Answers to Practice ProblemsChapter 1 No Practice Problems in this chapter. Chapter 2 2.1 1. Profit Maximization implies MC = 2q + 10 = P. Hence, q = (P − 10)/2. 2. With 50 firms, horizontal summation of the individual marginal cost curves yields: QS = 50 (P − 10)/2 = 25P − 250. 3. Equilibrium: P = $30 and Q = 500. 4. q = (P − 10)/2 = 10. Revenue = Pq = $300. Total cost = 100 + q2 + 10q = $300. Profit = 0. 2.2 1. Inverse demand curve is: P = (6,000 − 9Q)/50. Hence, MR = 120 − (18Q/50) = 120 − (9Q/25). 2. MC = 10 + Q/25. Equate with MR to obtain: Q = 275. At this output, P = $70.50. 3. Total revenue = $19,387.50. Each plant produces 5.5 units and incurs a total cost of $185.25. Each plant earns a revenue of $387.75. Profit at each plant is $202.50. 2.3 1. Consumer surplus is the area of the triangle above the equilibrium price but below the demand curve = (1/2)($120 − $30)500 = $22,500. Producer surplus is the area of the triangle below the equilibrium price but above the supply curve = (1/2)($30 − $10)500 = $5,000. Total Surplus = $22,500 + $5,000 = $27,500. Note: Surplus is a marginal concept. Producer fixed cost is not considered. 2. Total surplus falls by area of deadweight triangle. Height of triangle is given by reduction in output which is 500 − 275 = 225. Marginal cost at Q = 275 is $21. Base of triangle is given by price less marginal = $70.50 − $21 = $59.50. So deadweight triangle has area equal to: = (1/2)($49.50)225 or $5,568.75. The new total surplus is the competitive surplus less the deadweight loss = $27,500 − $5568.75 = $21,931.25. 2.4 1. Efficiency requires P = MC. Marginal cost is $10. So, P = $10 (Q = 30) is efficient outcome. 2. Profit maximization requires setting the monopoly price. Because inverse demand is P = 25 − Q/2, MR = 25 − Q. Equating MC and MR then yields 10 = 25 − Q or Q = 15 and P = $17.5 is profit maximizing output and price. 3. Welfare loss is WL = 0.5($17.5 − $10)(30 − 15) = $56.25. 2.5 1. Present value of incremental cash flows from driving out Loew = −$100,000 + $10,000 = −$16,629. Driving out Loew is not a good investment. 2. Present value of incremental cash flows from buying Loew = −$80,000 + $10,000 = $3,330. This is a good investment. Chapter 3 3.1 1. CR4A = 70%; CR4B = 76%. HIA = 2698; HIB = 1660. Industry A has one firm that dominates the industry. Industry B has five firms that control 90 percent of the production. But these five firms may compete fiercely. The HerfindahlHirschman index seems to better capture the greater potential for monopoly power in Industry A. 2. With the merger of the three, second largest firms in Industry A, the new values are: CR4 A = 80%; HI = 2992. Both measures rise. Chapter 4 4.1 1. In this case, we have discrete and not continuous changes in output. Hence we have to use the average value of marginal cost at output 11. This is calculated as the average of the marginal cost of increasing output from 10 to 11 units ($137) and the marginal cost of increasing output from 11 to 12 units ($165), which is just $151. Average or unit cost at 11 units is equal to $1407/11 = $127.91. Hence, S = AC/MC = $127.91/151 = 0.847 ≈ 0.85. 4.2 1. AC = TC/q = 50/q + 2 + 0.5q. AC(q = 4) = 16.5; AC(q = 8) = 12.25; AC(q = 10) = 12; AC(q = 12) = 12.167; AC(q = 15) = 12.833. 2. MC = ΔTC per unit change. For decreases: ΔTC = 50 + 2q + 0.5q2 − [50 + 2(q − 1) + 0.5(q − 1)2] = 2 + q − 0.5. For increases: ΔTC = 50 + 2(q + 1) + 0.5(q + 1)2 − [50 + 2q + 0.5q2] = 2 + q + 0.5. The average of these two value is 2 + q. 3. S > 1 for q < 10; S = 1 for q = 10; S < 1 for q > 10. Chapter 5 5.1 1. Total moviegoers is the sum of daytime and evening moviegoers. Note that we assume the price is the same in the daytime and in the evening. This allows us to derive an overall demand function for daytime and evening, which is QTotal = 100 − 10PD + 140 − 10PE = 240 − 20P. The monopolist maximizes the profit function Π = Q(P − c) = (240 − 20P)(P − 3), where dΠ/dP = 300 − 40P = 0. Solving leads to P = 7.5, QD = 25, QE = 65, and Π = 405. 2. With thirddegree price discrimination the monopolist treats daytime and evening as two separate markets, so PD and PE can vary. Profit for the daytime is ΠD = QD (PD − c) and profit for the evening is ΠE = QE (PE − c). Plugging in the demand equations, we get ΠD = (100 − 10PD)(PD − 3) and ΠE = (140 − 10PE)(PE − 3). Setting dΠD/dPD = 0 and dΠE/dPE = 0, we find PD = 6.5, PE = 8.5, QD = 35, QE = 55, ΠD = 122.5, ΠE = 302.5. Total attendance is 90 as in part (a), but aggregate profit is now 425. 5.2 1. The chowder is being sold in three distinct markets. To solve, we can find separate equilibria for each market. First define the profit function for each market, which is just Πi = Qi(Pi − ci). Substitute in the demand equation and the marginal cost for each market. For Boston this is ΠB = (10,000 − 1,000PB)(PB − 1), for New York it is ΠNY = (20,000 − 2,000 PNY)(PNY − 2), and for Washington it is ΠW = (15,000 − 1,500PW)(PW − 3). Take the first derivative dΠi/dPi and set it equal to 0 to find the profit maximizing prices. For Boston this is $5.50, for New York it is $6, and for Washington it is $6.50. Plugging price back into the demand equation gives the equilibrium daily quantity. These are QB = 4500, QNY = 8000, QW = 5250. Quantities are given in units per day. 2. Plug price and quantity back into the profit equations to find the daily profit in each market. ΠB = $20,250, ΠNY = $32,000, ΠW = $18,375. 5.3 1. Total welfare is the sum of consumer surplus and producer surplus (profit). Consumer surplus is the total amount “saved” by all consumers who paid less than they were willing to pay for the movie. Geometrically, on a graph of price and quantity in the movie market, consumer surplus is the triangle bounded on the left by the yaxis (the line Q = 0), on top by the demand curve, and on the bottom by the price curve (P = P). In the nondiscriminatory market, the theater's profit Π = 405. Inverse demand curves are PD = 10 − QD/10 and PE = 14 − QE/10. From these curves it is clear that the reservation price of the consumers with greatest willingness to pay in the daytime and evening markets are 10 and 14, respectively. The consumer surplus is sum of the areas of the triangles with heights (10 − 7.5) and (14 − 7.5) and bases 25 and 65. Total consumer surplus is ½(10 − 7.5)(25) + ½(14 − 7.5)(65) = 242.5. Total surplus is 405 + 242.5 = $647.5. In the discriminatory market, consumer surplus is once again the sum of the consumer surpluses in the daytime and evening markets. Total consumer surplus is ½(10 − 6.5)(35) + 1/2(14 − 8.5)(55) = 212.5. Total surplus is 425 + 212.5 = 637.5, which is $10 less than the nondiscriminatory total surplus. Chapter 6 6.1 1. Because the demand curve is linear, it must be the line that passes through the two points, (5, $40) and (10, $25). The slope of this line is ($40 − $25)/(5 − 10) = −3, so P = −3Q + b. Plug in a point and solve for b to find the inverse demand equation, P = 55 − 3Q. The reservation price of the consumer with the greatest willingness to pay is $55, the price when quantity is 0. At this point, the good is at its scarcest, so only the consumer with greatest willingness to pay will buy the good. 2. We can think of total demand as being the sum of demand for a first unit and demand for a second unit. Because every consumer is willing to pay $8 less for the second unit, the demand curve for a second unit is just the demand for the first unit shifted down by $8, or P = 47 − 3Q2. Plugging in P = 34, we find 7 first units will be sold and 4.333 second units will be sold, for a total of 11.333 units sold. 3. Which policy is better is uncertain without further information. The admission fee T should be set to consumer surplus at this price p. The price per ride p = 0 at which price the number of rides bought is q2. k + c. In Policy B. the park's profit per customer is T′ minus the cost of q2 rides. Policy B gains profit whose area is the trapezoid bounded by c. The number of rides bought at this price is q1. 2.6. which is k + c so p = k + c. the profit is profit from a lowdemand package . and the demand function. which is the total area under the demand curve. 2. The admission fee should be set to consumer surplus at this price. 6. Total profit will be the area under the demand curve minus a box of dimensions c by q2.3 1. but loses profit given by the triangle above the demand curve and below c. because there is no need to issue tickets. the park's profit per customer is T. which is the area under the demand curve and above k + c. for each pair. The price per ride should be set at marginal costs. The price per ride just covers costs. If the number of high and lowdemand customers is the same. In Policy A. then for each highdemand customer there is one lowdemand customer. the cost of each ride is only c.2 1. However. Thus. 75 per tenth of a mile cuts into his profits. so Henry should travel. 4.75 + .00 + 2(9.50 + 7.50. giving him revenue minus transport costs of $10. This is maximized when the lowdemand package has 6 units. so that combined profit is $24 + $56 = $80.25 + 8. Chapter 7 7. . To maximize profit. because that is the maximum number of people in the town.50 and profit of $125. From the table. but the travel cost of $0.50 from the two secondnearest consumers . At this price. 3. We want to pick the low demand package to maximize 2* profit low + profit high. where he will have the greatest access to consumers.5 = 10. Henry's profit is Π = 2 (P − c) = 2(20 − 2P)(P − 2). $9. However. With the mobile smithy.33 customers. . This would imply Henry would service 21. .67. which in this case is P = $6. The number of customers is just 2 .50 × NLow. He earns $10 in revenue from the person at his position. where d is the distance from Henry's in tenths of a mile.50 − $42 = $85. the profit maximizing prices would be $54 for the lowdemand package.1 1.125. . Henry will visit consumers as long as . Henry just serves everyone in the town. so = 10. there are now two lowdemand customers. Therefore. The marginal consumer will be located where P + .125. because people come to Henry's from both directions.50) = $127. the monopolist should only offer the highdemand package when the ratio of highdemand to lowdemand customers is greater than 1. + 2. This equality reduces to NHigh/NLow > 1. $8.75* d + 2 < 10. is 8 so the total number of customers supplied is 16. or P + . or = 20 − 2P. and Π = $64. so the profit from 2 lowdemand customers and 1 highdemand customer is $108. This sum is greatest when the lowdemand package has 4 units and the highdemand package has 12 units. we set dΠ/dP = 0 and solve for P. We want to know at what ratio the profit from only selling the highdemand package exceeds that of selling the high and lowdemand packages. Consumers will buy from Henry as long as the price plus the travel cost is less than the reservation price. For each highdemand customer.plus profit from a highdemand package. but because there are only 21 customers. 