Modern industrial organization 4th global edition by carlton

Modern Industrial Organization For these Global Editions, the editorial team at Pearson has collaborated with educators across the world to address a wide range of subjects and requirements, equipping students with the best possible learning tools This Global Edition preserves the cutting-edge approach and pedagogy of the original, but also features alterations, customization, and adaptation from the North American version Global edition Global edition Global edition Modern Industrial Organization Fourth edition Dennis W Carlton • Jeffrey M Perloff Fourth edition Carlton Perloff This is a special edition of an established title widely used by colleges and universities throughout the world Pearson published this exclusive edition for the benefit of students outside the United States and Canada If you purchased this book within the United States or Canada you should be aware that it has been imported without the approval of the Publisher or Author Pearson Global Edition Carlton_1292087854_mech.indd 23/01/15 10:07 AM 3641_AWL_CARL_FMpp1-24.qxp 1/27/15 11:52 AM Page 3641_AWL_CARL_FMpp1-24.qxp 1/27/15 11:52 AM Page 3641_AWL_CARL_FMpp1-24.qxp 1/27/15 11:52 AM Page University of Chicago University of California, Berkeley 3641_AWL_CARL_FMpp1-24.qxp 2/6/15 3:12 PM Page To Janie and Jackie Editor in Chief: Denise Clinton Acquisitions Editor: Adrienne D’Ambrosio Director of Development: Sylvia Mallory Managing Editor: Jim Rigney Senior Production Supervisor: Nancy Fenton Senior Media Producer: Melissa Honig Senior Acquisitions Editor, Global Edition: Steven Jackson Assistant Project Editor, Global Edition: Amrita Kar Manager, Media Production, Global Edition: Vikram Kumar Senior Manufacturing Controller, Production, Global Edition: Trudy Kimber Marketing Manager: Deborah Meredith Design Supervisor: Regina Kolenda Interior Designer: Leslie Haimes Cover Designer: Shree Mohanambal Inbakumar, Lumina Datamatics Illustrator: Jim McLaughlin Senior Prepress Supervisor: Caroline Fell Senior Manufacturing Buyer: Hugh Crawford Compositor: Cenveo Publisher Services Cover Image: (c)somchai rakin/Shutterstock Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsonglobaleditions.com © Pearson Education Limited 2015 The rights of Dennis W Carlton and Jeffrey M Perloff to be identified as the authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988 Authorized adaptation from the United States edition, entitled Modern Industrial Organization, 4th edition, ISBN 978-0-321-18023-0, by Dennis W Carlton and Jeffrey M Perloff, published by Pearson Education © 2016 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a license permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC 1N 8TS All trademarks used herein are the property of their respective owners The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners ISBN-10:1-292-08785-4 ISBN-13: 978-1-292-08785-6 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 10 Typeset by Courier Westford Printed and bound by Courier Westford 3641_AWL_CARL_FMpp1-24.qxp 2/5/15 2:47 PM Page Brief Contents PART Introduction and Theory CHAPTER Overview The Firm and Costs CHAPTER PART Market Structures CHAPTER Competition Monopolies, Monopsonies, and Dominant Firms Cartels Oligopoly Product Differentiation and Monopolistic Competition Industry Structure and Performance CHAPTER CHAPTER CHAPTER CHAPTER CHAPTER PART Business Practices: Strategies and Conduct CHAPTER Price Discrimination Advanced Topics in Pricing Strategic Behavior Vertical Integration and Vertical Restrictions CHAPTER 10 CHAPTER 11 CHAPTER 12 PART Information, Advertising, and Disclosure CHAPTER 13 Information Advertising and Disclosure CHAPTER 14 PART Dynamic Models and Market Clearing CHAPTER 15 Decision Making Over Time: Durability Patents and Technological Change How Markets Clear: Theory and Facts CHAPTER 16 CHAPTER 17 PART Government Policies and Their Effects CHAPTER 18 International Trade Antitrust Laws and Policy Regulation and Deregulation CHAPTER 19 CHAPTER 20 3641_AWL_CARL_FMpp1-24.qxp 1/27/15 11:52 AM Page 3641_AWL_CARL_FMpp1-24.qxp 1/27/15 11:52 AM Page Contents PART Introduction and Theory CHAPTER Overview 25 26 Economies of Scale Reasons for Economies of Scale Models 26 60 60 Total Costs Determine Scale Economies 62 A Measure of Scale Economies 63 Empirical Studies of Cost Curves 64 Price Theory 27 Transaction Costs 29 Game Theory 30 Contestable Markets 30 Economies of Scale in Total Manufacturing Costs 64 30 Survivorship Studies 66 Organization Basic Theory 31 Market Structures 31 Business Practices: Strategies and Conduct Information, Advertising, and Disclosure Cost Concepts for Multiproduct Firms 67 33 Adaptation of Traditional Cost Concepts for a Multiproduct Firm 68 33 Economies of Scope 68 Dynamic Models and Market Clearing 34 Economies of Scale and Economies of Scope 69 Government Policies and Their Effects 34 Specialization in Manufacturing 69 35 An Example of an Industry with Economies of Scope 70 CHAPTER The Firm and Costs The Firm 36 The Objective of a Firm 36 Ownership and Control 37 Mergers and Acquisitions 44 Reasons for Mergers and Acquisitions 44 Merger Activity in the United States 47 Merger Activities in Other Countries 49 Empirical Evidence on the Efficiency and Profitability of Mergers 50 Cost Concepts 53 Types of Costs 53 Cost Concepts 57 Summary 71 Problems 72 Suggested Readings 73 APPENDIX 2A Cost Concepts for a Multiproduct Firm EXAMPLE 2.1 Value of Limited Liability Conflicts of Interest Between Managers and Shareholders 74 39 EXAMPLE 2.2 42 EXAMPLE 2.3 Specialization of Labor 61 EXAMPLE 2.4 Indiana Libraries 65 EXAMPLE 2.5 The Baking Industry 70 EXAMPLE 2.6 Electricity Minimum Efficient Scale and Scope 71 3641_AWL_CARL_FMpp1-24.qxp 1/27/15 11:52 AM Page Contents PART Market Structures CHAPTER Competition Perfect Competition 79 80 Monopolies, Monopsonies, and Dominant Firms 112 Monopoly Behavior 113 CHAPTER 81 Assumptions 81 The Behavior of a Single Firm 82 Profit Maximization 113 The Competitive Market 85 Market and Monopoly Power 117 The Incentive for Efficient Operation 118 Monopoly Behavior over Time 118 Elasticities and the Residual Demand Curve 89 Elasticities of Demand and Supply 89 The Residual Demand Curve of Price Takers 90 93 Efficiency and Welfare The Costs and Benefits of Monopoly 119 The Deadweight Loss of Monopoly 119 Rent-Seeking Behavior 120 121 123 Efficiency 94 Monopoly Profits and Deadweight Loss Vary with the Elasticity of Demand Welfare 94 The Benefits of Monopoly Entry and Exit 97 Creating and Maintaining a Monopoly 123 Knowledge Advantage 124 100 Government-Created Monopolies 126 Definition of Barriers to Entry 100 Natural Monopoly 128 Identifying Barriers to Entry 103 Profits and Monopoly 129 The Size of Entry Barriers by Industry 104 Externalities Limitations of Perfect Competition The Many Meanings of Competition Summary 106 Restrictions on Entry Competition with Few Firms—Contestability Problems 97 108 109 110 110 EXAMPLE 3.1 Are Farmers Price Takers? EXAMPLE 3.2 Restrictions on Entry Across 93 Does a Monopoly Always Earn a Positive Profit? 