2 Technology, Costs, And Market Structure p. 53
2.1 Measuring Market Structure p. 54
2.1.1 Measuring Market Structure p. 55
2.1.2 Measurement Problems: What Is a Market? p. 57
2.2 Production Technology and Costs p. 62
2.2.1 The Neoclassical or Technological View of the Firm p. 62
2.2.2 The Single-Product Firm p. 64
2.2.3 Sources of Scale Economies p. 69
2.2.4 Scale Economies--Fixed Costs and Sunk Costs p. 71
2.3 Multiproduct Technology: Economies of Scale and Scope p. 76
2.3.1 Flexible Manufacturing: Scope Economies and Product Differentiation p. 85
2.4 Noncost Determinants of Industry Structure p. 88
2.4.1 The Size of the Market p. 88
2.4.2 Network Externalities and Market Structure p. 89
2.4.3 The Role of Government Policy p. 90
2.5 A Brief Note on Measuring Market Structure versus Measuring Market Performance p. 92
Appendix Conversion from the Standard Industrial Classification (SIC) Codes to the North American Industry Classification System (NAICS) p. 100
Chapter 3 Basic Monopoly Pricing And Product Strategies p. 102
3.1 Strategies and Degrees of Price Discrimination p. 103
3.1.1 First-Degree Price Discrimination p. 108
3.1.2 Second-Degree Price Discrimination p. 116
3.1.3 Third-Degree Price Discrimination p. 123
3.2 Price Discrimination and Social Welfare p. 132
3.3 Public Policy and Price Discrimination p. 133
3.4 Monopoly, Product Quality, and Social Welfare p. 137
3.5 The Multiplant Monopolist p. 146
Chapter 4 Product And Pricing Strategies For The Multiproduct Monopolist p. 154
4.1 Product Variety and Price Discrimination p. 156
4.2 A Spatial Approach to Product Variety p. 161
4.2.1 Monopoly and Product Variety without Price Discrimination p. 163
4.2.2 Is There Too Much Product Variety? p. 173
4.2.3 Monopoly and Product Variety with Price Discrimination p. 177
4.3 Bundling, Tie-Ins, and Price Discrimination p. 180
4.3.1 Commodity Bundling and Tie-In Sales p. 180
4.3.2 Commodity Bundling as a Mechanism for Price Discrimination p. 181
4.3.3 Required Tie-In Sales p. 190
4.3.4 Complementary Goods, Network Externalities, and Monopoly Pricing p. 194
4.4 Antitrust, Bundling, and Tie-In Sales p. 201
4.4.1 Bundling and the Microsoft Case p. 201
4.4.2 Antitrust Policy and Product Tying: Additional Developments p. 206
Appendix A Location Choice with Two Shops p. 216
Appendix B The Monopolist's Choice of Price When Its Shops Have Different Costs p. 218
Appendix C Formal Proof of the Inefficiency Induced by the Marketing of Complementary Goods by Separate Monopolists p. 221
Chapter 5 Theories Of Business Strategy In Oligopoly Markets p. 223
5.1 Strategic Interaction: Introduction to Game Theory p. 225
5.1.1 Dominated and Dominant Strategies p. 230
5.1.2 The Nash Equilibrium as a Solution Concept p. 232
5.2 Single-Period Models of Oligopoly p. 237
5.3 The Cournot Duopoly Model p. 238
5.3.1 Variations on the Cournot Theme: Many Firms and Different Costs p. 247
5.3.2 Concentration and Profitability: Implications of the Cournot Model p. 254
5.4 Price Competition: The Bertrand Duopoly Model p. 258
5.4.1 Bertrand Reconsidered p. 263
5.4.2 Price Competition and Product Differentiation: Bertrand in a Spatial Setting p. 266
5.5 A Sequential Model of Oligopoly: The Stackelberg Model p. 271
Chapter 6 Monopoly Power And Predatory Conduct p. 282
6.1 Monopoly Power and Market Entry: Some Basic Facts p. 284
6.2 Predatory Conduct: Limit Pricing versus Predatory Pricing p. 286
6.2.1 Limit Pricing p. 287
6.2.2 Predatory Pricing p. 289
6.3 Credibility of Threats in Dynamic Games p. 297
6.3.1 A Simple Dynamic Game of Market Entry p. 298
6.3.2 The Chain Store Paradox p. 302
6.4 Capacity Expansion as a Credible Entry-Deterring Commitment p. 304
6.4.1 Capacity, Commitment, and Credible Entry Deterrence p. 305
6.4.2 Preemption and the Persistence of Monopoly p. 318
6.4.3 Anecdotal Evidence on Predatory or Preemptive Capacity Expansion p. 320
6.5 Limit Pricing and Imperfect Information p. 323
6.6 Contracts as a Barrier to Entry p. 329
6.6.1 Long-Term Contracts to Deter Entry p. 330
6.6.2 Tying as a Predatory Contractual Arrangement p. 333
6.7 Predatory Conduct and Public Policy p. 335
Chapter 7 Collusion And Cartels p. 349
7.1 Challenges Facing Cartels p. 351
7.2 Cartels: Cooperation versus Conflict p. 353
7.3 Repeated Games p. 357
7.3.1 Modeling a Repeated Game p. 358
7.3.2 Repeated Games with a Finite Horizon p. 360
7.3.3 Repeated Games with an Infinite Horizon p. 368
7.3.4 A Digression: What We Mean by the Discount Factor p. 369
7.3.5 Trigger Strategies, Successful Collusion, and the Folk Theorem p. 370
7.4 Where Is Collusion Most Likely to Occur? p. 377
