Introduction to Industrial Organization

Preface xi
PART ONE Introduction 1
CHAPTER 1 What Is Industrial Organization? 3
1.1 An Example 4
1.2 Central Questions 6
1.3 Coming Next 11
Summary 12
Key Concepts 13
Review and Practice Exercise 13
CHAPTER 2 Basic Microeconomics 15
2.1 Demand 15
2.2 Costs 18
2.3 Profit Maximization 24
2.4 Efficiency 26
Summary 29
Key Concepts 29
Review and Practice Exercises 30
Extension Exercise 33
C H A P T E R 3 The Firm 35
3.1 Do Firms Maximize Profits? 35
3.2 What Determines the Firm’s Boundaries? 40
3.3 Why Are Firms Different? 42
Summary 45
Key Concepts 45
Review and Practice Exercises 45
Extension Exercises 46
vi Contents
CHAPTER 4 Games and Strategy 49
4.1 Dominant Strategies, Dominated Strategies,
and Nash Equilibrium 51
4.2 Sequential Games: Commitment and Backward Induction 55
4.3 Repeated Games 59
Summary 62
Key Concepts 63
Review and Practice Exercises 63
Extension Exercise 66
PART TWO From Monopoly to Perfect Competition 67
CHAPTER 5 Monopoly and Regulation 69
5.1 Monopoly 69
5.2 Regulation 75
5.3 Essential Facilities and Access Pricing 78
Summary 82
Key Concepts 82
Review and Practice Exercises 83
CHAPTER 6 Perfect (and Almost Perfect) Competition 85
6.1 Perfect Competition 85
6.2 From Theory to Stylized Facts 87
6.3 Competitive Selection 89
6.4 Monopolistic Competition 91
6.5 Coming Next 94
Summary 96
Key Concepts 96
Review and Practice Exercises 96
PART THREE Oligopoly 99
CHAPTER 7 Oligopoly Competition 101
7.1 The Bertrand Model 102
Contents vii
7.2 Pricing with Capacity Constraints 104
7.3 The Cournot Model 107
7.4 Bertrand versus Cournot 113
7.5 The Models at Work: Comparative Statics 114
Summary 124
Key Concepts 124
Review and Practice Exercises 125
Extension Exercise 126
CHAPTER 8 Collusion 127
8.1 Repeated Interaction and the Stability of
Collusive Agreements 128
8.2 Price Wars 133
8.3 Factors That Facilitate Collusion 137
8.4 Public Policy 144
Summary 145
Key Concepts 145
Review and Practice Exercises 146
Extension Exercises 150
CHAPTER 9 Market Structure and Market Power 151
9.1 Concentration and Market Power: Theory 151
9.2 Concentration and Market Power: Empirical Estimation 156
9.3 Conduct and Market Power: Empirical Estimation 159
Summary 162
Key Concepts 163
Review and Practice Exercises 163
Extension Exercises 163
PART FOUR Price and Nonprice Strategies 165
C H A P T E R 10 Price Discrimination 167
10.1 Types of Price Discrimination 169
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10.2 Third-Degree Price Discrimination 170
10.3 Nonlinear Pricing 172
10.4 Versioning, Bundling, and Other Forms of
Consumer Sorting 175
10.5 Is Price Discrimination Legal? Should It Be? 180
Summary 183
Key Concepts 184
Review and Practice Exercises 184
Extension Exercises 187
C H A P T E R 11 Vertical Relations 189
11.1 Double Marginalization and Two-Part Tariffs 190
11.2 Retailer Competition 193
11.3 Investment Externalities 193
11.4 Indirect Control 194
11.5 Manufacturer Competition 196
11.6 Are Vertical Restraints Legal? Should They Be? 199
Summary 200
Key Concepts 200
Review and Practice Exercises 201
Extension Exercises 203
C H A P T E R 12 Product Differentiation 205
12.1 Horizontal Differentiation, Vertical Differentiation,
and the Characteristics Approach 206
12.2 Product Differentiation and Market Power 209
12.3 Product Positioning 215
12.4 Imperfect Information and Switching Costs 217
Summary 219
Key Concepts 220
Review and Practice Exercises 220
Extension Exercises 221
Contents ix
C H A P T E R 13 Advertising 223
13.1 Information, Persuasion, and Signaling 223
13.2 Advertising Intensity 227
13.3 Price Competition and Advertising 231
Summary 235
Key Concepts 235
Review and Practice Exercises 235
Extension Exercises 237
PART FIVE Entry and Exit 239
C H A P T E R 14 Entry Costs, Market Structure, and Welfare 241
14.1 Entry Costs and Market Structure 243
14.2 Endogenous versus Exogenous Entry Costs 247
14.3 Free Entry and Social Welfare 252
Summary 256
Key Concepts 256
Review and Practice Exercises 256
Extension Exercises 257
C H A P T E R 15 Strategic Behavior, Entry and Exit 259
15.1 Entry Deterrence 260
15.2 Predation 269
15.3 Mergers and Acquisitions 277
Summary 285
Key Concepts 286
Review and Practice Exercises 286
Extension Exercises 288
PART SIX Technology 289
C H A P T E R 16 Research and Development 291
16.1 Market Structure and Incentives for R&D 292
16.2 The Dynamics of R&D Competition 295
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16.3 Public Policy 303
Summary 308
Key Concepts 308
Review and Practice Exercises 309
C H A P T E R 17 Networks and Standards 311
17.1 Consumer Expectations and Critical Mass 312
17.2 Path Dependence 314
17.3 Excess Inertia and Excess Momentum 319
17.4 Compatibility 324
17.5 Public Policy 326
Summary 328
Key Concepts 329
Review and Practice Exercises 329
Extension Exercises 331
Notes 335
Index 347