130 Are Monopoly Mergers to Eliminate ShortRun Losses Desirable? 130 Monopsony Dominant Firm with a Competitive Fringe 131 134 135 The No-Entry Model 136 99 The Dominant Firm–Competitive Fringe Equilibrium 139 107 A Model with Free, Instantaneous Entry 140 98 FTC Opposes Internet Bans That Harm Competition EXAMPLE 3.3 Increasing Congestion 129 Why Some Firms Are Dominant Countries EXAMPLE 3.4 Is Any Firm That Earns a Positive Profit a Monopoly? 3641_AWL_CARL_FMpp1-24.qxp 1/27/15 11:52 AM Page Contents Summary 143 EXAMPLE 5.4 Relieving the Headache of Running a Cartel 164 Problems 144 Suggested Readings 145 EXAMPLE 5.5 Vitamins Cartel 166 EXAMPLE 4.1 Monopoly Newspaper Ad Prices 117 EXAMPLE 5.6 How Consumers Were Railroaded 169 EXAMPLE 4.2 Monopolizing by Merging 124 EXAMPLE 5.7 The Social Costs of Cartelization 174 EXAMPLE 4.3 Controlling a Key Ingredient 125 EXAMPLE 5.8 Prosecuting Global Cartels 176 EXAMPLE 4.4 Preventing Imitation—Cat Got Your CHAPTER Oligopoly 181 Tongue? 125 EXAMPLE 4.5 Protecting a Monopoly EXAMPLE 4.6 EU Allows Merger to Eliminate Losses 130 EXAMPLE 4.7 Priest Monopsony 133 EXAMPLE 4.8 Price Umbrella 135 China Tobacco Monopoly to Become a Dominant Firm 127 EXAMPLE 4.9 CHAPTER Cartels 141 146 Game Theory Single-Period Oligopoly Models 147 149 Factors That Facilitate the Formation of Cartels 151 Enforcing a Cartel Agreement 160 Cartels and Price Wars 168 Consumers Gain as Cartels Fail Price-Fixing Laws Summary 171 174 176 Problems 178 Suggested Readings 178 APPENDIX 5A The Effects of Cartel Size 179 EXAMPLE 5.1 An Electrifying Conspiracy 152 EXAMPLE 5.2 The Viability of Commodity Cartels Concrete Example of Government Aided Collusion 156 EXAMPLE 5.3 162 184 Nash Equilibrium 185 The Cournot Model 185 The Bertrand Model 195 The Stackelberg Leader-Follower Model 200 A Comparison of the Major Oligopoly Models 204 Multiperiod Games Why Cartels Form Creating and Enforcing the Cartel 183 204 Single-Period Prisoners’ Dilemma Game 205 Infinitely Repeated Prisoners’ Dilemma Game 207 Types of Equilibria in Multiperiod Games 210 Experimental Evidence on Oligopoly Models Summary 213 215 Problems 216 Suggested Readings 217 A Mathematical Derivation of Cournot and Stackelberg Equilibria 218 APPENDIX 6A APPENDIX 6B Mixed Strategies Do Birds of a Feather CournotFlock Together? 222 EXAMPLE 6.1 190 EXAMPLE 6.2 Oligopoly Welfare Losses 193 EXAMPLE 6.3 Mergers in a Cournot Economy 195 EXAMPLE 6.4 Roller Coaster Gasoline Pricing 201 EXAMPLE 6.5 Copying Pricing 208 EXAMPLE 6.6 Car Wars 209 3641_AWL_CARL_SUBINDXpp832-846.qxp 2/5/15 4:02 PM Page 834 www.downloadslide.net 834 Subject Index price change notices and, 404 price discounts and, 403 repeated static games and, 304 uniform prices and, 403 Commerce Department, 630 Commodity cartels, 156–157 Commodity Credit Corporation (CCC), 743n Common-pool problem, 570–571 Community Psychiatric Centers, 128 Comparative advantage explanation of, 620–621 international trade and, 621–622 Competition among distributors, 448–449 assumptions regarding, 81–82 barriers to entry and, 100–106 downstream, 431 durability and, 523–524, 527 efficiency and, 93–94 elasticities of demand and supply and, 89–90 explanation of, 31 externalities and, 106–108 with few firms, 100 firm incentives and, 82–85 limitations of perfect, 108–109 many meanings of, 109–110 market clearing and, 594, 604–606 overview of, 80–81 perfect, 81–88 pricing and, 332 residual demand curve of price takers and, 90–93 restrictions on entry and, 97–99 between rivals, 686 time and, 604–606 welfare and, 94–97 Competitive equilibrium See also Equilibrium breaking the, 478–479 cartels and, 179 delivered pricing and, 408 determination of, 85–86 efficiency and, 94 farm price supports and, 743–745 marginal revenue and, 148–149 time and, 604–605 Competitive fringe cartels and, 171 dominant firms and, 134–143 explanation of, 32 Competitive Local Exchange Carriers (CLECS), 753 Competitive markets cartels and, 147 long-run equilibrium and, 85–86 regulation and, 738–745 short-run equilibrium and, 85–86 slope of long-run supply curve and, 86–88 Complements, production of, 397–398, 414–415 Concrete market, 162 Condoms, 472 Conflicts of interest between managers and shareholders, 42–43 Congestion, highway, 107 Conglomerate mergers, 44, 49 Conner Peripherals Inc., 426 Conseil Intergouvernemental des Pays Exportateurs de Cuivre (CIPEC), 156–157 Constant marginal cost, 430 Constant returns to scale, 60, 430 Consumer Product Safety Commission (CPSC), 706 Consumer Reports, 472 Consumers few informed, 483–486 limited price information for, 465–467, 476–486 limited quality information for, 465–467, 469–474 many informed, 483 noncartel behavior and, 171–174 Consumer surplus explanation of, 94–95 two-part tariffs and, 338–340 Contestable markets explanation of, 30, 100 predation and, 379 Contractual remedies, 320 Cooperative game theory, 182n Cooperative oligopolies, 32, 181, 403 See also Cartels Cooperative strategic behavior courts and, 410 explanation of, 375 practices facilitating collusion and, 403–409 Copying services, 208 Copyright law, 552 Copyrights enforcement of, 557–558 explanation of, 553 international, 553 Mickey Mouse, 576–577 patents vs., 554 Copyright Term Extension Act of 1998, 576–577 Corporations explanation of, 37–38 function of, 38–39 historical background of, 38 in United States, 37–38 Cost concepts expensed vs amortized, 59–60 for multiproduct firms, 67–71, 74–78 opportunity, 57–60 output and, 57 short run vs long run and, 57–58 types of cost and, 53–57 Cost curve average, 58–59, 62–63, 128–129 of different technologies, 57 empirical studies of, 64–67 marginal, 308–311 short- and long-run, 58–59 Costs adjustment, 58, 84n average, 54–55, 58, 74–75 average fixed, 54 average incremental, 75, 78 average total, 54 average variable, 54–55, 83–84 avoidable, 53, 83, 85 capital, 271 incremental, 75 manufacturing, 64–66 marginal, 54–55, 82, 84 opportunity, 58–59, 84 price changes, 609 raising all firms’, 399–401 raising rivals’, 395–402 ray average, 74–75, 77 replacement, 271 sunk, 53, 84, 104 switching, 397 total, 54–56, 62–63, 74 transaction, 29 variable, 53–55 Countercyclical margins, 602–603 Counterfeit Halal meat, 471 Coupons, 316 Cournot equilibrium Bertrand equilibrium and, 198 cartel equilibrium and, 190–193 explanation of, 188–190, 643 mathematical derivation of, 218–221 3641_AWL_CARL_SUBINDXpp832-846.qxp 2/5/15 4:02 PM Page 835 www.downloadslide.net Subject Index monopolistic competition model and, 231, 233–234, 266 Cournot model explanation of, 185–188 flocking birds and, 190–191 mergers and, 195 three or more Cournot firms and, 193–194 trade policy and, 643–645 Cournot-Nash equilibrium, 190 Credibility, 210–213 Credible strategies, 183 Credible threat, 376 Cross-elasticity of demand, 671 Cross-subsidized rates, 712 Curie, Marie, 555 Curie, Pierre, 555 Czechoslovakia, 50 Dairy industry, 504 Damages, economic theory of, 663–664 Deadweight loss (DWL) antitrust laws and, 660–661 elasticity of demand and, 121–123 explanation of, 95–97 monopolies and, 119–121, 172–173, 720, 723–724 oligopoly welfare losses, 193 De Beers Consolidated Mines, 157, 345, 543 Debtholders explanation of, 38–39 rate