7.25 from the two next nearest consumers. He should locate in the middle. The profit from traveling is clearly greater than the profit from staying in the same place. This is equivalent to asking when $72* NHigh > $44* NHigh + $31. 2 cannot exceed 21.2 .5d < 10. Henry can charge every customer their $10 reservation price. and $120 for the highdemand package. but always cross the yaxis at the same point. If the price for the Disney Channel is $15. P = 4 − Q/3 and C = 9. The profit maximizing output is Q = 4.3 1. The quality choice of z = 2 leads to the highest profits. $17. and $17. This restriction is implicit for type B customers as well. and quality for type B zb = 20 z1/(20 − 10) = 2z1. Pa = 20(2 − ) and Pb = 20* 10 /(20 − 10) = 20 . If η < 2/3. families. The demand curve for a given quality is a line with slope −1/z. hotels. $20. The firm should set z as high as possible. The profit maximizing output is Q = 6. The bundled service is the Basic Service and the Disney Channel together. P = 2 and Π = 3. Profit Π = Q(4 − Q) − 1. Substituting in. or Na > Nb. Profits are still increasing in z. and the cable operator makes profit Π = 11*3 − 3*3 = 24. As z increases. For z = 1. 2. At this quality. The profit maximizing output is Q = 2. type A customers are willing to pay $40 and type B customers are willing to pay $20. The cable operator should set the price to maximize profits from each service. 2. Quality for type A za = 2. the firm should offer a highquality and a lowquality product. the price of the bundle should be $20. Thus. For z = 3. The firm should offer two products only if 20Na > 10(Na + Nb). then families. P = 4 − Q/2 and C = 4. schools. schools. P = 2 and Π = 4. then the only restriction on type A customers is that they will only buy a product whose quality is greater than 0. 3. Profit Π = Q(4 − Q/2) − 4. so PA = 20(2 − ) and PB = 20.1. The profit maximizing prices are $11 for the Basic Service and $15 for the Disney Channel. then students. or η > 2/3. The firm should then set price to extract all the indirect utility. 7. and young adults subscribe. 2. young adults. though. For the η < ½ case. For z = 1. and pensioners subscribe. Chapter 8 8. crossing the yaxis at P = 4. P = 2 and Π = 3. If the price for the Basic Service is $11. the firm produces only one good and za = zb = 2. Both type A and type B customers are willing to pay more as quality z increases. and pensioners. $20. We know Na = ηN and Nb = (1 − η)N. If this is the case.1 1. the price should be P = $20. so z = 2. 3. are respectively $20. The firm will price to sell to both types of consumers. For z = 3. the lines become shallower as the slope gets closer to 0. The price should be P = $40 if 40ηN > 20(1 − η)N + 20N. For z = 2. For z = 2. If = 0. Profit Π = Q(4 − Q/3) − 9. we see that the firm should offer two products only if η > ½. and profit is Π = 15*3 − 3*3 = 36. The prices of . $20. so the firm should sell only one product at quality z = 2. hotels. Notice that the reservation prices for the bundled service for students. P = 4 − Q and C = 1. Young adults only buy Disney. For the 14shot and 8shot varieties. so Πcamera = 2000* ½(12 − P)2. selling this to students. If film is sold separately from the camera. That means that the 14shot camera must be priced to leave highdemand customers with at least $32 of surplus if they are to choose it over the 8 shot. because 8 shots are worth $8 apiece to a highdemand customer. We can find the overall demand QTotal = QHigh + QLow = 28 − 2P. b.individual items must be $17.000 + Nh*$60.000 lowdemand customers and Nh highdemand customers. The best that the cable operator can do with mixed bundling is price the bundle at $20 and the individual services at $17. families. The cable company is clearly better off with the mixed bundling strategy. all of the consumer surplus is extracted from the lowdemand customers and turned into profit.99 to ensure the highdemand customers will buy. 3. Likewise. then from the text we know the profit from selling the 14shot and 10shot varieties is Π = 1000* ($70 − 10*$2) + Nh* ($88 − 14*$2) = $50. The fee for leasing the camera is what would have been consumer surplus for the lowdemand customers. Notice that the highdemand customer still makes $32. which is true when Nh > ≈ 1316. so profit is Π = Nh* . and after paying $2*14 they also get $98 of consumer surplus. but the price does not have to be discounted to make sure there is at least $32 of surplus. Profit from this strategy is Π = 14*2 − 2*10 + 15*3 − 3*10 = $23. The best that the cable operator can do is price the Basic Service at $14. At this price. then once again the price does not have to be discounted to make sure there is at least $32 of surplus. as in part (b). The profit from film is Πfilm = 1000* (16 − P)(P − 2) + 1000* (12 − P)(P − 2). If only the 14shot is offered. 8. Notice the profit is composed of two parts: Profit from the film and profit from leasing the camera. If there are 1. the price for the 14shot should be just less than $98 + $2*14 − $32 = $94. profit from selling the 14shot and 8shot is Π = 1000* ($64 − 8*$2) + Nh* ($93. When the lowdemand customers take 8 shots. so profit is Π = Nh* ($126 − 14*$2). and must be attractive to highdemand customers.99 − 14*$2) = $48. but all 2. 14 shots are worth $2 apiece to the highdemand customer.000 customers now have to pay it.99. and P = 4. then cameras are only sold to the highdemand customers. hotels. they are effectively paying a price of $4 per shot. With the 8 and 14shot varieties. However. Thus the price of the 8 shot camera should be $32 + $4*8 = $64. Students.99 − 14* $2) = $113. Profit is Π = 1000* ($64 − 8*$2) + 1000* ($93. giving a total profit from mixed bundling of $14. so the 14shot should be priced at $93. Total profit is Π = 1000(−P2 + 8P + 88). highdemand customers can buy this package and get $8*8 + $32 − $64 = $32 of surplus. selling this to hotels and pensioners. the 14shot variety must not generate surplus for the lowdemand customers.01 of consumer surplus from buying the 14shot camera. because the marginal cost of the bundle is $20 and $7 each from sales of Disney to young adults and Basic Service to pensioners. and pensioners only buy Basic. The 8 shot camera lease must be priced so as to leave no surplus for the lowdemand customers but be less attractive to highdemand customers than the 14shot variety. so that young adults and pensioners will still buy the individual services. Rowling will only sell the 14shot variety if 98Nh > 50000 + 60Nh. If only the 14shot is offered. so dΠ/dP = 1000(−2P + 8) = 0.990.000 + Nh* $65. and schools buy the bundled service. This generates zero profit from sales of the bundle.2 1. The profit from mixed bundling is Π = 20*4 + 17*2 − 8*3 − 2*3 = $84. a. schools and young adults. and are receiving $32 in surplus. there is no charge for film and all profit comes from the lease. Therefore. and the Disney Channel at $15. then the price charged to low and highdemand customers must be the same. 5 − q2/2.3 1.33 − Q/30. Rowling will only sell the 14shot variety of 98Nh > 48000 + 65. On the interval 0 ≤ Q ≤ 1400. 9. Suspense). then q1 = q2 = 1. Therefore. By symmetry: q2 = 45 − q1/2. If Pepall Ridge sets a price pSR = $110. 10. Hence. 10.3 1.000; πSR = ($110 − $10) × 1400 = $140. 2. Assume the entire market is served. or P = 126. and viseversa for q2. Likewise. in the capacity constrained Nash equilibrium: pS = pR = $110; qPR = 1000; qSR = 1400; and πPR = ($110 − $10) × 1000 = $100. so Snow Richards would increase production to its capacity of 1400. in equilibrium: q1 = q2 = 30.99Nh. qC = 1; qU = 2; Q = 3; P = $60; πC = $20 million; πU = $80 million. The unique Nash equilibrium is: (Suspense. the residual demand curve facing Pepall Ridge is Q = 7600 − 60 P. Market output Q = qS + qR. The marginal revenue curve is MR = 126. Marginal revenue is greater than marginal cost on the interval 0 ≤ Q ≤ 1000. Best response function for Cheap Cuts: pCC = . at least one firm has an incentive to switch its strategy. or pSR = 133. Therefore. (Romance.000.2 1.67 − Q/60. Suspense).2 1.5 − qC/2; best response for Cyrox: qC = 2 − qU/2. Hence.33.000. Q = 2400. π1 = π2 = $180. In each of the other three possible outcomes (Romance.55 million. Hence. Q = 30; P = $40; and π1 = π2 = $450. P1 = P2 = P = $2; and π1 = π2 = 0. The marginal revenue curve is MR = 133.($126 − 14*$2). q1 = q2 = 15. ΠU = ΠC = $55. Best response function for q1 is: q1 = 45 − q2/2. Chapter 9 9. 9. Best Response: q1 = 22. Conversely. At price P = $110.33 − Q/60.67 − Q/30.1 1. which is the combined capacity of the two resorts. so Pepall Ridge will increase production to its capacity of 1. market price is: P = $20 − $Q/5 = $8. and (Suspense. marginal revenue is greater than marginal cost. Romance). the residual demand curve for Snow Richards is Q = 8000 − 60pSR. best response function for the Ritz is: pR = .1 1.67; P = $53. which is true when Nh > ≈ 1500. If cC = $20. Romance). Chapter 10 10. if Snow Richards sets its price pSR = $110. Best response function for Untel: qU = 2. then pCC = pR = $15. East End will serve only 3/8 of the 100 potential customers or 37.5.3 1. 2. because prices are strategic complements. Because of its higher price. While both firms earn more profit than when play is simultaneous. Prices in this sequential price game are higher than they are in the simultaneous game. When the two firms had the same unit cost c = 10.50.5 × 37. 3.5 customers and earns a profit of $6.2 1. the firm setting its price second earns the most. q1 = 70; q2 = 35; P = $95; profit to firm 1(leader) = $2.33; P = $106. With t = $5 and cCC = $10.177.63. q1 = q2 = 46. or : pEE = $17. Prices are strategic complements. West End will be on its best response function: pWE = (pEE + c + t)/2. . the rise in pR permits a similar rise in pCC. Prices rise now because cR has risen and this induces a rise in pR. 2. q2 = 70 − q1/2.1 1. In turn. the firms can exploit this complementarity and coordinate prices to some extent.67.25. however. West End serves 62. Equilibrium prices: pCC =t + cCC + cR = $18. CheapCuts has a bestresponse function of pcc = 0. Demand for East End is: pEE = (pWE − pEE + t)N/2t. Note.5 = $390. that going first is a disadvantage in this game. 2. It earns a profit of $7. In contrast.77. Chapter 11 11. Substitution and profit maximization then yields: pEE = c + 3t/2 while pWE = c + 5t/4.33; pr = t + cCC + cR = $21.67; Q = 93.225. Firm 1 loses and firm 2 gains as game becomes Cournot rather than Stackelberg.50. For every $1 in one firm's unit cost the rival's optimal price rises by 50 cents. 