ECOS3025 Lecture Notes - Lecture 11: Market Power, Bertrand Competition, Cournot Competition
27 Oct 2018
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Document Summary
How economists can help assess the competitive effect of mergers: mergers can be very valuable for the economy but can also reduce competition. Strategic environment: price setting; quantity / capacity setting; auction; bargaining. Type of products: homogenous v differentiated products; substitutes. Entry / expansion: capacity constraints: market structure: concentration; vertical relationships. Type of customers: small; large: others: two-sided market; network effects; innovation. Theories of harm: vertical mergers: foreclosure; anti-competitive, horizontal mergers: coordinated effects (collusion becomes more likely / stable); unilateral effects (firms raise prices acting independently), conglomerate mergers: usually not a problem (as merging unrelated firms). Collusive agreement is internally stable: able to monitor collusion, able and have incentive to punish. Less to gain in market if deviate; obtain bigger share of collusive profits. Barriers to entry: main sources of constraint to unilateral behaviour: potential entrants; firms in the market; customers, constraint from potential entrants.