of return to, 275–276 Decreased returns to scale, 60 Deere & Co., 532 Delivered pricing collusion and, 405–407 explanation of, 405–406 FOB pricing and, 407–409 Demand curve advertising and, 501–504, 508 cartels and, 148–149 downward-sloping, 224, 231 durable goods and, 532–536 effect of differentiation on, 227, 229 monopolies and, 118–119, 121–122, 720–723, 727 price elasticity and, 89–90 residual, 539 (See also Residual demand curve) time and, 604 Denmark antitrust regulation in, 162 attorney fees in, 713 Department of Agriculture (USDA), 709, 714 Department of Justice airline industry investigation, 405 antitrust suits and, 657–658, 661, 664–665 merger cases and, 667 merger guidelines and, 661, 669, 683–684 Overlap agreement and, 678 price fixing cases, 175 vertical integration and, 693 Department of Transportation (DOT), 754–755, 757 Depreciation explanation of, 60, 272 straight-line, 274 Deregulation airline industry and, 749–753 California electric utilities, 750–751 explanation of, 745 ground transportation industry and, 755–758 opponents of, 748–749 supporters of, 745–748 telecommunications, 752–753 in United States, 747 Designer water, 228 Design patents, 552 Design specificity, 458–459 Diamond industry, 157, 345, 543 Differentiated products See Product differentiation Diffusion, 562 Digital cameras, 488 Disclosure, 560–563 Disclosure laws, 516–518 Discriminatory dumping, 628–629 Diseconomies of scale, 60, 63–64 Distribution, vertical restrictions and, 439–448 Distributors cartels of, 453–454 free riding by, 442–448 lack of coordination among, 448–449 Division of labor, 61 Dominant firms cartels as, 147 causes of, 135–136 competitive fringe and, 136–140 explanation of, 32, 134–136 market share and, 388–389 835 no-entry model and, 136–139 unlimited entry and, 140–143 Dominant strategy, single-period prisoners’ dilemma game and, 42, 207 Double marginalization, 444 Double markups, 443 Double monopoly markup explanation of, 439 loss from, 439–440 vertical restrictions to reduce, 441–442 Downstream firms explanation of, 430 vertical integration and, 433–435 Downward-sloping average cost curve, 237 Downward-sloping demand curve, 224, 231 Drug industry, 125, 164, 166–167, 659 Drug patent protection, 583 Drug resales, 321 Dumping discriminatory, 628–629 explanation of, 627 legal standards for, 629–632 predatory, 628 reciprocal, 629 Duopoly Cournot, 193, 643–644, 646 Stackelberg, 204 trade policy and, 643–644 Duopoly experiments, 214–215 Durability competitive firm’s choice of, 523–524 consumer ability to determine, 517 explanation of, 522 installation and maintenance cost and, 527–529 monopoly’s choice of, 524–526 renting vs selling by monopoly and, 529–544 Durable goods explanation of, 522 multiperiod monopoly and, 546–548 DWL See Deadweight loss Dynamic limit pricing, 388 Earning streams, 587–588 Eastern Europe, 718 Eastman Kodak Co., 345, 701 3641_AWL_CARL_SUBINDXpp832-846.qxp 2/5/15 4:02 PM Page 836 www.downloadslide.net 836 Subject Index eBay, 363 Economic profit explanation of, 271 rate of return and, 271–272, 276 Economic theory of damages, 663–664 Economies of scale competition and, 100 economies of scope and, 70 explanation of, 60 measure of, 63–64 product-specific, 75–76 reasons for, 60–62 refuse collection and, 717 survivorship studies and, 66–67 total cost and, 62–63 in total manufacturing cost, 64–66 Economies of scope example of industry with, 70–71 explanation of, 45 function of, 68–70 multiproduct firms and, 76 networks and, 415–416 Edgeworth’s model, 198–200 Edison, Thomas, 550 Efficiency antitrust laws and, 658–660 competitive equilibrium and, 94 consumption, 330–331 monopolies vs competitive firms and, 118 objective of, 36–37 regulation and, 710–711 tie-in sales and, 343–344 Efficiency point, 193n Efficient production, 36 Elastic, 89 Elasticity of demand agricultural markets and, 93 cartels and, 155 deadweight loss and, 121–123 explanation of, 89 monopolies and, 116–117 Elasticity of supply, 89 Electrical equipment industry, 152–154 Electric industry deregulation, 750–751 minimum efficient scale and scope, 71 price fixing in, 666 Endogenous sunk cost, 295–296 Engineering, reverse, 557 Enron, 42 Entry barriers to (See Barriers to entry) conditions for, 231–232 dominant firms and unlimited, 140–143 general evidence on, 102–103 restrictions on, 97–99 value of preventing, 401 Entry condition, 232 Environmental Protection Agency (EPA), 706, 714 Equilibrium See also Competitive equilibrium Bertrand, 195–199, 204 breaking the, 478–479 circle model and, 252–253 Cournot, 188–193, 204 dominant firm-competitive fringe, 139–140 long-run, 85–87 in multiperiod games, 210–213 perfect Nash, 211 short-run, 85–86 single-price, 478–480 Stackelberg, 200–204 Equity owners, 38 See also Shareholders Essential Air Services Program, 749 Essential facilities, 691 Eterpen S.A., 390 Ethyl producers, 406 Europe See also specific countries agricultural subsidies in, 744–745 airline deregulation in, 755 antitrust laws in, 168–169, 662, 674 mergers in, 49, 130 patents in, 579 Eversharp, 390 Exchange rate explanation of, 621 trade incentives and, 622–623 Exchanges, 409–410 Exclusionary actions competition between rivals and, 686 competition deemed undesirable by Court and, 686–689 explanation of, 685–686 predation and, 689–690 refusals to deal and essential facilities and, 690–692 vertical arrangements between firms and, 692–698 Exclusive dealing effects of, 692 explanation of, 448 Supreme Court and, 696–698 Exclusive territories effects of, 692 explanation of, 445–446 Supreme Court and, 695–696 Exit barriers to, 101–102 general evidence on, 102–103 Exogenous sunk cost, 292–295 Expectations, of monopoly’s future behavior, 542–544 Expensing, 59–60 Experience qualities advertising and, 500 explanation of, 500 Experts, consumer information provided by, 472 Extensive-form representation explanation of, 202 limited pricing using, 386–387 of raising cost game, 290 Externalities cartels and, 149 competition and, 106–108 explanation of, 106–107 industries with positive, 646–647 vertical integration and, 422, 428 Eyeglasses, 506 Failing-firm defense, 683 Fair rate of return, 732 Fair Use Doctrine, 553 False advertising See also Advertising antifraud laws and, 515–516 disclosure laws and, 516–518 limits to lying and, 513–515 Federal Alcohol Administration (FAA) Act, 450–451 Federal Communications Commission (FCC), 707, 714, 718 Federal Deposit Insurance Corporation (FDIC), 747 Federal Express, 127 Federal Farm Board, 742–743 Federal Pacific Electric Company, 153 Federal Savings and Loan Insurance Corporation (FDIC), 747 Federal Trade Commission Act of 1914, 174, 656–658 See also Antitrust laws 3641_AWL_CARL_SUBINDXpp832-846.qxp 2/5/15 4:02 PM Page 837 www.downloadslide.net Subject Index Federal Trade Commission (FTC), 253, 707 advertising issues and, 504, 506, 514 antitrust law and, 657–658, 661, 664–665 consumer information study by, 474 drug approvals, 659 establishment of, 174 exclusive territories and, 697 function of, 657, 706 gasoline additive producers’ suit and, 406 Internet bans and, 99 merger cases and, 124, 667–668 merger guidelines and, 661, 669, 683 rate of return and, 277 