11.67. The Ritz has a bestresponse function given by: pR = 0.50 and pWE = $16.25 × 62.5 = $281.5pCC + $12.5pR + $7. 11.450; profit to firm 2(follower) = $1. Profit to firm1 = profit to firm2 = $2. Consumers enjoy more output and lower prices under Stackelberg.25. With sequential price setting.. Hence.2. Because inverse demand is P = 120 − (q1 + q2). leaving no profit after the $100 sunk cost. Entrant's residual demand described by: q = (100 − Q0) − P or. 3. yields a best response of: q1 = 30 − q2/2. The entrant's marginal revenue is likewise: MR2 = 120 − q1 − 2q2. the incumbent's marginal revenue is MR1 = 120 − q2 − 2q1. 2. its best response function is always q2 = 30 − q1/2. However. For output greater than or equal to 1. 2. 3. The entrant will then earn only $10 on each of its 10 units. hence. in inverse form: P = (100 − Q0) − q. Q0 = 40. Anticipating this. So. the limit output is Q = = 40 as this output removes any incentive to enter. . is P = $50. Chapter 12 12. 12. the incumbent's marginal cost for output less than 1 is 30. Entrant profit = (P − c)q − 100 = [100 − Q0 − q − 40]q − 100 Substituting in for q. Take All is a dominant strategy for Player 2. equating marginal revenue and marginal cost yields its best response function for this range of output of: q1 = 90/2 − q2/2 = 45 − q2/2. the incumbent's marginal cost is 60. q = 30 − Q0/2. entrant profit = (30 − Q0/2)2 − 100 = 0 if entry is to be deterred. the entrant's marginal cost is always 60. So. equating marginal revenue and marginal cost for this range of output.1 1. which implies that the price with optimal production by the entrant [q = 30 − Q0/2] = 10. The promise to play Share is not credible.2 1. Player 1 will Grab the dollar. 25 million. If the firms play the standard Stackelberg game in each period. Earn $2.5. Hence. No. With K1 = 32 = committed value of q1. the gain from predation is: (Δprob) × ($325 − $150) million.025 in 2nd period. Fixed cost is $200.25 to stay out in 1st period. then the leader earns $1.75 in 1st period; $2.1 1.3 1. entry deterrence is worthwhile.518. However. Chapter 13 13. then the bank can ask for $140.50. qL = 45. The incumbent will fight if 3 > 4 − C or if C > 1. At this output level.025 − $506. is $56 > marginal cost = $30.25 = $1. The expected predation gain = the increased probability of Newvel failure times the value of Microhard's gain when this happens.025 in total (we assume the discount factor is 1). q2 = 15. For C > 1.25. If instead the leader predates. so it will choose K such that K1 = q1. marginal revenue at K1 = 32 = q1.2 1. If C > 3. 3. so net profit is $192 − $200 < 0.5. there is no change in the incentive for predation. The bank would have to ask for at least $137. beyond that output of q1 = 32. qL = 45 and πL = $2. 60 = 2q1 or q1 = 30.025. Total output = 45.50. Hence. Entrant's profit after entry cost is: ($72 − $60) × 16 = $192. qL = 90 and πL = 0. However. P = $32. Q = 67. there will be no entry. 12.25 million to cover costs.4 and $100 million with probability 0. a monopoly firm will not keep capacity unused so long as MR > MC. 13.5 with probability 0. Incumbent profit = $(75 − 30)30 − $30 × 30 − $200 = $250. 4.6 for an average of $115 million. If C is not spent. Maximization then yields. 13.5 each period or $2. The leader does not gain from this strategy (and will actually lose if the discount factor R > 1 as all of the gains from this strategy come in the second period). For monopoly. then in first period. 2. Entrant's best response implies that if q1 = 30. Offer entrant $506. so the incumbent will produce no more than q1 = 32. and $100 million in a bad year. Profit = ($88 − $60)32 − $200 = $696.012.012. Price = $75. It will then earn $137. The bank and Newvel can still expect to make a profit by entering in the second period. P = $88. Because the entrant cannot earn a positive profit. profit = (90 − qI)qI − 30qI − 200 = (60 − qI)qI − $200. Entrant's profit = $(75 − 60)15 − $200 = $25.5; πf = $506. This must .5; πL = $1. entry will occur and the incumbent earns $4. The incumbent therefore earns $(8 − C) by expending C.625 in a good year so that its expected gross payment is: $116. so entry does not occur. this condition is not satisfied.3. Because this exceeds the Stackelberg profit. the initial expenditure of C implies the incumbent will always fight any entry.5 million in a good year. Expenditure C is only worthwhile if $(8 − C) > $4. If it needs to earn an additional $1. then entrant's best response is q2 = 16. The incumbent will produce at capacity because at q1 and no rival. In second period. profit = (P − c)q1 − 30K1 − $200 = (120 − q1 − 30)q1 − 30K1 − $200 = (90 − q1)q1 − 30K1 − $200.50.3 1. Total output = 48 and price is $72. 2. marginal cost rises to $60. qf = 22. If the firms collude they each earn πM perperiod as in part a.cover the cost of predation = $30 million. Solving for Δprob yields the lowest increase Newvel's failure probability consistent with Microhard pursuing predatory practices is Δprob = 17. Foreseeing the inevitability of this outcome will thwart any cooperation in period and 2. If the cartel fails. Now suppose that one firm sticks by the cartel agreement to produce (A − c)/4b while the other cheats on the agreement. Confess) is the unique Nash Equilibrium.7) and simplifying gives the critical probabilityadjusted discount factor ρ*C = = = 0. If the firms collude they share the monopoly profit.529. 14. If the cartel fails we have πN = 0. In turn. (Confess. The third period outcome must be the oneperiod Nash equilibrium with both producing 40 (thousand) and earning $1.7) and simplifying gives the critical probabilityadjusted discount factor ρ*B = = 0. Chapter 14 14.6 million each. Hence.14 percent. perperiod profit is the CournotNash profit πN = . Substituting into equation (14. so if the cartel is sustained we have πM = . foreseeing no cooperation in either period 2 or period 3.5 Chapter 15 . both will produce 40 (thousand) units in that period as well.1 1. 14. The threeperiod game will simply be played as three oneperiod games.2 1. Substituting into equation (14. A firm that cheats on the cartel earns πD = . 2. with profit πD = .3 1. each firm will also produce 40 (thousand) units in period 1. The cheating firm's best response is to produce 3(A − c)/8b. whereas aggregate profit of these firms premerger is 16*22.06. c1 = c2 = 30. N = 3..81. Substituting N = 20 gives a(20) = 0. A = 130. 15. 3. If demand is P = A − BQ and there are N identical firms each with constant marginal cost of c.67. so that at least 16.67 = $362.78.15. we know that the CournotNash equilibrium profit is πC = .67.2 1. Substituting N = 20.89 firms have to merge. That is. By contrast if seventeen firms merge this leaves four firms in the industry.. is πC1 = C . In our example A = 180. This can be double checked. B = 1 and c = 30 gives profit to each firm of $22. 20) and when market demand is P = A − B. If sixteen firms merge this leaves five firms in the industry. Substituting N = 15 gives profit to each firm of $39. the equilibrium price is P = .49..06 whereas as six independent firms they earn 6* $22.8445. Profit of the three firms. at least seventeen firms must merge. ignoring overhead costs. when the marginal cost of firm i is ci (i = 1. From the text we know that the fraction of firms that have to merge for the merger to be profitable for the merged firms when there are N firms in the industry premerger is a(N) = . and profit to firm i is πCi = . This gives qC1 = ; qC2 = ; qC3 = . If six firms merge this reduces the number of firms in the industry to fifteen. 2. This merger is not profitable. each with profit of $277.67 = $385. So the merged firm earns profit postmerger of $39. c3 = 30b.Q is qCi = . each with profit of $400 whereas aggregate profit of these firms premerger is 17*22. .1 1. The general equation for output of a Cournot firm when there are N firms in the industry. B = 1. 3. total output Q = 20 × (100/21) = 95.76. Output of a leader firm is q*I = = = 16. 2. This is just an application of the standard Cournot equation qCi = = . For firm 3 to be able to survive it is necessary that 240 − 90b > 0 or b < 2.24. resulting in a duopoly with each duopolist having constant marginal cost of $30. The equilibrium price is $34. Profit of the merged firm is $2500 − 900a and of the nonmerged firm is $2500 − 900 = $1400.67. The equilibrium price is P = . Output of each firm is qC1 = qC2 = = 50. This requires that a < (−16 + 180b − 45b2). So. The merger is profitable if 2500 − 900a > − 1800. Apply the equations from the text.67.3 1. Output of a follower firm is q*f = = . The merger leads to the closure of firm 3. 2. The equilibrium price is P = = $80. 15.; πC2 = ; πC3 = . If the retailer has additional marginal costs of cD then profit maximization gives 3. Profit to WM is $800. which is 5 + wm. Total output is 5 × 16. Profit maximization by WR implies 100 − 2Q = 5 + WW WW = 95 − 2Q = WW's demand curve. MR = 100 − 2Q = 20 implies Q = 40 and P = 60.75 − 0. The equilibrium price is $31. total output is (15/16) of the competitive output. If WW and WR merge. πWM = $400; πWW = $200; πWR = $100; total profit = $700. Equating MR with MC gives 90 − 4Q = 10 or Q = 20. 16.45 − w/2. Profit to the merged firm is $(80 − 10 − 50) × 20 = $400. The retailer's marginal revenue curve is MR = 3. This gives wm = $50. Suppose that WI sets a wholesale price of w.51.000 − cD) − Q as the manufacturer's demand curve. WW will supply WR at marginal cost. lower than the price premerger.51 = 98.5w. Profit maximization implies: 95 − 4Q = 15 Q = 20.623.748 and in New York is $0.263; GI = $0.1 1. Profit of the merged firm is (55 − 15) × 20 = $800. . 3. Profit of the retailer is (80 − 60) × 20 = $400. giving r = 3. The final product (retail) price is $80. If WM and WW merge.252 and in New York are 0. The price of gizmos in Boston is $0. 2.3 1. Demand curve facing merged firm is WW = 95 − 2Q.000 − Q.8875. Price charged to consumers falls to $80. Profit maximization by WM implies: 90 − 8Q = 10 Q = 10; WM = $50; WW = $75; P = $90. Merged firm faces retail demand of P = 100 − Q. Profits are: WI = $0. Wholesale price to retailer falls to $55. 