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Economics of Markets and Organizations (Fach) / ALL (Lektion)
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- Nash equilibrium All players simulaneously choose a best response None of the Players could improve by deviating uniliterally (Dynamic Games: Backward Induction)
- Monopoly Prive combined Firm RM = (p * Q) Q d RM / d Q = MC (partielle Ableitung nach Q)
- Double Marginalization PC, CS and Welfare decrease Vertical mergers are attractive for both firms and consumers
- Market Power - Definition The ability of a firm to sell its products at a price above marginal costs high in highly concentrated markets (high H) with inelastic demand (low ε)
- Market Power - Learner Index individual Firm Li = (pi - MCi ) / pi L = H / ε
- Market Power - Markets Learner Index L = ∑ mi * Li mi = Market Share Firm = Ri / R Ri = Firms Revenue R = Total Market Revenue
- Market Concentration - Definition A market is concentrated, if only a handful of firms have a serious market share
- Market Power - Herfindahl-Hirschmann Index H = m12 + m22 + .... + mn2 = ∑ mn2 ( = 1 / n ) Monopoly: H = 1 ! Gibt an, wie stark der Markt konzentriert ist
- Market Power - Elasticity ε = -p(Q) / p´(Q) Q ε > 1 = elastic 0 < ε < 1 = inelastic
- Market Power - How to obtain? Legally Patent Copyright Economically Advertising Collusion M&A predatory behaviour
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- Market Power - Consequences shift of surplus from consumer to producer → some consumers no longer buy = allocative ineffiency → Less pressure to reduce costs = productive ineffiency → Less pressure to innovate = dynamic ineffiency → Incentive to lobby government to retain market power
- Monopoly - Market Power Monopoly Reminder: Marginal Revenue = Marginal Costs MR = MC L = H / ε ( H = 1 ; Monopoly) L = 1 / ε
- Oligopoly More than one competitor, but no perfect competition Bertrand Competition Cournot
- Oligopoly - Bertrand Competition Price competition Industries with flexible capacities and quantities Example: Software Industry, Insurances, Bank services All firms interact only once same marginal costs all consumers buy at the firm with the lowest price Nash: set p a little bit lower = "Race to the bottom" p = MC → In reality firms in oligopolistic industries often have market power Product differentiation Limited Capacities Cost asymmetries
- Cournot firms compete on quantity Industries with inflexible production capacity → Equilibrium Price > MC < pm Q = q1 + q2 R = p * qi Q mit q1 und q2 ergänzen und mit dem jeweiligen q multiplizieren, zuletzt gleich den Grenzkosten setzen jeweils ergänzen NASH: q1 = q2
- Cournot with more than 2 Firms - General Formula p(Q) = a - b*Q → All firms produce at MC MC = c p* = c + ( a - c ) / (n + 1) q* = ( a - c ) / b ( n + 1 ) If n → ∞ , p → MC
- Search and Switching Costs Search Costs → Consumers cost to find out about the existence / price of a good Switching Costs (s) → Costs from switching from his current provider to another one → IMPLY MARKET POWER
- Competition Policy - Cartels Agreement between firms Article 101 EU treaty Anti Cartel Law Exemptions: M&A EU Group Exemtions (Dealing Car Market)
- Competition Policy - Abuse of a dominant Position Article 102 EU treaty dominant position, Market Share > 40 % Examples: Price discrimination product bundling predatory pricing (= undercutting, Preis so günstig wie möglich machen, um Wettberwerber zu verdrängen)
- Competition Policy - Merger Control M&A concentration blocked, if... → it creates dominant position → too high market concentration
- Regulation - Definition Intervenes to mitigate welfare loss in monopolistic markets
- Regulation - Instruments Rate of Return Regulation Advantages Allocate ineffency is reduced as much as possible Disadvantages no incentives to reduce costs ( productive ineffiency) Price Cap Regulation Advantages Allocative ineffiency is reduced as much as possible Incentives to reduce costs (productive ineffiency) Disadvantages difficult to determine correct price cap regulator must commit to the price cap incentives to reduce quality
- Week 3 - Principal Agent Model Main Problem in organizational economics Larger firms conflicts between → Shareholders - Management → Manager - Employee Agent: meist der Arbeiter Principal: Vorgesetzter
- Chapter 5 - Team Incentive - Comparative performance evaluation Workers payment is based on his performance relative to the performance of other workers contract less risky Example: Tournament
- What is the value-maximization principle? An allocation of goods and services is efficient (only) if it maximizes the total value among the affected agents
- Markets Entry Model D(p) = S* (1- p) inverse: p(Q) = 1- Q / S Profit: S / (n+1)2 - F = 0 n = Wurzel aus S/F -1 (Round Downwards) Greater Market Size is more atractive to enter Markets with high fixed costs are characterized by a very low number of firms
- Efficient Number of Entrants n* = 3. Wurzel aus S/F - 1