E.I. (Fach) / Market Size and Scale Effects (Lektion)
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S.5-7
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- Sketch of economic logic Liberalisation -> defragmentation -> pro-competitive effect -> industial restructuring (M&A) => fewer, bigger and more efficient firms facing more competitions from each other
- Monopolies and Duopolies firms are not price takers Elasticity of demand curve contains price levels Porfit maximum: Marginal revenue=marginal costs Duopoly: Price & Production depend on expectation on behaviour of competitors Cournot-Nash equilibrium: Optimum if symmetric firms produce same level of output
- Monopoly: Extra revenues of unit (s. S. 6) D+E-A ("marginal revenue")
- Bander and Krugman (1983) combine... returns to scale, imperfect competition and trade ->BE (breakeven): BE-COMP Diagram
- BE curve with increasing returns to scale only a limited number of firms can survive and survival depends on markup
- Markup Price markup over costs; depend on competition
- BE-COMP Diagram: No-trade to free-trade integration each firm has second market of same size and twice the numer of competition: Competition effect: n↑ ->μA↓-> Pkt. A Market size effect: BE shifts to the right: at any given mark-up more firms can breakeven on account of increased market size; at given number of firms (2n -> Pkt 1) no equilibrium -> 1 über A new BEFT: if μ does not change twice the number of firms could breakeven since each firm would sell same number of units more competition and lower mark-up decreases p to pA -> below BE-point for 2n Industrial restructuring results in E' equilibrium since each firm has a larger marekt in new equilibrium, AC decline -> efficiency gain Welfare gain C: Consumers benefit from lower price and higher consumption
- Defragmentation PRE: firms has 100% sales at home, 0% abroad; POST: 50 - 50
- Pro-competitive effect Equilibrium moves from E' to A -> firms lose money (below BE) Pro competitive effect: mark-up falls short run price impact: p' to pA
- Industrial Restructuring A to E'' => number of firms for 2n' to n'' firms enlarge market shares and output more efficient firms, AC falls from p' to p'' mark-up rises profitability is restored
- Empiric studies of Single Market Programme Many mergers within one member state (about 55% domestic, 24% one ist non EU-firm, 15% one in another EU-nation, 6% nationality not identified) SMP reduced Price-Cost Margins by 4% on average (but high variance)