16. or (15/16) × 100 = 93. WR then equates MR with MC giving 100 − 2Q = 10 + wm giving the demand function for WM of wm = 90 − 2Q. Sales in Boston are 0.1 + w = MR = 1 − 2Qgb so Qgb = 0.75.4Qgn. This gives aggregate demand for WI of Q = 2. Marginal revenue for WI is then MR = 2. Merged firm profit is: $1600 > $1200 above. which is also the manufacturer's demand curve.000 − Q and the retailer maximizes profit by equating MR and MC. total cost of bringing good to market is $20.55. If all three firms merge.075 − 3w or w = 2. This gives profit maximizing total output Q = 0. Chapter 16 16. The wholesale price is w = $0.625 − 2. Consumers are offered lower prices. With fifteen firms.1 + w = 0.67 + 10 × 1. hence.396.= 1.075/3 − 2Q/3 and MC = 0. Total profit has increased. so that Qgn = 1.063; TI = $0.000 − Q = r + cD. Profit maximization by WW implies: 95 − 4Q = 5 + WM WM = 90 − 4Q = WM's demand curve.45.635.2 1. 3. TI maximizes profit by setting 0.1.075/3 − Q/3. GI maximizes profit by setting MC = 0. This is just an application of the standard Cournot equation.081. which gives r = (3. then their cost of combined operation is $15. the merged firm has greater profits and the retailer has greater profits. 67 − 2. Tigerel's total revenue is (c + 0. The Toy Store keeps onethird of this less wholesale costs = 0.75 − 0. The retail price will therefore be P = 1. The Great Toy Store will earn profit of ($760 − $520) × 120 = $28. the retail price will be $760. and earning $2. So merger with TI is preferred. WI profit is $2.4 1.333Q)Q.1 + wb. Therefore. Equating this with its marginal cost c = $40 yields an optimal output of: Q = 250.458. Equating with MC of 0. From the Tigerel demand curve.000 − $40 × 250 = . Now suppose that WI merges with TI in New York. WI is already earning the maximum profit possible in this industry (absent price discrimination).8125.75 − 0. Competitive manufacturing price = marginal cost = $10. Tigerel will earn profit of ($520 − $40) × 120 = $57. Competitive retailers earn zero profit.051 and of WI from sales in New York is $0. profit of the merged firm from Boston is $0.667Q.04. i. 3.000 − 2Q. Wholesale price is $0. GI sets MR = 0.4Qgn = MC = 0.025. it would still maximize profits by setting P = $55.67 − 1. derived demand for WI in New York is wn = 0. giving Qgn = 1.1 1.4. From the retail demand curve facing the Great Toy Store. GI sets MR = 1 − 2Qgb = MC = 0.4Qgn. Profit of the merged firm is $0. Profit of WI in Boston is $0. Profit of TI is $0. Its marginal revenue is therefore 706. Price and consumer surplus in Boston are unaffected.8Qn with MC = 0.3333 × $125.2. aggregate profit is $0. 2.475. which is also Tigerel's demand curve. Profit of GI is $0. selling 45 units.5875.600. ii. 4.375. so MR = 100 − 2Q = 10 for profit maximization. Marginal revenue is MR = 0.16. Equating MR = 0. The wholesale price is wb = $0. Price in New York falls and consumer surplus increases.2. Tigerel receives c = $40 for each unit plus a sales royalty of 2/3 of all sales.6667 × PQ = ($40 + 666.000 − 8Q. Total Toy Store revenue will be $125. Demand facing WI is r = 100 − Q. 16.2. 2. Price in Boston rises and in New York falls.349. 3.000 − 500 = $500. GI equates MR = 1 − 2Qgb = MC = 0. giving Qgb = 0. giving r = 1. Profit for WI increased and for TI and GI decreased. or: Q = 45 and r = P = $55. integration with one or even many downstream retailers cannot raise WI's profits or price P to consumers.75 − 0.1 gives Qgb = 0.264. There is the opposite effect on consumer surplus. Widgets supplied to New York at marginal cost. Similarly. Price of gizmos in Boston = $0.5. The Great Toy Store's marginal revenue curve is MRR = 1. The Boston gizmo price is $0. Suppose that WI merges with GI in Boston.667P)Q = $40Q + 0.000.1 gives Qn = 0. this implies a wholesale price of r = $520.800.6.08. giving derived demand to WI of wb = 0.025 in profit. r = 1000 − 4Q.8.9 − 4Qgb. Chapter 17 17. Equating this with the Tigerel's marginal cost c = $40 yields Q = 120. P = 1.425. Hence. 3.000 − 4Q and the Toy Store maximizes profit by equating MR and MC. The New York gizmo price is $0.000 − 4Q. Competitive price is equal to marginal cost equals r. Even if WI bought all downstream retailers.2. Price of Gizmos in New York $0. Tigerel therefore has a marginal revenue curve of MRM = 1.9 − 2Qgb. Widgets are supplied to GI at marginal cost. Competitive retail price = manufacturing price = $10. Suppose that WI sets a price wb for widgets in Boston and wn for widgets in New York. 2. the firm will wish to sell all 500 units. the manufacturer will earn a profit of $2. From the demand curve. As a result. the manufacturer's profit is: ($6 − $5) × 143.6) we have (10 − 6)/2 = s2/2 + 2s2 + (17. Accordingly. P = (10 + 6 + s2)/2 = $8. In the competitive retail sector case. In turn. 4.250. If the manufacturer sets this price.50.894. in turn.333 as profit after production costs. 2. this implies a retail price of P = (10 + 7 + 0. In the first case.e. competitive retailers as a group can be persuaded to stock 500 units. The revenuemaximizing choice of Q is therefore Q = $500 implying a retail price of $5.775. depending on which constraint binds first. but the firm earns a profit of only $750. Because competitive retailers need to expect to break even.50 × 500 = $1.4. Tigerel keeps the remainder = $93. the retail price is $5 and the firm earns a profit of $2.$41.4 = $143. implies an optimal output of Q = 150. Hence MRS = 10 − Q/50. When demand is weak.500 less w500 when demand is strong and 0 less w500 when demand is weak.333. When demand is weak.666.67 as retail profit. i. If the 500 units have already been produced then their production cost is sunk. the firm will wish to produce where marginal revenue MR = 0. Profit per firm = $450 less ($90 in sunk division costs) $360. expected retail profits are 0. When demand is strong and MRS = 10 − Q/50.4. the firm's marginal cost is zero and it will wish to sell either the full capacity of 500 units or to the point where MR = 0. Once bought as a block of 500 units.7). so that marginal revenue in this case of MW = 10 − Q/15 which. The total amount sold falls to 0. Hence. .2 1. 17.7752)/2 = $8. the firm will wish to sell only 150 units. 17. q per division = 15. When demand is strong. 3.1 1.3 1. In the second case. competitive retailers will sell all 500 units at the marketclearing price of $5 if demand is strong. Hence.000 = $31.. n* = 2.5 × $2500 + 0. Chapter 18 18. they will continue selling until the number of units sold is 300 and the retail price as fallen to 0. Profit per division = $225. Therefore.4)100 = 143. s = = 0.775($10 − $8.7).500.80)100 = 93. Let w be the implicit wholesale price per unit when a block of 500 units is initially sold. Hence.80. 2.894(10 − 8. profit maximization is the same as revenue maximization. Q = 0.67 − $10. Because marginal cost c = 0. then the service level s falls to s = = 0.33 as its revenue leaving it $83. retail profits net of initial wholesale costs are $2. the inversed demand is: p = 10 − Q/30.625. Substitution of this into the weak case inverse demand curve then implies a price of $5 again. their marginal cost is 0. the retail price is again $5.333. When demand is weak and MRW = 10 − Q/15. From equation (17. If the wholesale price r = $7. the expected profit conditional on having produced 500 units is ($2500 + $750)/2 = $1. From equation (17.4. the wholesale price necessary to induce competitive retailers to stock 500 units is w = $2. Because these cases occur with equal probability. the inverse demand is: p = 10 − Q/100. competitive retailers treat the wholesale cost as sunk.666. Because they will sell so long as price exceeds marginal cost.5 × 0 − w500. 2 1. DorfmanSteiner condition requires Advertising/SalesRatio = (1/2)/4 = 1/8. the current market price with Bertrand competition is $60. earning profit of $156. Because the firms compete in price. or Q = 12. so QM = 25 − cM/4. Say the innovator's new marginal cost of production is cM. and PM = 100 − 2(25 − cM/4) = 50 + cM/2. This implies 100 − 4Q = 28.25)/0.25 Chapter 19 19.33 − 75) × 8. Price elasticity (absolute value) = 4. The innovation is nondrastic if the monopolist's ideal price is greater than the competitive price. price would be P = 100 − 2(18) = $64. With the innovation MC = 60 and so the monopolist sets 100 − 2Q = 60 or Q = 20 and price P = 80.000 implies dP/dQ = −0. P = $80;Q = 1. 3. P = $80;Q = 1. i. Profit to each duopolist is $(83. Monopoly price PM < 60 implies 50 + cM/2 < 60.1 1. orQ = 18. Q = 60; P = $40. ii.67 and so price is $83.000 Advertising/Sales Ratio = a/PQ = 0.500.25 less $45 (sunk cost for n = 1 division) = $1361.3.. cM must be less than $20. or 100 − 2Q = 75.5 and P = $87. Elasticity of sales with respect to advertising = 1/2.04Q. At a = 2.33. which in turn implies cM < 20. Profit after the innovation is therefore $(80 − 60) × 20 = $400 per period. iii. Pure monopoly: PM = $62.1; a = 1. For this to be a drastic innovation requires that 50 + cM/2 ≤ 75 or cM ≤ $50. Cournot duopolists facing the same marginal cost each produce output QD = (A − c)/3B = 25/3 = 8.99 in order to capture the market. Chapter 20 20. However. 20.437.50. this is a nondrastic innovation. so QM = 20 and PM = 80.000. With a marginal cost of $28. If the innovation reduces cost to cM. 2. If the market is a monopoly the monopolist sets MR = MC.0316. Aggregate output is 16. Because the innovator's ideal monopoly price is greater than the current market price. the monopolist would like to price such that MR = MC. The monopolist values the innovation at VM = $(400 − 156.1 = $2. a = 100 implies dP/dQ = −0. is not satisfied here. or 100− 2QM = 60. PC = cC = 75. PM > PC. At this quantity. 2. In order for the innovation to be drastic.33 = $69.000; P = $80;Q = 4.44. .50; QM = $37.1 1.25 per period prior to the innovation.33. We know MR = MC and 100 − 4QM = cM. Optimal advertising rate that does satisfy DorfmanSteiner condition yields: a = 40. The monopolist would profitmaximize by setting MR =MC.000. MR = 100 − 0.5 prior to the innovation. Then we want to choose a cM such that PM < 60. this is a nondrastic innovation. Because 80 > 75. 3. 4.03125.50; ΠM = $1406. The innovator has to reduce the price to $59. equating MR with MC gives 100 − 2Q = cM which gives Q = 50 − cM/2 and P = 50 + cM/2. x ≈ 9.4.33 and of firm 2 is Q2 = (A − 2c2 + c1)/3 = 3. Consumer surplus is CS(x; T) = CSP + CSNP where CSP = (100 − 70)2/2 = $450 is the consumer surplus per period while the innovation is on patent and CSNP = (100 − (70 − x))2/2 = (30 + x)2/2 is the consumer surplus when the innovation goes off patent. 