ENG ELC 220 Lecture Notes - Lecture 4: Profit Maximization, Market Power, Marginal Cost
1 Nov 2020
School
Department
Course
Professor
Document Summary
Competitors: firms whose strategic choices directly affect one another. Indirect competitors influence each other only through the strategic choices of a third firm. It is necessary to distinguish between input (labor, resources) and output (distribution) markets. Ssnip criterion: a market is well defined if a merger among competitors would lead to a small (>5%) but significant non-transitory (at least one year) price increase. Used to determine whether a merger would lead to excessive market concentration. Conclusion: two firms directly compete if a price increase of one firm causes its competitors to do business with the other. Based on the idea of substitutes: if the price of x goes up, the demand for y increases. Substitutes: have same or similar product performance, same or similar occasions of use, are sold in the same geographic market. X increases: n > 0: strategic substitutes, n < 0: strategic complements.