vertical integration and, 693 Fighting brands, 402 Firms See also Corporations; Dominant firms cost concepts for multiproduct, 67–71 explanation of, 35 for-profit, 36 fringe, 134 objectives of, 36–37 ownership and control of, 37–44 size of, 38, 42–44 vertical integration and, 163, 436–437 (See also Vertical integration) First-best optimum, 235, 259–261 First-degree price discrimination See also Perfect price discrimination explanation of, 320, 323–324 welfare effects of, 330 First-mover advantage, 104 First-to-file rule, 563n First-to-invent rule, 563n Fixed cost average, 54 of changing price, 607–608 product variety and, 239–242 Fixed prices, 615–616 Fixed-proportions production function explanation of, 431 vertical integration and, 431–433 Flags, 614 Flocking birds, 190–191 FOB pricing delivered pricing and, 407–409 explanation of, 406 Food and Drug Administration (FDA), 706, 714 Food labeling, 466, 468, 471 Food Price Review Board of Canada, 489 Football tariffs, 338 Ford, Henry, 61–62, 106 France attorney fees in, 713 cartels and, 168–169 Franchise bidding, 718–720 Franchises, 442, 455–457 Free entry, 224 Free riding by distributors, 442–448 explanation of, 438 implications of, 626 incentives to, 626–627 international, 623–624 Internet and, 446 by manufacturers, 448 Futures markets, 612, 615 Game of imperfect information, 206 Games, 182 Game theory cooperative, 182n elements of, 183–184 explanation of, 30 oligopoly models and, 182 (See also Oligopoly models) Gas industry, 201, 717 GATT See General Agreement on Tariffs and Trade (GATT) Genentech, 560–562 General Agreement on Tariffs and Trade (GATT) dumping and, 629–630 export subsidies and, 646 General Electric (GE), 49, 152–154, 165, 662 General Foods, 553 General Motors, 42, 458, 495 Genetically altered products, 714–715 Genetically modified organisms, 466 Germany antitrust laws in, 168–169, 674 attorney fees in, 713 regulation of monopolies in, 706 Ghana, 36 837 Gimbel’s, 390–391 Going private, 46 Government prizes offered for research by, 568–571 research financed by, 567 Government intervention integration to avoid, 429–429 resales and, 320 Government regulation See also Deregulation antitrust laws and, 702 capture theory and interest-group theory and, 711–712, 714–715 cartels and, 155, 162 competitive industries and, 738–745 market inefficiencies and, 710–711 monopolies and, 715–729 (See also Monopolies) overview of, 706–710 raising rivals’ cost through, 396 rate-of-return, 730–738 tie-in sales to evade, 344 Grandfathered licenses, 740 Gray market, 623–624 Great Britain See United Kingdom Greenmail, 51 Grenada, 157 Groceries and grocery stores concentration and, 297 counterfeit Halal meat, 471 double markups, 443 genetically modified organisms, 466 information programs, 489–491 supermarkets, 443 Gross national product (GNP) composition of U.S., 102 mergers and, 49–50 Ground transportation, 754–758 Guarantees, information conveyed by, 470–471 Guess jeans, 240 Handler, Ruth, 555 Hearst Corporation, 124 Herfindahl-Hirschman Index (HHI) explanation of, 279, 669, 683n, 752 price-cost margin and, 307 Heterogeneous goods See Product differentiation HHI See Herfindahl-Hirschman Index 3641_AWL_CARL_SUBINDXpp832-846.qxp 2/5/15 4:02 PM Page 838 www.downloadslide.net 838 Subject Index Highway congestion, 107 Hit-and-run entry, 102n Hoffman-La Roche, 665 Homogeneous goods See Undifferentiated products Honeywell, 662 Horizontal Merger Guidelines, 661, 669, 683 Horizontal mergers, 44 Horses, 475 Hostile takeovers See also Mergers explanation of, 46 returns to acquiring firm and, 52 Hotelling’s location model, 245–247 Hotels bookings, 610 Houston Chronicle, 117 Houston Post, 117 Hungary, 49 Hyatt, John Wesley, 569 Hygiene scores for restaurants, 517 IBM, 345, 357, 543, 582–583 Increased returns to scale, 60 See also economies of scale Incremental cost, 75 Indifference curve, 369–371 Indonesia, 157 Industrial organization approaches to study of, 26–27 business practices and, 33 contestable markets and, 30 dynamic models and market clearing and, 34 explanation of, 26 game theory and, 30 government policies and, 34 information, advertising, and disclosure and, 33–34 international trade and, 620 market structures and, 31–33 price theory and, 27 transaction cost and, 29 Industries measures of concentration, 279–282 network, 415–416 performance and structure in individual, 288 reasonably competitive, 109 size of entry barriers by, 104–106 vertical integration of, 430–431 (See also Vertical integration) Inefficiency See Efficiency Inelastic, 89 Infinitely repeated prisoners’ dilemma game, 207, 209 Information See also Limited information about price, 465–467, 476–486 about quality, 467, 469–474 advertising and, 498–504 asymmetric, 467, 469–470 effect on prices of, 486–491 equal, 470–473 overview of consumer, 464–465 as public goods, 107 reasons for limited, 465–467 reliability of, 465 understanding consumer, 468 Information exchange among competitors, 677, 679 as cooperative strategic action, 404, 406 Ingram Micro Inc., 421 Injunctions, 658, 665 Innovation optimal timing of, 585–588 Inputs, 35 Installation, durability and, 527 Institute of Medicine, 640 Insurance market, 467, 469 Interest-group theory, 711–712 Internal rate of return, 272n International Bauxite Association (IBA), 156–157 International Competition Network, 662 International trade antitrust laws, 663–664 barriers, 646 comparative advantage and, 621–622 competition and, 633–635 dumping and, 627–632 empirical evidence on intervention in, 647–650 free riding, international price differences, and gray markets and, 622–627 industries with positive externalities and, 646–647 intra-industry trade in differentiated products and, 622 monopolies and, 128, 635–643 oligopoly theory and, 643 performance and structure studies and, 287–288 reasons for, 620–621 strategic policy and, 643–646 International Trade Administration (ITA), 630 International Trade Commission (ITC), 630, 636, 650 Internet advertising, 497 bans on interstate sales, 99 free riding on, 446 online auctions, 363 Interstate Commerce Commission (ICC), 714, 754–757 Intertemporal substitution, 604–607 Inventions, incentives for, 554–562 Invention Secrecy Act of 1951, 562 Inventories implications of unchanging price for, 608–609 just-in-time delivery and, 615 Inventors Protection Act, 1999, 552 I-T-E, 153 Japan agricultural subsidies in, 746 antitrust laws in, 674 automobile industry and, 642, 649 comparative advantage and, 621 government-financed research in, 567 Japanese macaques, 562 Jeans market, 240 Joint Executive Committee (JEC), 169 Joint ventures antitrust laws and, 571–572 research, 563–565 Judson, Whitcomb L., 555 Juhocukor, 422 Junk bonds, 46 Justice Department See Department of Justice Just-in-time delivery, 427, 616 Kaye, Danny, 550 Key ingredients, controlling, 125 Knowledge advantage, 124–126 Kodak See Eastman Kodak Co Labor unions as perfectly discriminating monopoly, 326 profits and, 283 Lamarr, Hedy, 550 3641_AWL_CARL_SUBINDXpp832-846.qxp 2/5/15 4:02 PM Page 839 www.downloadslide.net Subject Index Land, Edwin, 550 Lawyers, 713 Leader-follower model (Stackelberg), 200–204 Learning-by-doing model, 304, 