21. the innovating firm will set price $70 and sell 30 units. so CS = ½ *25* 12.5 = $156. . we know from part (c) that x ≈ 10 and TS(10; 25) = 2995.42 = $6799. Consumer surplus is the area of the triangle with height 100 − P and base Q.67 so price is $78. 3.801. so TS(9. If we have T = 20.909125/(1 − 0.5 = 75. BMI maximizes the profit function Π = Q(P − c) − K = Q(100 − 50 − 2Q) − K. 5.33. Because VD > VM this confirms that the duopolist values the innovation more than the monopolist. Monopoly profits are Π = 12.33 − 60) × 18. This function is maximized when ΔΠ/ΔQ = 50 − 4Q = 0. a marginal cost of c = 50.67.9091)*402/2 − 15*102 = $6.44)/0.61. When the innovation comes off patent P = c − x. For T = 25.5 and P = 100 − 2*12. Chapter 21 21. the innovating firm is $(78. and a fixed cost for setting up a lab of K. Profit to innovation.666. This equation is maximized when dV/dx = 299.909120/(1 − 0. then price is driven to marginal cost. or when x ≈ 10. If the firms compete in price. T) + CS(x; T) − r(x). The innovating Cournot duopolist values the innovation at VD = $(336. total welfare decreases approximately $2 if the patent life is decreases from 25 to 20 years.4)2 − 15*9. The total net surplus TS(x; T) = V(x.909125)/(1 − 0. then V (x; 20) = 30x − 15x2 = 280. Aggregate output is 21. so its marginal cost is c1 = 60. If the patent duration is reduced to twenty years. If only BMI innovates.4 Because of the decrease in the patent duration. 2. which is when Q = 12. Now we suppose firm 1 has innovated. Assuming that the innovation is nondrastic. Aggregate profit over the life of the patent is then V (x; 25) = 30x − 15x2 = 299. While on patent.1 = $2.7 + (1 − 0.66.9091)* 302/2 + 0. then ECN is shut out of the market and BMI monopolizes.25. 4.2 1.4; 20) = 2809.4.33. then x ≈ 9.97x − 30x2 so dV/dx = 280.11.9091)½*302 + 0. Facing a demand curve of P = 100 − 2Q.9091)* ½* (30 + 9. Note: Consumer surplus is the triangle with height 100 − P and base Q = 100 − P.909120)/(1 − 0.11 − 69.5(75 − 50) − K = $312. but firm 2 has not innovated and still has marginal cost c2 = 75. P = 70. If the firm chooses research activity x its marginal cost becomes 70 − x.57 − 30x = 0. The resulting profit per period while the patent is in force is then $(70 − 70 + x)30 = 30x.33 = $336.97 − 30x = 0. and.7 + (1 − 0.5 − K.57x − 15x2.1 1. soP = $70 and Q = 30. the firm's R&D effort is decreased. Output of firm 1 is the duopoly outputQ1 = (A − 2c1 + c2)/3B = 18. Thus. 1.33. Because costs are symmetrical. ECN successfully innovates while BMI does not.67 and Q = 13. In each of the last two cases. Firm 1's profit is Π1 = 10(70 − 50) + 5*10 = 250 and firm 2's profit is Π2 = 5(70 − 50) − 5*10 = 50. Π1 = Π2 = 8. however.8 × 0. This function is maximized when ΔΠi/ Δqi = 40 − 4qi − 2q−i = 0. The payoff matrix is: 4. then Π1 = q1(100 − 2q1 − 2q2 − 50) and Π2 = q2(100 − 2q2 − 2q1 − 60). This leads to best response functions Firm 1: q1 = 12.89 K = $138.5 − q2/2 and Firm 2: q2 = 10 − q1/2. then the two firms will compete. 21. Expected profit is 0.67 and profit of each firm including the cost of setting up a lab. and the equilibrium price is still P = 70.2 × 0. Two labs are optimal if $416. because firm 1 does not have control over q2. neither successfully innovate with probability 0. so price is P = 73.25) − K = $375 − K. This.89 − K. but there is a $10 royalty fee on each unit.89 − K > 0 or K < $138. For $138.8 × 0. except that now the innovator's marginal cost is 50 and the noninnovator's is still 60. Each firm wants to maximize the profit function Πi = qi (100 − 2(qi + q−i) − c) = qi (40 − 2qi − 2q−i). For (R&D.50 + $156. with probability 0.8 × 0.78) − 2K = $416.89 + 277.67.50) − K = $250 − K. qi = q−i. leads to the same best response functions.50 + 156. Consumer surplus is once again the area of the triangle with height 100 − P and base Q. 3.33. Say firm 1 is the innovator and firm 2 is the noninnovator.2; 2.8; 3. If only one firm sets up a lab. For (No R&D. 2. firm 1 also makes a profit of $10 on every unit firm 2 sells.89 − K.67 − 50) − K = $138. Both firms are on their best response functions when q1 = 10 and q2 = 5.25) + 0. firms choose quantity as the strategic variable. With Cournot competition.67 − 2K > $375 − K or K < $41. These are 1. 5.67)*16. The two firms will still engage in Cournot competition.2.2.8 × 0.89. so the new profit functions are Π1 = q1(50 − 2q1 − 2q2) + 10q2 and Π2 = q2(40 − 2q1 − 2q2).2 × $312.8; 4.67 = $277.8. so the equilibrium quantities are still q1 = 10. so the overall marginal cost is still c2 = 50 + 10 = 60. then likelihood that the lab is successful and the firm innovates is ρ = 0.33. then there are four possible outcomes for each firm.8 × 0. So. However.2 × ($312. and Q = 15.8 × (138. Firm 1's profit is Π1 = 10(70 − 50) = $200 and firm 2's profit is Π2 = 5(70 − 60) = $50. BMI makes no profit. both successfully innovate with probability 0. then firm 2's marginal production cost will be $50 because of the innovation.8($312. so both firms are on their best response functions when qi = q−i = 6. BMI successfully innovates and ECN does not. .67 − 2K. so CS = ½* (100 − 66. R&D) to be a Nash equilibrium $138. With two labs it is 2 × 0.2. No R$D) to be a Nash equilibrium $250 − K < 0 or K > $250. q2 = 5. Price is $66. its expected profit is: 0.2 × 0.78. If firm 1 licenses the invention to firm 2 at $10 per unit. Cournotstyle. 2.50 + 0. If both BMI and ECN successfully innovate.3 1.8($312. which is when qi = 10 − q−i/2. with probability 0. Output of each firm is Qi = (A − c)/3B = 8. The expected social surplus with only one lab is 0. If both firms set up a lab.33(66. and the likelihood that the lab is unsuccessful is (1 − ρ) = 0. so Q = 15 and P = 70.822 × $138.89 < K < $250 only one firm will do R&D. Say that firm 1 licenses the product to firm 2 for a fee K.89 + 88. we have: vM = p/(0. Firm 1's profits will be Π1 = 138.33(66.5/(0.01. In other words you assume that the other seven bidders have valuations drawn from a uniform distribution over the interval [0. so the price should be K = 88.77. Firm 2 will be willing to pay the licensing fee as long as the profit from buying the license and using the innovation is greater than the profit from part (i).1905 or f = 0.89 + K and Π2 = 8. Q = 16. 23.5 − q2/2 and Firm 2: q2 = 12. Firm 1 should price the license so that it is just marginally better for firm 2 to buy the license. The second solution is stable. the next 150. Thus. the next 125.4 + 6f 2).1 1.33. the next 50(=2/8*200). 2.89. Suppose that the auction price is p and your true valuation is V.88 = $227. You will lose anytime that you win.2 1. This requires K < 88. for any p < V. with p = 50. firm 2 will buy the license. and finally .4 + 6f 2).33(66. whereas if you bid p + < V then your payoff is V − (p + ) > 0.67 − 50) − K = 138. The other strategy you could choose is to stop bidding when the price is less than your true valuation.67. the next 75. If p < V and you stop bidding your payoff is 0. Your best strategy here is to assume that you are the one with the highest valuation. Hence.89 − 88. Note that in this example the innovator would prefer the royalty to the fixed fee. continuing to bid is a dominant strategy. Clearly it does not pay to bid more than your willingness to pay.67.88 = $50. the next 100. A dominant strategy is one that gives you a payoff greater than any other strategy regardless of what is chosen by other players. If we assume that these bids are evenly spaced out over the interval then the lowest would be 25(= 1/8*200). as long as 138. and price is P = 66. The consumer who is indifferent between buying the good and not buying is has basic valuation vi satisfying the condition (0. Best response functions are now Firm 1: q1 = 12. So.906. bidding V is a dominant strategy. This equality holds when either f = 0. Chapter 22 22. Profits are Π1 = 8. Then both firms will take advantage of the innovation and have a marginal cost c = 50.88. where it didn't have the license. Both firms are on their best response functions when q1 = q2 = 8.4 + 6f 2) = 50/(0.3. The market fraction f that is served is given by f = 1 − vM/100. 200]. Chapter 23 23.89 − K.67 − 50) + K = 138. Because you also cannot gain but may lose if you bid V + .1 1.89 − K > 50.4 + 6f 2)vM = p. Firm 2's profits will be Π2 = 138. Profits are Π1 = q1(P − 50) + K and Π2 = q2(P − 50) − K.5 − q1/2. Hence we have f = 1 − 0. 44 − $860. Chapter 24 24.46 = $77. Consumer surplus has decreased by $1720. Hence. From equation (24. implying a price of P = $42.33) × 58. Because total output is Q = 450. You should submit a bid of $175 to win the auction.000 estimate is likely too high by the amount $3000 = $3000 = $2.89 − $1643. the optimal subsidy s* = (A − c)/4.000 that is the amount you are likely overbidding. the Nash equilibrium is: qA = qB = 200.8) or (24.33 If you bid $20.33. Your $20. Consumer surplus in Country A in the notariff case is: 0.333. 1. Firm B's best response function in turn implies that: qB = 300 − qA/2 = 150.33 2 = $860. To this higher marginal cost. firm faces an implicit marginal cost—production plus tariff—of 14 + 2 = 16 for units sold in country A. total output is Q = 57. The net gain from the subsidy is $90.1 1. the market price is $550. After the tariff.000. 2. Hence.67. Consumer surplus in Country A is now: 0.000. Firm A's profit is: ($550 − c + s*)qA = $300 × 300 = $90. So. However.44 = $80. Hence. It follows that after the tariff. each firm had output: qA = qB = 88/3. total output was Q = 58.3) that qA = (1000 − 400 + 2s*)/3 = 300.33 = $1643. Before the tariff.9). firm B loses scale economies and so has an increase in the marginal cost of production to sB = 14. The cost of the subsidy is s*qA = $150 × 300 = $45. The marginal revenue for firm A is: MR A = 1000 − qB − 2qA. we must add the additional 2dollar tariff. 3.67 implying a price P = $41. Hence the optimal subsidy is s* = $150.46. 322 AbrantesMetz.000 = $45. Pretariff profit to firm A is: 29.33. the marginal cost for each firm is cA = cB = 12. implying Q = 400; P = $600; and profit to each firm πA = πB = $40.3 1. By symmetry.2 1. Hence.455. within country A. In general.the highest bid from the other bidders will be 175(=7/8*200). Setting this equal to marginal cost MCA = 400 yields firm A's best response function: qA = 300 − qB/2. each firm's output will be: qA = (100 − 24 + 16)/3 = 92/3; and qB = (100 + 12 − 32)/3 = 80/3. Producer surplus has increased by $940.5 × (100 − 41. we know from Chapter 9 that the Cournot model with cost differences implies the following output levels: qA = (A − 2cA + cB)/3; and qB = (A + cA − 2cB)/3.000. firm B's best response is: qB = 300 − qA/2.000 24.67 = $1720. 