7.4.1 The Potential for Monopoly Profit p. 377
7.4.2 Costs of Reaching a Cooperative Agreement p. 378
7.4.3 Costs of Maintaining a Cooperative Agreement p. 383
7.4.4 Stable Market Conditions p. 384
7.5 An Illustration: Possible Collusion on the NASDAQ Exchange p. 386
7.6 Detecting Collusion among Firms p. 393
Chapter 8 Mergers p. 407
8.1 Horizontal Mergers p. 410
8.1.1 The Merger Paradox p. 410
8.1.2 Merger and Cost Synergies p. 414
8.1.3 The Merged Firms as Stackelberg Leaders--Paradox Lost p. 418
8.2 Horizontal Mergers and Product Differentiation p. 426
8.2.1 No Price Discrimination p. 428
8.2.2 Price Discrimination p. 434
8.3 Vertical Mergers p. 436
8.3.1 Mergers of Firms That Produce Complementary Goods p. 436
8.3.2 Vertical Mergers: Resolving a Complementarity p. 437
8.3.3 Vertical Merger to Facilitate Price Discrimination p. 443
8.3.4 Vertical Merger to Facilitate Market Foreclosure p. 445
8.4 Conglomerate Mergers p. 449
8.4.1 Possible Economies Associated with Conglomeration p. 449
8.4.2 Managerial Motives p. 451
8.5 A Brief Digression on Mergers and the Theory of the Firm p. 453
8.6 Mergers and Public Policy p. 455
Appendix Equilibrium Prices in the Spatial Model p. 469
Chapter 9 Vertical Relations And Restraints p. 471
9.1 Vertical Restraints as a Response to Double Marginalization p. 475
9.1.1 Double Marginalization, Royalties, and Moral Hazard p. 477
9.1.2 Two-Part Tariffs as a Solution to the Double Marginalization Problem p. 481
9.1.3 Resale Price Maintenance and Double Marginalization p. 483
9.2 Vertical Price Restrictions to Ensure Provision of Retail Services p. 486
9.2.1 Optimal Provision of Retail Services p. 488
9.2.2 The Case of a Monopoly Retailer and a Monopoly Manufacturer p. 490
9.2.3 The Case of Competitive Retailing p. 493
9.2.4 Resale Price Maintenance, Customer Services, and Free Riding p. 495
9.3 Resale Price Maintenance as a Response to Variable Demand p. 498
9.4 RPM Agreements in Historical Perspective p. 505
9.5 Nonprice Vertical Agreements p. 508
9.5.1 Exclusive Selling and Territory Arrangements p. 508
9.5.2 Competition Upstream and Exclusive Dealing p. 512
9.6 Franchising and Divisionalization p. 514
9.7 A Note on Vertical Relations and the Theory of the Firm p. 519
Chapter 10 Advertising p. 528
10.1 Consumer Fraud and Truth in Advertising p. 533
10.2 Advertising: Some Basic Analysis p. 536
10.2.1 The Extent of Advertising in the United States p. 536
10.2.2 Early Views on the Effect of Advertising Expenditures p. 537
10.3 Advertising and Signaling p. 542
10.4 A Complementary View of Advertising and Monopoly Power p. 547
10.4.1 Advertising and Crowd Appeal p. 551
10.4.2 Advertising, Brand Recognition, and Information p. 554
10.4.3 The Monopolist's Profit-Maximizing Choice of Advertising p. 555
10.4.4 Monopoly Power: Too Much or Too Little Advertising p. 562
10.4.5 Competition and the Extent of Advertising p. 563
10.5 Advertising and Brand Competition p. 566
10.6 Cooperative Advertising p. 578
Chapter 11 Research And Development p. 589
11.1 A Taxonomy of Innovations p. 593
11.2 Market Structure and the Incentive to Innovate p. 596
11.2.1 RandD as Direct Interfirm Competition p. 600
11.2.2 Some Evidence p. 604
11.3 Patents and Patent Policy p. 606
11.3.1 The Optimal Patent Length p. 607
11.3.2 The Optimal Breadth of Patents p. 611
11.4 Patents, Patent Races, and Innovation as Influences on Structure p. 613
11.4.1 Patent Races p. 613
11.4.2 Patents and Innovative Activity as an Influence on Market Structure p. 620
11.4.3 Monopoly Power and "Sleeping Patents" p. 622
11.5 Technology Licensing p. 626
11.5.1 The Incentive for an Oligopolist to License a Nondrastic Innovation p. 627
11.5.2 Licensing, Drastic Innovations, and Monopoly Power p. 628
11.5.3 Patent Licensing, Social Welfare, and Public Policy p. 630
11.6 Cooperation on RandD between Firms p. 634
11.6.1 Noncooperative RandD: Profit, Prices, and Social Welfare p. 636
11.6.2 Technology Cooperation p. 641
Chapter 12 Current Critical Issues: Network Externalities, Auctions, And Strategic Trade Policy p. 654
12.1 Network Externalities p. 655
12.1.1 Monopoly Provision of a Network Service p. 657
12.1.2 Systems Competition and the Battle Over Industry Standards p. 666
12.1.3 Public Policy and Network Markets p. 674
12.2 Auction Markets p. 677
12.2.1 Private Value Auctions p. 678
12.2.2 Common Value Auctions p. 683
12.2.3 Auction Theory and Antitrust Policy p. 686
12.3 Strategic Trade Policy p. 690
12.3.1 Unilateral Intervention in International Markets p. 690
12.3.2 International Trade Agreements as Cooperative Mechanism p. 695
Answers To Practice Problems p. 703
Glossary p. 713
Index p. 717