394–395 Leasing under adverse selection, 536–537 Lee jeans, 240 Legal standing, 661 Lemelson, Jerome, 550 “Lemons” advertising and, 505–507 branding and, 498 empirical evidence and, 474 experimental evidence on, 475 market for, 467, 469 Lerner’s Index, 117, 303, 308, 625 Leverage, 39 Leveraged buyouts (LBO), 46 Levi Strauss, 240 Liability laws, 471 Licenses grandfathered, 740 international, 582 occupational, 712–713, 740–742 patent holders and, 578–581 Life insurance market, 468–469 Light bulbs brightness information on, 468 durability and, 523–526 resales and, 542 Limited information See also Information about price, 465–467, 476–486 about quality, 465–467, 469–474 overview of, 464–465 what information is, 465–467 Limited liability, 37–38 Limit pricing dynamic, 388 explanation of, 384–385 with identical firms, 385 where one firm has advantage, 386–388 Lincoln, Abraham, 550 Liquor Control Board of Ontario, 128 Location models explanation of, 225, 244 Hotelling’s, 245–247 Salop’s circle, 246–254 Long-run average cost curve (LRAC), 57–59 Long-run barriers to entry, 101 Long-run equilibrium entry restrictions and, 97–98 explanation of, 85–87 Longshoreman’s Union, 326 LRAC See Long-run average cost curve Lumber industry, 406, 409–410, 636 Macy’s, 390–391 Maintenance, durability and, 527–529 Managerial objectives, 37 Manufacturers cartels of, 453–454 free riding by, 448 Manufacturing cost, 64–66 Manufacturing specialization, 69–70 Marginal cost cartels and, 148, 163 competition and, 82, 84 cost data to estimate, 299–301 dominant firms and, 142–143 explanation of, 54–55 market power and, 666 Marginal cost curve, 308–311 Marginal outlay schedule, 132 Marginal revenue cartels and, 148–149 explanation of, 113 monopolies and, 113–116, 317, 539, 720–722 price discrimination and, 317 Market clearing competition and, 594, 604–606 explanation of, 593 fixed cost of changing price and, 607–608 monopolies and, 594–595, 607 moral hazard and, 609 oligopoly and, 594, 606–607 produce to order vs produce to stock and, 615 role of price and, 595–602 shocks in industries with fixed prices and, 615–616 theory of allocation and, 611–614 unchanging price for inventories and, 608–609 Market failures, 106 Market inefficiencies, 710–711 See also Efficiency 839 Marketing orders efficiency and welfare effects of, 335–336 function of, 739 price discrimination and, 334–335 Market performance See also Structure-conduct-performance (SCP) explanation of, 26–27, 268 measures of, 270–271 modern approaches to measure, 305 multiperiod studies and, 303–305 relationship of market structure to, 283–292 static studies and, 299–302 Market power explanation of, 32, 117, 224, 666–667 identification of, 308–311 integration to eliminate, 436 methods of obtaining, 713 multiperiod models to estimate, 303–305 pricing and, 337 Markets contestable, 100 definitions of, 227n, 667–669 geographic limit of, 671, 674–675 market clearing and organized, 612–613 Market shares, 169, 667 Market structure See also Structureconduct-performance (SCP) barriers to entry and, 282–284 explanation of, 268 function of, 614–615 industrial organization and, 31–33 industry concentration and, 279–282 patents and, 584–592 price markups and profit and, 269–270 produce to order vs produce to stock and, 615 rate of return and, 283–287 shocks to industries with fixed prices and, 615–616 unionization and, 283 Market supply curve, 85–86 McGuire Act, 694 MCI, 42–43 Medical drug databases, 124 Meeting-competition clause, 165 3641_AWL_CARL_SUBINDXpp832-846.qxp 2/5/15 4:02 PM Page 840 www.downloadslide.net 840 Subject Index Mergers antitrust laws and, 47, 384, 660, 681–685 of competitors, 681–684 cost of, 422 in Cournot economy, 195 efficiency and profitability of, 50–53 explanation of, 44 in foreign countries, 49–50 historical background of, 47–49 to increase efficiency, 44–46 Justice Department and, 667 into monopolies, 124, 130–131 of potential competitors, 684–685 to reduce efficiency, 46–47 types of, 44 Merger to monopoly movement, 48–49, 124 Merger to oligopoly movement, 49 Mickey Mouse, 576–577 Microsoft Corporation, 43, 398 Miller-Tydings Resale Price Maintenance Act, 694 Minimum efficient scale (MES), 65–66 Minivans, 257 Mixed bundling, 348–352 Monopolies advertising and, 508 behavior over time of, 118–119 cartels as, 146, 172 (See also Cartels) combating, 639–643 cost and benefits of, 119–123 creating and maintaining, 123–129 deadweight loss and, 119–121, 172–173, 721, 724 domestic, 635–639 dominant firms and, 139–140 double markup by, 439–442 durability and, 524–526 efficient operation and, 118 expectations of behavior of, 542–544 explanation of, 31, 112–113 foreign, 639–641 franchise bidding and, 718–719 government-created, 126–128 government ownership of, 716–718 knowledge advantage and, 124–126 legal, 713 marginal revenue and, 113–116, 317 market clearing and, 594–595, 607 natural, 128–129, 237, 416, 715–717, 720, 724–729 (See also Natural monopolies) package tie-ins and, 345–353, 356–357 in patent races, 588–590 price controls and, 720–730 price discrimination and, 320–330 privatizing and, 717–718 profit maximization and, 113–117, 327 profits and, 129–131, 275 protection of, 127 quality choice and, 360 regulation of, 706, 710 renting vs selling by, 529–544 that sell abroad, 639 time and, 607 vertical integration and, 449–454 vertical restrictions and, 692 Monopolistic competition, 31, 224 Monopolistic competition models, 225 Cournot equilibrium and, 231, 233–234, 266 hybrid, 254 location model as, 244–254 oligopoly model and, 231 representative consumer model as, 230–238 welfare in, 259–267 Monopoly power, 117 Monopoly price markup, 625 Monopsonies examples of, 132–134 explanation of, 31, 130 priests, 133 profit-maximizing, 131–132 Most-favored nation clause, 165 Motor Carrier Act of 1980, 755–756 Motor Carriers Act of 1935, 755 Movie advertising campaigns, 497 Multiperiod games explanation of, 204–205 function of, 183 infinitely repeated prisoners’ dilemma game and, 207 market power estimates and, 303–305 single-period prisoners’ dilemma game and, 205–207 types of equilibria in, 210–213 Multiproduct firms cost concepts for, 67–71, 74–78 economies of scope and, 68–71 example of, 70 explanation of, 68 Nash equilibrium, 184–185 Nash-in-prices equilibrium, 197 Nash-in-quantities equilibrium, 190 National Bromine Company, 164 National Cooperative Research Act of 1984, 571 National Credit Union Share Insurance Fund (NCUSIF), 747 National Environmental Policy Act (NEPA), 714 National Institute of Health (NIH), 714–715 Natural monopolies efficiency and, 720 explanation of, 128, 237 function of, 715–716 government ownership of, 716–717 network industries as, 416 price regulation of, 724–726 sustainability of, 726–729 Negative externalities, 106 Nepal, 36 Network industries explanation of, 415–416 size and, 315 tie-in sales in, 417–418 Newport Steel Corporation, 428 New York Stock Exchange, 108 New Zealand, 746 No-entry model, 136–139 Noerr-Pennington doctrine, 659 Nolo contendere pleas, 665 Nominal rate of return, 274 Noncooperative oligopolies See Oligopolies Noncooperative strategic behavior explanation of, 375–376 investments to lower production