23. Firm A's profit is now: ($42. prior to the tariff.5 × (100 − 42. firm A still has a marginal cost of cA = 12.67) × 57. It follows from equation (24.000 − $45. Abbreviated New Drug Application (ANDA).67 − $12) × 92/3 = $940. 374 . 2.44.89. Here we have A = $1000 and c = marginal cost = $400.333. 519–520 monopoly firm's profitmaximizing level of.1994).. 450. 102 Aghion. 531–535 informative advertising and price competition.3d 194 (3rd Cir. 451–452 Aggarwal. R.. 415 American Economic Association. Y.. A. 332 Ahimud. 646–647 aftermarket restrictions. P. 537–541 price competition and. 518–519 affiliated values. 486 Agency theory. 500 allocational concept. The Herald Co. coordination. J. 535 market power and. A. 187 advertising.. 546–547 joint advertising and pricing decisions. 464 Albrecht v. 30n9 Almost Ideal Demand System (AIDS). G. and industry dynamics. 516–547 information prestige and. 195n8 AllenMyland v. K. IBM 33 F. 520–522 practice and theory. D. 461 Alchian. R.Adams. 96 . 65 Allen. 535–537 information and. W.. 516–547 see also economic role of advertising complements.. 450n10 Albrecht and Khan cases. 450 aggregate demand.. 340–341; Average Avoidable Cost (AAC). 10n10 Anderson. 201 predation and. 15–18; Clayton Act. 371–372 leniency (amnesty) programs and cartel detection. 13–14 Antitrust Law Index. 200–204; community antenna television (CATV) industry. 370–377 detecting collusion. 339–342; Areeda and Turner rule. 375–377 antitrust policy. 196 applications program interface (API). United States.S. 432–436 antitrust and industrial organization theory. excerpts from. 781 (1946). 196–204; additional developments. 529 Andrade. 341 toward vertical price constraints. 341–342; Baumol tests.. collusion. 372–375 detection and fines. 94 . 16–18; The Sherman Act. and tiein sales. 7 ‘new’ Sherman Act and SCP) approach. 10 ‘rule of reason’ framework. 10. 6–13 antitrust around the globe. 328 U. 7 key antitrust statutes. 13–14 Chicago School and beyond. G. 196 arbitrage in price discrimination. 349 bundling.. 412 anticompetitive effects of vertical mergers. S.American Tobacco Company v. including key amendments of RobinsonPatman Act and CellerKefauver Act. 16 monopolization (Section 2 statute). 7 antitrust authorities role. 460–461 applications barrier to entry. 10–13 focus in the beginning (Section 1 statute). 377n27 Atlantic Richfield Company (ARCO). 638 . 638 equilibrium bidding strategies in English. W. 638–644 revenue equivalence theorem.. 340 Argote. 327–331 asymmetries and auctions. B. R. 378–379. E. 645–646 dimensions. 651–653 basic theory and applications. 621n4 Ashenfelter. 648–651 private values auctions. predatory pricing. and collusion. 416n24 Ashmore... 79 Arrow. 340–341 Areeda. competition.. 638–644 school milk auctions.. L. 637–660 see also bidding affiliated values. 651–653 Athey. K. S. 647–653 see also under industrial organization oligopoly pricing and. 637–660 common value auctions and the winner's curse. P.Archibald.. 646–647 asymmetries and firm rivalry. O.. 258 auctions. 416n24 asymmetric information. 529 Areeda and Turner rule. 638–644 taxonomy.. D. 638–644 industrial organization and. 654–657 secondprice private value auctions. 553n5 Arthur. 339n17. 519n7.. 341–342 average cost. J. 638; firstprice sealed bid auction.. 59 Berki. 341 Baye. J.. 7n6 . 83–85 quasiscope economies. L. 638; Dutch or descending auction. 1983). 549n4 Barry Wright Corporation v. in pricefixing estimation. S. 638; English or ascending auction.. scale and scope economies in. 638; secondprice sealed bid auction. 377 Benham. 528n14. 534 Baker. A. P. L. 88 Bagwell. 638 Average Avoidable Cost (AAC). 724F. R... R. 284 Baldwin. 537 beforeandafter method. 79 Benoit. 19–46 competition versus monopoly. 535 Becker. 377n27. 519... poles of market performance. 377n27 Baldwin.. 19–27 Battle of the Sexes. B.. J. 340n19 basic microeconomics. 416n24 Baker.types. 2d 227 (1st Cir. J. 84–85 Barro. et al.. 536. K. 504 Becker and Murphy approach. 66. G. 81n11 banking. 626–627 Baumol tests. J. S. J. ITT Grinnell Corporation.. 533 Benkard.. 537n18 Bain. 323n10 Bergson. 525. M... B. 654; conditional on submitting a bid to determine how much to bid. D.Bernard. 598–599 best response (reaction) curves for Cournot duopoly model. J.. A. 367n14. J. R. D. 650 Bertrand. S. 243 Bertrand–Nash equilibrium price. D. 488n3 Bernheim. 409 Besanko.. 478n13 Bertrand competition. 654 see also auctions complementary bidding. 625 Bessen. D. 654–655; decision to submit a bid. 79n10. 660 into steps. 254–255 Bertrand reconsidered... A. 250–256; location concept. 503n18 Blass. 654 Birch.. A.. 251. 656 optimal bidding in firstprice auctions. 595 and merger with linear demand systems. 659–660 optimal bidding in oligopolistic Bertrand competition. 424; premerger case. 502n16 . 488n3 Besen.. 243–247 Bertrand in a spatial setting. 74 Bernheim. D. 403 in a simple linear demand system. 287 Blair.. comparison. 423 Bertrand duopoly model. 225–227 bidding. 247–250 Bertrand pricing equilibrium. M. 448n8. 423–424; preand postmerger cases... 624n5. 257n12. G. 210 . M. 294 (1962). R. 173–212 see also commodity bundling; tiein sales in cable TV.. D. 137. 646n8 bundling. Brown & Williamson Tobacco 509 U.. 499 brand competition and consumer preferences.. J. 302–304 and entry deterrence. 257–260 California retail gasoline market. L. 197–200 mixed bundling. 183–185 optimal entry price with pure bundling. 339n16 Brown Shoe Co. Y.. United States... 490n9 Borenstein. 339. 209 (1993). 40n14. 127–130 Blundell.. 41n15 Brandenburger. A. 204–207 to deter entry. 10–11. L. 179–183 entrydeterring pure bundle price.block pricing... 380 Bonanno. A.. 317n1 Brandenburger. 300 Branstetter. 370 U. 257–260 Brandeis.. 210 and Microsoft Case.. S. 80 Brito.. T. 603 Braunstein. v. 405n13 Brodley. 1. 308n15. C. 84–85 Bresnahan. 78n9. 288 Bulow. 342 Brooke Group v. 561 Bolotova.S. J. B.. 10n11 Brown. Y.S. M. 182; as sustainable equilibrium.. 549 Carlton. 203 strategic use of. 488 U.. 448 . 211 optimal pricing.. 717 (1988). D.S. L. J. 460n3. strategic subsidies at. 375–377 Carter. Socialism.. 46 California retail gasoline market. 476n12 ‘but for’ price(s) estimation. 377 Butters. G. 182 profitability and. J. and Democracy. bundling in. v. 669–672 capacity expansion as a credible entrydeterring commitment. 204–207 Cable. F. L. W..optimal mixed bundling prices. M.. 413 Cabral. 299–304 product bundling. 637n2 Cassano. J. 257–260 Canadian Wheat Board (CWB). B.. 291–299 Capitalism. Sharp Electronics Corp. 460. 177–179 pure bundling. 210–212 optimal pure bundle price. 533n17 cable TV service. R. 502n16 cartel detection. 288 Cary. T. 534 calculus of competition. E. 287 Cabral. 340n18 Cady. 210 preemption and. 476.. 331 Business Electronics Corp. 300 Burns... L. 453–455 chain store paradox. 41–43 Coase. 373.. 445. 10–13 Chipty. L. 84 Clark. 561n11 Cohn.. 276 Chamberlin. E.. H... 196–204 . 519 commodity bundling.. testing. W.. T. 37–40 coase durable goods model. H. 38 CobbDouglas case.Caves. S. 533n17 1914 Clayton Act. 89 Cohen. 499n14 Chenery. 78n9 collusion.. 453n12 Christensen. W. C.. 8 Chen. 7 coase conjecture.. R. 288n8. 173–212 see also bundling; tiein sales antitrust and. 529 cement/readymixed concrete market. 370–377 see also antitrust authorities role indistinguishability theorem.. 373n22 RPM agreements and. J. 374 Chen. E. Z... 561–562. W. 446n5. Y.. R. 492n11 Comanor. 464n4 Chen.. R. H. 476–478 Comanor. 65 Coase. vertical integration in. E. 70n6 Chicago School and SCP approach. 304. 497 concentration curves. 447–449; scope economies.. 175–176; undling and profitability. J. 451–452; Agency theory. 32–41 see also under monopoly . 449–450 Connor. 196; design and production features. 370n17. 485 complementary bidding. 196 firms with. 195 Computer Service Corporation (CSC). 656 complementary goods. 196; applications barrier to entry. 176; Stigler's insight into. 191–196; mergers. M. 191–196 applications program interface (API). 559–561 Competitive Advantage of Nations. 19–27 see also under market performance competition via innovation. 380 constraints on monopoly power.. 549 competitive industry. 28–30 maximizing total surplus. The. 448; transactions costs. 195 product complementarities. J. 176; mixed bundling. 451–452; Neoclassical theory. 485 service provision by. 201 competition versus monopoly. 380 Connor. 48 digression on mergers and theory of the firm. 377n26. 451 economies associated with. 174–188; consumer reservation prices. 177–179 common value auctions and winner's curse. 211–212 and monopoly pricing. 645–646 community antenna television (CATV) industry. 449 managerial motives. 29 profit maximization by. 80–81 competitive market economic efficiency and surplus in.and consumer valuation. 73–78 see also multiproduct firms. 70n7 cost complementarities. 214–215 coownership. 68–69 marginal cost. 68–72 average cost. 228–233 . 233–235 maximum output level. 11 Continental T. v. R. 523–525 informative advertising. mergers and. 222–228 best response curves for. 75 cost concepts. 433 U. advertising as. 66 marginal cost. selecting. many firms and different costs. 235 Cournot model/theory. Inc. 68–69 minimum efficient scale. 11n4. 88 cost synergies. 66–67 fixed cost. GTE Sylvania Inc. 391–394 see also under mergers costs and market structure. 223 and public policy.S. 225 concentration and profitability in. 70n7 Cotterill. 235 rules for. 476n12 cooperative game theory. 223 variations in. W. 36 (1977). 67–69 in multiproduct firms. 67–68 cost minimization. 525–535 see also individual entry contestability theory..V.consumer persuasion. costs and sunk cost. 12n15. 70 cotenancy. . C. 404 Davies.. 563n14 Damgaard. 48n1 Daughety.. V. 291–299 Crocker. V. 65 Denicolò. H. D.. 51n3 deMeza.. 51n3 DeGroot. 504 customer relations management (CRM).. 55n7 Deaton.. 272–277 credible entrydeterring commitment. 437–438 Cournot. W. 397. 601 Cowling. H. 402 Daughety's model. A.. K. 84 Dehandschutter. 437–441; upstream and downstream firm.. 397–399 David... 438–441; no vertical mergers. C. 374n23. 394n9. 192.. 594n7 vertical mergers in. 590n4 Demsetz. 53 D'Aspremont. 584 deterring entry see entry deterrence differentiated products market. C. S. 267 Court of Appeals for the Federal Circuit (CAFC). W. 441–446 . 215 CournotNash equilibrium. 255n11. A.vertical integration and foreclosure in. 78n9.. R.. 59–61 credibility of threats for dynamic games. B. capacity expansion as. 264n2 Davidson. 415 DeBondt. 403n12.. F. A.. K. 276 credibility of threats and Nash equilibria for. 522 vertical price restraints as a response to. E.. 460n1 Dranove... Co.. 40–41 and social surplus.. 373 (1911). F. 217–220 Domowitz. 661n1 econometric method in pricefixing estimation. I. John D.S. 638. 595–597 Dunne. R. 522n11 DorfmanSteiner condition. v. 413 dominant and dominated strategies. 217 Dutch or descending auction. J. Miles Co. H. 287. 277–280 Easterbrook. 448n8 drastic innovations. 536 direct network effects. 613 divestiture. 640–644 DVD player. 461–462 Dr. 28–30 economic role of advertising. 377–378 economic efficiency nonsurplus approach to. 60 Doraszelski. 264–282 see also Stackelberg model of quantity competition chain store paradox. 339 Eaton. 220 U. 272–273 Stackelberg beats Cournot. Park and Sons. 287nn6–7 duopoly. 272–277; subgame perfection.. D. 522. 28–32; in competitive market. 78n10 Dorfman. 82. Y. 523–534 .. T. 620–621 dynamic games..Dinlersoz. D. 196. 93t Ekelund. 307–309 informal model of entry deterrence.. D. 54 English or ascending auction. F. M. 358n7 Eichenwald. 202–203 Everyday Low Pricing (EDLP).. 284–315 see also predation and bundling. 122n1 Elzinga. R. N. 638–644 entry deterrence. 370 Eisenach. Y. 342–346 Epple. 297–298. 32 Eichberger. 523–535 Economides. 640–644 in English and secondprice private value auctions. 638–644 Evans. 28. 289–291 market structure over time. K.. 613n1 Edgeworth. 179–183 bundling to deter entry.. 78n9. 534 . 28n6. K. J. R. 255n11.. 300 excess capacity expansion in Texas hotels. J. 92. 302–304 credible entrydeterring commitment. 630n8 Eisenberg.. 58n8 ElzingaHogarty (1978) test. 291. 291–299; Dixit's model. A. 247n4 efficiency notion.consumer persuasion. 54–55.. capacity expansion as. 79 Epstein. 285–288 in pharmaceutical industry.. 413–415 equilibrium bidding strategies in Dutch and firstprice private value auctions.... 651–653 first and second movers. 531 . 409 firstdegree price discrimination (personalized pricing). 638 Firsztand. R. 78–79 hypothetical experience or learning curve. predatory pricing and. 324–327 financial management (FM). 122 shopping and..exclusive dealing. 79 experience goods. 488 experience curves. 93t Fisher Ellison. 487–488 in US beer industry. 355–358 firm rivalry and auctions. 53 finitely repeated games. 401 Federal Trade Commission Act1914. 127–129 call options. 488–491 interbrand competition. 121 social welfare with. 119–129 block pricing.. R. 486. 264–282 firstdegree or personalized discriminatory pricing policies. 134–136 twopart pricing.. 486 upstream competition and. S. advantages. 506–510 exclusive selling and territories. 526. 8 financial constraints. 126 firstprice sealed bid auction. 122–127 see also individual entry with a twopart tariff. 488 intrabrand competition. 528 FauliOller. 92. 285n4. J. E. J.. 366–367; trade association. 289 Gayle. N. 528 Gaskin. 308 ‘fixitfirst’ approach... 368–369; rapid market growth.. J. 141. 562 Geanakoplos. 630n8 fixed costs. 437–441 formal cost function analysis and empirical estimation. 602 game theory.. P.. 584. 392 ‘fixed effects’ term. 369; multimarket contact.. 323n10. 70n7 Gallini. 156 Fluet. F. 528 factors facilitating collusion. 362 Fudenberg. 363–364; frequent and regular orders. 89 Friedman. 257n12. 661n1 full price. 145 Gabaix. C.Fisher. J. 364; technological or cost symmetry. 499n13 Gabszewicz. 498. K. D. 214 see also static games Garella. 255n11.. 525n13. 366; significant entry barriers. 361–370; centralized sales agency.. 370; concentrated markets/small number of firms... S. I.. 413 flexible manufacturing systems. 446–447 Geithman. 4–5. 308n15 GEHoneywell merger.. 75. 66. P. 367–368; observable prices. 369 foreclosure in Cournot model. X. 364–366; meetthecompetition clause. 235 . 519 Gale. 369; mostfavored customer clause. F. 272 Galbraith. 369; product homogeneity.. 227n10. 54 Little in from Outside (LIFO). 510 Genesove...generalized least squares (GLS) coefficient. relationship between.. 55n7 government policy role in industry structure. S. 285–286 Gilbert. T... 287 Geweke. A.. 592n6 Glazer. 317n1 geography and vertical relations. J. 284. 520n9. 285–286 Gibrat's Law. 500 Gort. D.. 78n9 GINI coefficient. 529 Green. P. 416n24 Goldfine.. P. 304. P. W. 374 Ghemawat. J. 361n9 Green.. P. E. A.. 48n1 Giuri. 82–83 Green. D. 55 Geroski.. 306n11 Gibrat. R. J..P. 534 Gleason. 84 . M. 220n7 Green.. 54 75/90 threshold. 561 Geroski. 223n8 Greene.. J. 556n8 Gilligan. D. 55 upstream and downstream phase.. 54–56 ElzingaHogarty (1978) test.. R. P.. H. 533n17. 78n9 Hohenbalkenvon. 388–391 . 529 Hausmann. 537. J.. 60 Harrington. 65 horizontal mergers. M. Z.. 606 Grossman... 422 and the merger paradox. 502 1984 HatchWaxman Act.. J. 352n5 Harstad. J.. J.. D. 291 Harsanyi. B.. 322 Haulman. 403n11 Griffith. 65 group pricing see thirddegree price discrimination (group pricing) Hall. 373 HassWilson. R.. J.. 423–424; premerger case. C. G.. R. 545. 661n1 Grossman. S.Greenhut. A. 364. J. M. 368 Heckman.. 606 Hay... 606 Hall. 386–426 Bertrand competition in a simple linear demand system. E. B. 305n10 Holmström. B.. 423 leaderfollower model. A. M.. 374 Harris. G... L.. C. R. R.. 306n11 Hall. 403n11 Greenhut. 561 Griliches. 497 imperfect competition. 466 U. J. G. 404–411; no price discrimination. 149–150 monopoly and. 144–151; conditions. 277–280 human resources management (HRM). 150; outlets. Jefferson Parish Hospital District No. 403–411; Bertrand competition and merger with linear demand systems. 2. 405–406; noncooperative price equilibrium. 149–150; full price. 144–146; setup costs. 79 identification problem in price discrimination. 141. 323–331 . 533n17 Hosken. 142 see also vertical product differentiation monopoly and. 411–414; divestiture. 146; ‘stand alone’ shop. D. 409; price equilibrium with price discrimination. 412 spatial model after a merger. 202n12 Hyde. 413; HerfindahlHirschman Index (HHI).S. 15–18 (1984). 425 Stackelberg leaderfollower model with several leaders. R. 145; optimal pricing policy. 136–139 imperfect information. 58n9 Hubbard. 156; product customization. 3–4 price discrimination and monopoly versus. 410; price equilibrium without a merger. 155; flexible manufacturing systems.. 143–144 Horstmann. decisions about. equilibrium prices in. predation and.. with price discrimination. 156; uniform delivered pricing. 409; personalized discriminatory pricing policies. 412; 1968 Merger Guidelines. H. 411; StructureConductPerformance framework. 2. 155 spatial approach to.. S. 416n24 Hovenkamp. equilibrium prices in. 146–149; pricing decision. 413; ‘fixitfirst’ approach. 156; in a geographic spatial model. 155–157; firstdegree price discrimination. 94 Image Technical Services (ITS). 407 public policy toward. 60 Huck. et al. I. 403; mergers in a spatial market. 53 Hyde v. 421–422 horizontal product differentiation.. 425–426 spatial model without a merger...product differentiation and. 380 hypothetical experience. J. 409; price discrimination. 33–36 . 613 indistinguishability theorem. 131 (1936). 332 U. 82. United States. 484 profit maximization at. 298 U. time and evolution of. 37 infinitely or indefinitely repeated games. 484 efficient service provision at. U. 373n22 industrial organization. 488 internal relationships. 201n10 international trade.indirect network effects. 484 interbrand competition. 174n1 international cournot model. cost functions for firms.S. 358–361 informal model of entry deterrence. 551–558 see also research and development (R&D) competition via innovation. 499 instrumentalvariables estimation technique. 648–651 imperfect markets and. 32–41 see also under monopoly intertemporal trades. 661–675 see also under strategic commitments intertemporal considerations on monopoly power.S. strategic subsidies in. 6–13 and auctions. 662–664 International Salt Co. 559–561; Schumpeterian hypothesis. 647–653; oligopoly pricing. 4–6 industry structure. 392 (1947). 560 installed base opportunism. 526 innovations.. 529–531 and signaling. 65 International Business Machines v. 289–291 noninformative informative advertising. 373. 2–18 antitrust policy and. 525–529; experience goods.S. 378 integrated firm. v. 3 study of. P. 339 Kotowitz. N. 308n15. S. 561 Klimek. 594. 646n8. 476 Kaldor.. 287 1984 Jefferson Parish case.. D. 489 Klemperer. I. 590n4 Klevorick. A. P. B.. J. 496–499 Koller.. 341–342. 287 Ju. R.... 257n12. H. 637n1. 563.. 202 Jia. 368 Keynes. 651n10 Klette... W.. 364. 341 Jovanovic. L. 12 . 596 Kelley. M.. 529 Kovacic... V. L. J.. R. 488 Jacquemin.. 408n18 Jullien. D. B. T. 537 Klein. M. Y.. S.. 569n17 Kaplow.intrabrand competition. M. P. 370n17 Katz. 583–584. 519 Kalecki. 288 Kodak case. 504 Judd. 255 Joskow. 5–6 Kihlstrom. E... 286 Kamien. A. 563 Jarmin.. M. 528... K. II.. R. B. K. 603 . 499n13 Lambin. N.. D. 378. 380 Krattenmaker.. 598n10. 234 Lerner. 666 Kryukov.. 260n13 Kreps. 422 hypothetical experience or learning curve. M. 288 Lande.. Teleflex case. 380 largescale advertising. 521 of monopoly power..Koyak. 630n8 leniency (amnesty) programs. 436n2 Kreisle. Inc.. R. T. 414 Lerner Index (LI). 498. P. 478–480 Lenard. M. D.... J. 288 leaderfollower model. 604 Kwoka. 520n9 Lambkin. 489n8. 78n10 KSR v.. 06A179. PSKS. 248n5 Krishna. 661n1. C.. T. J. v. 503n18 Laibson. 516–547 Lattin. R... J. J. 56–57.. 375–377 Lerner condition.. 470.. U. J. Inc. No. 464n5.. E. J. 12 Kwoka... 373n22 Lafontaine. F. V. 637n1 Krugman. 79 Leegin Creative Leather Products. 380 LaCasse. . comparison. F. B. 410n22 licensing. S. 450n10 Levenstein.. S.. 596 risks. C. 42 ‘long and thin’ solution. D. in conglomerate mergers. J. P. T.. L.. 394. 54 Liu. 561 MackieMason... J. 41n15 managerial motives. B. M. 40n14. W. 561. 596 Lichtenberg. 156 Mai.. 498 Loertscher. 449–450 Manufacturer's Suggested Retail Price (MSRP)... T. 637n1 logit transformation.. 264n2. 105 Lev. R. M. in optimal patent breadth. 305 Levin. 111 ‘lock in’ effect. 305 Liebowitz..... 93 Little in from Outside (LIFO).. 582 Loughran. patent.Leslie. 594–597 beneficial effects. 412 Lunn. R.. J. 112 . 370 Levin. 412 Lieberman. 499 Macleod. 621n4 US and Canadian prescription prices. 111 Makowski. C. 561n11 Levy. 81–82 . 22 Margolis. 80–81 product quality and. 491–496 private contracts. 621n4 Mariani. 235 market. 435–436 market performance. 53 market foreclosure.. M. 23; perfect competition. 53 SSNIP test. 491–492 slotting allowances and exclusion. vertical restraints and. 166–168 market structure. 494 market foreclosure and vertical mergers. et al. definition. 19–27; longrun competitive equilibrium. 21–24; shortrun competitive equilibrium. 52 elasticity.. 20 market power. 519–520 information and. 50–54 concentration. 