cost and, 388–389, 391–394 limit pricing and, 384–388 predatory pricing and, 376–385 raising rivals’ cost and, 395–402 role of courts and, 403 welfare implications and, 402–403 3641_AWL_CARL_SUBINDXpp832-846.qxp 2/5/15 4:02 PM Page 841 www.downloadslide.net Subject Index Nonlinear pricing auctions as, 362 with example, 368–373 explanation of, 315, 337–338 minimum quantities and quantity discounts as, 360 premium for priority as, 361 selection of price schedules as, 361 two-part tariffs and, 338–342, 365–367 Nonuniform pricing See also Price discrimination explanation of, 315 types of, 315 Normal-form representation, 206 Normal profit, 59 Northern Securities, 49 Nutmeg cartel, 157 NutraSweet, 345–346 Nutrition information, 468 Occupational licenses, 712–713, 739–742 Occupational Safety and Health Administration (OSHA), 706, 714 Oil industry cartels and, 156–157 monopoly behavior and, 119 Oligopolies advertising and, 509–510 antitrust laws and, 679–681 cooperative, 32, 181 (See also ? Cartels) deadweight loss and, 193 explanation of, 31, 181–182 game theory and, 183–184 international trade and, 643 location of, 181–182 market clearing and, 594, 606–607 multiperiod games and, 204–213 (See also Multiperiod games) noncooperative, explained, 181–182 price discounts and, 345 time and, 606–607 Oligopoly models Bertrand, 195–200, 204 Cournot, 185–196, 198, 204 entry in, 231 experimental evidence on, 213–215 Nash equilibrium and, 185 Stackelberg, 200–204 types of, 182–183 use of dynamic, 304–305 Opportunistic behavior, 424 Opportunity cost competition and, 84 explanation of, 58 Optimal sales policy, 539–540 Organization for Economic Cooperation and Development (OECD), 713, 744–745 Organization of Petroleum Exporting Countries (OPEC), 119, 156–157 Output cartels and, 148 explanation of, 35 Output agreements, 673–675 Outsourcing, 421 Overlap agreement, 678 Ownership forms of, 37–40 separation of control and, 40–41 Package tie-ins See also Tie-in sales with both products monopolized, 346–349 explanation of, 345 with interrelated demands, 356–357 mixed bundling with both products monopolized and, 348–352 with one product monopolized, 352–353 Paraguay, 36 Partnerships, 37 Passos, John Dos, 550 Patent and Trademark Office, 552, 589 Patent race, 573 Patents barriers to entry and, 101 copyrights vs., 554 disclosure and, 560–563 effects of, 549, 571–572 elimination of, 582–583 enforcement of, 557–558 European, 579 explanation of, 550–551 government incentives and, 567 government uncertainty and, 576, 578 impact on research of, 563–571 841 as incentives for inventors, 554–560 licensing and, 578–581 market structure and, 584–590 permanent, 573–574 royalties and, 582 sleeping, 401 thicket, 589 time period of, 574–578 trademarks vs., 554 trade secrets and, 561 value of, 572–573 Payoff, of firm, 182 Peak-load pricing, 726n Pennsylvania Transformer, 152 Pepper cartel, 150–151 Perdue Farms, 420 Perfect competition See also Competition advertising and, 503 assumptions of, 81–82 explanation of, 80–81 limitation of, 108–109 Perfect Nash equilibrium, 211 Perfect price discrimination explanation of, 320, 323–324 labor unions and, 326 welfare effects of, 330 Per se violation, 175 Physician fees, 319 Physicians, foreign-trained, 640 Pirating, 558 Pizza, 709 Planned obsolescence, 543 Plant patents, 552 Plant size, 62–63 Poison-pill arrangements, 51 Poland, 49 Positive externalities, 106, 646–647 Postadvertising preferences, 508–509 PPF See Production possibility frontier Preadvertising preferences, 508–509 Predatory dumping, 628 Predatory pricing court cases and, 689–690 dumping and, 628–629 explanation of, 376–377 with identical firms, 377–379 legal standards of, 381–384 theory of, 384 in tobacco, 382 where one firm has advantage, 379–381 3641_AWL_CARL_SUBINDXpp832-846.qxp 2/5/15 4:02 PM Page 842 www.downloadslide.net 842 Subject Index Price controls function of, 720 increasing marginal cost monopolies and, 720–724 lowering of price and, 729–730 natural monopolies and, 724–726 regulatory lag and, 729 sustainability of natural monopolies and, 726–729 tie-in sales and, 344 vertical integration and, 428 Price-cost margins business cycle and movements in, 602–603 explanation of, 117, 270, 278 industry structure and, 286–287 as performance measure, 278, 301–302 Price discounts Bureau of Labor Statistics data and, 598 collusion and, 403 tie-in sales and secret, 345 Price discrimination agricultural marketing orders and, 334–336 conditions for, 317 coupons and rebates and, 316 different prices to different groups and, 325, 327–329 explanation of, 33 government intervention and, 320 nonuniform pricing as, 315 (See also Nonuniform pricing) online auctions, 363 perfect, 320, 323–324 physician fees and, 319 primary-line, 698 profit motive for, 317 resales and, 318–320 Robinson-Patman Act and, 698–699 second-degree, 337–338 third-degree, 314, 329–331 tie-in sales and, 342–343, 345, 699–701 time-of-day, 726n types of, 315 in utilities industry, 712 vertical integration and, 322, 435 vertical relationships and, 693 welfare effects of, 330–332 Price dispersion consequences of, 477, 481 perception of, 482 Price fixing See also Antitrust laws attorney fees, 713 cartels and, 151, 158–168 cases involving, 158–168 (See also Antitrust cases) in concentrated industries, 159 in electrical equipment industry, 152–154 legislation related to, 158, 174–175 number of firms involved and, 160 output agreements and, 673–675 penalties for, 664–666 trade associations and, 160 Price rigidity early surveys and, 596–598 explanation of, 596–597 by industry, 600 later surveys and, 598–601 turnover and, 614 Prices administered, 598 advance notice of change in, 404 advertising of, 505–506, 739 allocation theory and, 611–614 business cycle and movements in, 602–603 changing, costs associated with, 609 fixed cost of changing, 607–608 franchises and, 457 gasoline, 201 inventories and unchanging, 608–609 market structure and, 269–270 markups, 443 monopoly advertising, 117 relationship between rates of return and, 272–273 shocks in industries with fixed, 615–616 transfer, 429 trigger, 166–167 uniform, 403 Price schedules, 361 Price setting cartels and, 151, 155, 158 dominant firms and, 134 explanation of, 32 Price supports, 743–745 Price takers agricultural markets and, 93 competitive firms as, 90–93 explanation of, 32 residual demand curve of, 90–93 Price theory, 27 Price wars, 168–170 Pricing classified, 334–336 competition and, 332 copying services, 208 delivered, 405–406 double monopoly markup and, 439–442 FOB, 406–409 individual, 348 interrelated demands and, 355–360 limit, 384–388 nonlinear, 315, 337–342, 360–362 (See also Nonlinear pricing) nonuniform, 315 overview of, 315 predatory, 376–385 (See also Predatory pricing) quality choice and, 360 Ramsey, 726 seasonal, 726n tie-ins and, 342–356 (See also Tiein sales) two-part, 728 unit, 468 zone, 406n Priests, 133 Primary-line price discrimination, 698 Principal-agent relationship, 438 Private good, 107 Privatizing, 716–718 Procter & Gamble, 495 Procyclical margins, 602–603 Producer surplus, 95 Produce to order, 615 Produce to stock, 615 Product differentiation barriers to entry and, 103–104 consumer preferences and, 234–235 demand curve and, 227, 229 estimation of differentiated goods models, 255–256 examples of, 228–229 explanation of, 226–227 intra-industry trade and, 622 price and, 498 representative consumer model with, 238–244 spurious, 510–511 3641_AWL_CARL_SUBINDXpp832-846.qxp 2/5/15 4:02 PM Page 843 www.downloadslide.net Subject Index Production of complements, 397–398, 414–415 efficient, 36 Production cost, 388–389, 391–394 Production possibility frontier (PPF), 243, 264 Production technology, 56 Products See also Product differentiation; Undifferentiated products advertising of single, 507–510 complementary, 397, 414–415 how consumers choose, 247–248 incompatibility of, 414–415 market clearing and heterogeneity of, 611–612 preferences for characteristics of, 230–231 search and experience qualities of, 498–500 substitution between, 668, 670 Product-specific economies of scale, 75–76 Product variety, 239–242 Profit accounting, 271 barrier to entry and, 284 economic, 271–272 monopolies and, 129–131 price discrimination and, 317 renting vs selling and, 529–544 theories of price markups and, 269–270 Profit maximization advertising and, 501–504, 520 competition and, 82–83 with interrelated demands, 355–356 monopolies and, 113–118 royalties and, 580 Profit possibility frontier, 192 Promotions effectiveness of, 624–625 function of, 498 Property rights, 107 Public goods, 107 Public utilities, 712, 716 ownership of, 716–718 rate-of-return regulation and, 731, 736 Quality limited information about, 465–467, 469–474 tie-in sales and, 345–346 Quality choice, 360 Quality discrimination, 315 Quantity-dependent prices, 324 Quantity discounts, 315 Quantity forcing, 442 Quasi-rents, 83 Quasi-vertical integration, 425 Quotas in competitive market, 634–635 domestic monopolies and, 635–638 function of, 648 RAC See Ray average cost Radio Shack, 428 Railroad industry cartel in, 169 deregulation of, 756–758 performance and structure in, 289 Railroad Revitalization and Regulatory Reform Act of 1976, 757 Ramsey pricing, 726 Rate of return before- and after-tax, 275 comparison of, 276–277 economic profit and, 271–272 explanation of, 270–271 fair, 731 industry structure and, 283–287 internal, 272n price and, 272–273 problems in calculation of, 273–276 real vs nominal, 274 risk-adjusted, 275 Rate-of-return regulation example of, 732–735 explanation of, 730–732 graphical analysis of, 734–736 quality effects and, 736–738 Ray average cost (RAC), 74–75, 77 Ready-mixed concrete market, 162 Real rate of return, 274 Rebates, 316 Reciprocal dumping, 629 Recycling market, 530–531 Refinements, 211 Refuse collection, 717 Regression, 284 Regression studies, 284 Regulation See Government regulation Regulatory lag, 729 Rental rate of capital, 271–272 843 Rent controls, 739 Renting incentives for, 542 monopolies and selling vs., 529–544 Rent seeking, 120–121, 740 Repeated static games, 304 Replacement cost, 271, 273 Representative consumer models conclusions about, 244 with differentiated products, 238–244 explanation of, 225–226, 230 with undifferentiated products, 230–238 Reputation, 471 Requirements tie-ins explanation of, 345 with interrelated demands, 357–360 Resale market explanation of, 529–531 importance of, 532–533 recycling market vs., 530–531 textbooks, 544 Resale price maintenance effects of, 459–461 explanation of, 447 Supreme Court and, 694–695 Resales price discrimination and, 318–320 two-part tariffs and, 338 Research and development (R&D) antitrust laws and, 571–572 expenditures on, 555–556 government-financed, 567 government prizes and, 568–571 government uncertainty and, 576, 578 incentives for, 563–565 joint public, 568 to lower future production cost, 388–389, 392–394, 402 mergers and, 52 optimal number of firms and, 565 patents and, 572–576 rate of return on, 554 valuing problems with, 274 Residual demand curve Bertrand, 199 cartels and, 171–172 Cournot model and, 185–187 elasticities and, 89–93 monopolies and, 125–126 of price takers, 90–93 3641_AWL_CARL_SUBINDXpp832-846.qxp 2/5/15 4:02 PM Page 844 www.downloadslide.net 844 Subject Index Restaurants, 517 Restrictive Trade Practices Act (Great Britain), 155n Revelation principle, 722n Reverse engineering, 557 Reynolds International Pen Company, 390–391 R.H Macy & Co., 41 Risk-adjusted rate of return, 275 Robinson-Patman Act, 698–699 Rockefeller, John D., 682 Royalties examples of, 582 explanation of, 578 license, 580–581 Russia See also Soviet Union, Former diamond cartel and, 157 mergers in, 49 Salop’s circle model, 246–254 Savings and loan industry, 747–748 SCP See Structure-conduct-performance Seagate Technology, Inc., 426 Sealy, 461 Search qualities advertising and, 500 explanation of, 500 Searle, 345 Seasonal pricing, 603, 726n Second-best optimum, 237–238, 261–263 Second-degree price discrimination, 337–338 Securities Act of 1933, 517 Securities and Exchange Commission (SEC), 43 Self-selection constraint, 342 Semiconductor industry, 650 Services, resales and, 318 Shareholders conflicts of interest between managers and, 42–43 function of, 38–41 mergers and, 51 Sherman Antitrust Act of 1890, 45, 154 See also Antitrust laws explanation of, 656–657 function of, 174–175 violations of, 406, 665, 678, 686 Short-run average cost curve (SRAC), 57–58 Short-run equilibrium, 85–86 Shutdown point, 84 Single-period oligopoly models Bertrand, 195–200, 204 Cournot, 185–196, 204 explanation of, 184 function of, 183 Nash equilibrium and, 185 Stackelberg, 200–204 Single-period prisoners’ dilemma game, 205–207 Site-specific capital, 426 Site specificity, 458 Sleeping patents, 401 Small-arms industry, 436–437 Social benefits patent length and, 574 research programs and, 565 Social cost of cartelization, 173–174 research programs and, 565 Social optimum, 192–193 Software bundling, 353 patent thicket, 589 Sole proprietorships, 37 Sonny Bono Copyright Term Extension Act of 1998, 576–577 South African Breweries, 124 Soviet Union, Former See also Russia diamond cartel and, 157 privatizing in, 718 Spatial models See Location models Specialized assets, 425–426 Specific human capital, 426 Specific physical capital, 426 Sports figures and celebrity endorsements, 502 Spurious product differentiation, 510–512 SRAC See Short-run average cost curve Stackelberg equilibrium, 218–221 Stackelberg model explanation of, 200–202, 643 firm strategies in, 185 Staggers Act of 1980, 673, 756–757 Standard Oil, 384 Standards effects of, 472–473 information provided by, 472 State-owned enterprises (SOE), 718 Static analysis, 34 Static games, 304 Static studies of performance, 299–302 Steel industry, 650 Steel-scrap market, 109 Stock, 38 Stockholders, 275–276 Straight-line depreciation, 274 Strategic behavior antitrust laws and, 375 cooperative, 403–411 explanation of, 374–375 noncooperative, 375–403 (See also Noncooperative strategic behavior) technology change and, 398 tie-ins and product compatibility decisions and, 413–418 Strategic complements, 402n Strategic substitutes, 402n Strategies explanation of, 30 mixed, 222–223 pure, 222 Structure-conduct-performance (SCP) explanation of, 26–28 market performance measures and, 270–271 market structure measures and, 279–283 modern analysis, 292–298 modern approaches and, 305 multiperiod studies and, 303–305 rate of return and, 271–278 static studies and, 299–302 structure to performance relationship and, 283–291 studies of, 268, 270 Subgame perfect Nash equilibrium, 211 Submarkets, 670n Subsidies in competitive market, 633–634 GATT and export, 646 strategic trade policy and, 644–645, 650 trade barriers and, 646 Sudan, 36 Sugar refining industry, 303 Sunk cost competition and, 84 endogenous, 295–296 entry and, 104 exogenous, 292–295 explanation of, 53, 83 rival firms and, 379–380 Supergames, 205 3641_AWL_CARL_SUBINDXpp832-846.qxp 2/5/15 4:02 PM Page 845 www.downloadslide.net Subject Index Supermajority amendments, 51 Supermarkets, 297, 443 See also Groceries and grocery stores Supply elasticity of, 89 vertical integration and, 427 Supply curve of competitive firms, 84 foreign producers and, 635–637 short-run market, 85–86 slope of long-run, 86–88 time and, 604 Supreme Court, U.S antitrust laws and, 656, 664, 674–676, 679–680 exclusionary actions and, 685–689 exclusive dealing and, 696–698 exclusive territories and, 695–696 information exchange and, 406 mergers and, 49, 681–685 patents and, 550 predatory dumping and, 628 predatory pricing and, 378, 689–691 resale price maintenance and, 694–695 tie-in sales and, 699–701 vertical relations and, 693–697 Survivorship studies, 66–67 Sustainability, of natural monopolies, 726–729 Swaps, 409 Switching cost, 397 Switzerland agricultural subsidies in, 746 cartels and, 168–169 Takeovers See also Mergers efforts to prevent, 51 hostile, 46, 52 The Talmud, 477 Tanzania, 157 Tariffs in competitive market, 633–634 domestic monopolies and, 635–638 function of, 648 monopolies that sell abroad and, 639 nonlinear, 639–641 trade barriers and, 646 Tax code, 46 Taxes, 429 Taxicabs, 741–742 Tax rates, 275 Technology change, 398 Telecommunications, deregulation, 752–753 Tennessee Valley Authority (TVA), 152 Textbooks, resale, 544 Theory of the core, 88n Third-degree price discrimination explanation of, 315, 327 various methods of, 329–330 welfare effects of, 330–331 Thoroughbred horses, 475 Tie-in sales effectiveness of, 337 explanation of, 315, 342 interrelated demands and, 356–360 justifications for, 343–346 in network industries, 417–418 package, 345–353 (See also Package tie-ins) price discrimination and, 342–343, 345 requirements, 345 strategic use of, 413–414 Supreme Court and, 699–701 Time entry and, 715 market clearing and, 604–607 value customers place on, 329, 724n Time-of-day pricing, 726n Tobacco industry, 141, 382 Tobacco Trust, 382 Tobin’s q, 271, 758 Total cost economies of scale and, 62–63 explanation of, 54–56 for multiproduct firms, 74 Total revenue, 114 Tourists-natives model, 481–486, 493–494 Tourist-trap model, 477–480 Toyota, 427 Toys ‘R’ Us, 697 Trade See International trade Trade associations cartels and, 160 function of, 677 Trademarks enforcement of, 558 explanation of, 553–554 patents vs., 554 Trade secrets vs patents, 561 845 Transaction cost explanation of, 27, 29 integration to lower, 424–427 resales and, 319 Transaction cost approach, 29 Transfer price, 429 Transportation Act of 1920, 755 Trans-ray convex, 76 Treaty of Rome, 674 Treble damages, 657 Trigger prices explanation of, 166 function of, 167–168 price wars and, 171 Tripoly experiments, 214–215 Trucking industry, 756–757 Truth-in-advertising laws, 497 Turnover, 614 Twain, Mark, 550 Percent Club, 161–162 Two-part pricing, 728 Two-part tariffs explanation of, 315, 325, 442 optimum, 365–367 single, 338–340 two, 340–342 UCAR Carbon, 665 Uncertainty, 426 Undifferentiated products explanation of, 224 representative consumer model with, 230–238 welfare with, 235–238 Unionization, 283 Unitary elasticity, 89 United Kingdom antitrust laws in, 674 attorney fees in, 713 cartels and, 155, 168–169 Local Government Act of 1988, 719 privatizing of state-owned monopolies in, 717–718 United Shoe, 528 United States agricultural subsidies in, 746 attorney fees in, 713 cartels and, 168–169 deregulation decisions in, 747 merger activity in, 47–49 monopsonies in, 132–134 production in, 36 regulatory agencies in, 707 (See also Government regulation) 3641_AWL_CARL_SUBINDXpp832-846.qxp 2/5/15 4:02 PM Page 846 www.downloadslide.net 846 Subject Index United States (continued) rent control in, 739 size of firms in, 42–44 types of firms in, 37 Unit pricing, 468 Upstream firms explanation of, 430 vertical integration and, 433–435 U.S Postal Service, 127 U.S Steel, 49, 388 Used car market, 467, 469–470, 474–475 Utility patents, 552 Variable cost, 53 Variable-proportions production function explanation of, 431 vertical integration and, 433–435 Versatile Co., 532 Vertical differentiation, 295–296 Vertical integration alcoholic beverages industry, 450–451 antitrust laws and, 692–693 to assure supply, 427 to avoid government intervention, 428–429 benefits of, 420–424 to eliminate externalities, 428 to eliminate market power, 436 empirical evidence on, 457–459 explanation of, 419–420 firm life cycle and, 436–437 impairing competition, 453 to increase monopoly profits, 449–454 to lower transaction cost, 424–427 price discrimination and, 320 quasi-, 425 Vertical mergers, 44 Vertical restrictions antitrust laws and, 693–698 ban of, 455 effects of, 449–454 empirical evidence on, 459–461 explanation of, 419, 438–439 franchising and, 442, 455–457 monopolies and, 693 to reduce double markups, 441–442 to solve distribution problems, 439–448 Violin strings, 125 Virgin Atlantic Airways, 395 Vitamins cartel, 166–167 Voice Over Internet Protocol (VOIP), 753 Warranties information conveyed by, 470–471 resales and, 319 Water, bottled, 228 Welfare advertising and, 505–512 circle model and, 252–254 competition and, 94–97 consumer and producer surplus and, 94–95 deadweight loss and, 95–97 with differentiated products, 239, 264–267 marketing orders and, 335–336 price discrimination and, 330–332 rate-of-return regulation and, 736 strategic behavior and, 402–403 with undifferentiated products, 235–238, 259–263 Westinghouse, 152–154, 165 White knight, 52 Whitney, Eli, 550 Williams Act, 51 Wilport Corporation, 428 World Bank, 98 WorldCom, 42–43 Wage rates, 132 Wages, 397–399 Wagner, Honus, 501 Wait time, 329–330 Walker, John, 555 Walt Disney Company, 576–577 Xerox, 543 Xerox Corporation, 553–554, 556 x-inefficiency, 118 Zambia, 36 Zone pricing, 406n 3641_AWL_CARL_SUBINDXpp832-846.qxp 2/5/15 4:02 PM Page 847 www.downloadslide.net 3641_AWL_CARL_SUBINDXpp832-846.qxp 2/5/15 4:02 PM Page 848 www.downloadslide.net ... adaptation from the United States edition, entitled Modern Industrial Organization, 4th edition, ISBN 978-0-321-18023-0, by Dennis W Carlton and Jeffrey M Perloff, published by Pearson Education © 2016... Editor, Global Edition: Steven Jackson Assistant Project Editor, Global Edition: Amrita Kar Manager, Media Production, Global Edition: Vikram Kumar Senior Manufacturing Controller, Production, Global. .. markets operate, and explores how modern microeconomic models of industrial organization may affect the macroeconomic economy Chapter 18 examines the industrial organization issues that arise in