21n2 market demand curve. 297 market size. S.marginal revenue function. 492–496; bargaining environment. 47–62 advertising and.. 54–56 network externalities and.. 47–62 see also costs and market structure concentration curves. 23 horizontal demand curve. B. 592n6 Marion. 48 geography and vertical relations. 19–27 competition versus monopoly. 516–547 market predatory behavior. W. 375 Marshall. W. 412 Maskin. 287; industries with high entry rates also have high exit rates. 264n2 MasColell. F. J. 394.. 12n17 Maximum Likelihood Estimation (MLE).. 287; entry is common. D. 488.. 475 U. 108 McCafferty. H. Zenith Radio Corp. A. 450 McAffee.. 460 McGowan. R. 8–9. 529 Matsuhita Electric Industrial Co. 78n9 Marvel. 606 May. 220n7 Maskimovic. 72–73 market structure over time.. 598–599. W. 472n8... P. v. O. G. 78n9. S. 472 Marvin. R... C. E. 287; smallscale entry.. 519 Marshall. 464n5. 9n8 mass communication. E.. 285–288 stylized facts that industrial evolution theory should explain. S. 285–288 random processes and stylized facts. 287 Marshall. V. 651n10 Mason.S. 574 (1986). 472n9 1952 McGuire Act.. 19. 516–547 Mathematica® software package.. J.. 411 ..P. 287; new entrant survival rate is relatively low. 525n13 McMahon. B. 107 Mathewson. 84 menu pricing see seconddegree price discrimination (menu pricing) 1968 Merger Guidelines..sunk cost and. A. 24–27. 414 relevant parameters from a demand system. bundling and. N. 534 minimum efficient scale. 394–400; variable costs. March 24. 414–417 elasticities estimation. 306n13 Miller. 19–46 see also basic microeconomics Microsoft Case.. C. 414–417 see also merger simulation to monopoly. 416 mergers. 392–394 evaluating. merger reducing. condition for. 184 monopoly. M. J. v. 376 MillerTydings Act of 1937. T201/04. 70 Miranda.. 390 Metropolitan Statistical Area (MSA). Commission of the European Communities. merged firm as.merger paradox. 386–426 see also conglomerate mergers; horizontal mergers; sequential mergers; vertical mergers and cost synergies. 412 Mitchell. J. 288 Mitchell. 31 .. 415 Lerner condition. with computer simulation. 142–172 see also product variety and quality under monopoly deadweight loss of. 460 Milyo. 412 Miao. merger reducing.. 388 profitable merger. 392; Stackelberg leader. 391–394; fixed costs. in merger evaluation. 2004.. W. 288 monopoly pricing with.. 197–200 Microsoft Corp. 499n14 microeconomics. 388–391 merger simulation. C. 380 Moser. 32–41; discounting. 191–196 monopoly profit and the efficiency effect. 37; intertemporal trades. 288 Mueller. 59–61. 65 Morgenstern. 616 monopoly retailer and monopoly manufacturer. B. 40–41; present value.C.. 12 Morris.. 412 .. 529 Moore. 620–621 Mowery. A. 55n7 Morrison... 37–40; industry structure.. 468–469 Montgomery. P. preserving. 375 movie discs. E. 520–522 in patents and patent policy. 557–558 monopoly provision of network service. S.. 264n2 Moody. 191–196 network externalities and.. O. 10n13. 590–592 monopoly pricing. C. 33–36 marginal revenue for a monopolist. 561 Mucha.intertemporal considerations and constraints on.. 30–32 monopoly firm's profitmaximizing level of advertising. 25 monopolist and social surplus. 603 Motta. J. D. 33–36; durable goods and the coase conjecture. C. M. time and evolution of. 191–196 complementary goods and. 33–36; nonsurplus approach to economic efficiency... 613 profitmaximizing price. Z. 613–617 lowfraction equilibrium. 255 Morse. D. D. R. 216. 41n15.... 300 Nash equilibrium. R.. J. 302. J.Mueller. 448 National Cash Register (NCR) company. 89 Mussa. 451 network effects direct. B. 75 multiproduct scale and scope economies. 12 Nathanson. 569n17 Müller. 53n4 Mulbauer.. 567 for dynamic games. B. 415 Muller. 287. W. A.. 317n1 multiproduct firms. F. 277–280 Mullin.. costs and. 82 indirect. 64–65 neoclassical theory. 272–277 as a solution concept. J. 644n5 Nalebuff.. 73–78 different products versus different versions. E. 40n14.. W.. 82 . 447n7 Nalebuff. 309. 563. 179n5. 235 Mueller. 561 neoclassical approach to firm size and market structure. W. 338 Nelson. W. 157n7 Myerson.. M. 221–222 Nash. 74–77 multiproduct scale economies.. 77–78 flexible manufacturing systems. D. and social welfare. 618–622; DVD player.. 622–628; Battle of the Sexes. 613 monopolist. 612–636 see also monopoly provision of network service competition and complementary services..network externalities and market structure.. 499 Nevo. 214–215 noncooperative R&D.. H. 620–621; price competition.. 412n23 Nold. 627–628; technology adoption questions.. 636 network externalities in computer software. T. 223n8 Newbery. 628–630 systems competition and battle over industry standards. 1. prices. A. 620 direct network effects. 620–621; market problems.. 624; Pesky Little Brother. 624–626; unsatisfactory outcomes avoiding. 401–402 Nocke. G. 374n23 noncooperative game theory. 13 Nilssen. 81–82 network externalities. 565 . 623 Netz. 557n9 Nichols. W. F.. 620; movie discs. 564–567 research intensity reaction function. 535 Newberry. 621; ‘winnertakeall’ feature. 618; Video Cassette Recorders (VCRs). 519 Nicholson.. 613 indirect network effect. 191–196 network issues. 622; Tweedledum and Tweedledee. profitmaximizing network access price for. D. W. 565 strategic complements. 626–627; compatibility. J. M. M. 81 and monopoly pricing. V. 631–634 see also spreadsheets network goods and public policy. profit. G. 256–257 pricing and auctions. W. 491–496 see also individual entry nonsurplus approach to economic efficiency. 98 nonconstant marginal cost. 80–83 government policy role... W. 255n11 O'Brien. 525n13 Normann.. 593–594 noninformative informative advertising. 464n5. incentive for an oligopolist to license. 80–81 network externalities and market structure. W. 156. 213. T. 82–83 market size and competitive industry. V. 486–511 see also aftermarket restrictions; exclusive dealing; exclusive selling and territories; vertical restrictions and market foreclosure. D. 565 noncost determinants of industry structure. firms with.. 403n11... 579 Norman. H. 211–212 Nordhaus. 492n11 Oi. 523. 40–41 nonzero marginal costs. 488n3. 446n5 Norman. 648–651 . 529–531 nonlinear pricing. 119–141 nonprice vertical restraints.. 242–262 see also Bertrand duopoly model brand competition and consumer preferences. 257–260 strategic complements and substitutes. P. 408n18. 81–82 constant marginal cost. 50–51 Novshek. 410n21.strategic substitutes. 277–280 North American Industry Classification System (NAICS). 100 nondrastic innovation. 122n1 oligopolistic price competition. 41n15 Overstreet. C. 436–446 ‘only one profit’ approach. 40n14.. 21 optimal bidding in firstprice auctions. 592–601 patents and patent policy. J. 578–610 ‘blocking competitors’. 374 Ostroy. 28n6 Pastine. 78n9 paradox. M. 640 ordinary least squares (OLS) regressions. 660 optimal choice of output and quality. J..twofirm oligopoly (duopoly).. 286n5 Osborne. 64n1. 172 optimal partial market price. merger. J. 509. 171–172 optimal patent breadth.. 606 Ordover. 435–436; formal oligopoly models of. 11. 37n12. 536 Pastine. I. 536 patent licensing. 582–584 optimal patent length.. 592 drastic innovations. T. 538. 74–75. 595–597 .. 466–468 order statistic concept. 217 and vertical mergers. 336–337 opportunity costs. 659–660 in oligopolistic Bertrand competition. 388–391 Pareto Optimality. J.. T. 579–582 optimal provision of retail services versus vertically integrated monopoly. 464 Panzar. 592 Peck. 582; definition. 582; ‘short and fat’ approach.. 594 monopoly power. 394n8 personalized pricing see firstdegree price discrimination (personalized pricing) Peterman. 584; Gilbert and Shapiro analysis. 584; Gallini's reasoning. 593–594; competition in.. M. 579–582 patent races. 446n5 Perry. 587; innovative competition. 579; innovation gains during. 408n18.. 595–597 use by inventor's employer. 583; ‘long and thin’ solution. 590–592 optimal patent breadth. 584–590; with a duopoly. 582 optimal patent length. 595–597 and ‘sleeping patents’. 580 incentive for an oligopolist to license a nondrastic innovation. J... 272. 582; Denicolò's proposal. T.. 60 Petrin. L. 601–604; internationally comparable data construction. 584; R&D investments and. 583; Klemperer's argument. K. 597–601 public policy. 603; strengthened protection of patent rights. 595–597 recent patent policy developments. 472 Pepall. 604–607 ‘sleeping patent/strategy. A. 593; Cournot competitors. 592 social welfare. 488n3 Perry. 582–584; complications in. 201n10 Peters. M. 548n3 Petersen. 589 patent thickets and sequential innovation. J. 272 pharmaceutical industry ..duration. 603 in semiconductor industry. B.. 288–299 market predatory behavior. 331–337; longterm exclusive contracts as predatory instruments. of America. 316–347 asymmetric information and limit pricing. 336–337; tying contracts. 323–331 limit pricing. 305; market for titanium dioxide. D. A. 327–331 contracts as barrier to entry.. 412 Phlips. 374 Poisson distribution. 345–346; pricing.. 305; F. L. 336; ‘only one profit’ approach. 326n11. v.. Aluminum Co. 305; U. 337–338 predatory entry deterrence. 373 Phillips.. 548–549 Porter.. 95n1. 535 Pitchik. 288–299 and reputation. P. 336–337 . G. 343–345; detail advertising. 465 Pigou. J. M. F. 332–336; naked exclusion. 516n1 Porter. 148 predatory pricing. 297 predatory pricing.entry deterrence in.... 119. 339–342 and imperfect information. J. C. 605 Polo. C. 304–307; Edmonton town. M.. 373n22 Pickering. 305–306; preemptive investment as an explicit tactic of Southern Bell Telephone (SBT). L.. 375 Pope. 344 Philips.. R. H. 394. 2d 416 (1945).S. 409n19 antitrust policy and. 304–307 historical cases. A. 119 Pinkse.. 342–346; advertising. 373–374 Posada. estimating. 268–272. 112–115; Manufacturer's Suggested Retail Price (MSRP). 377; econometric method. 431; without vertical integration. 377–378; instrumentalvariables estimation technique. 324–327; oneperiod analysis. 377; ‘but for’ price(s) estimation. 378 Principles of Economics. 349–383 US pricefixing violations fine. 112; SZS in fixing car price. 324; optimal contract. 155–157 in new car market. 94 and monopoly. 136–139 monopoly and horizontal differentiation with. 377–380; auctions. 117–119–141.and financial constraints. 318–328 myth or reality?. 350 pricefixing effects of. 325 Microhard Newvel game. 320–321 recent developments. 94; identification problem. 112–113 social welfare with first and seconddegree price discrimination. 1. 483 price fixing. 299–304 present value. 33–36 price competition. 409 see also linear pricing; nonlinear pricing facilitating vertical merger. 19 prisoner's dilemma game. 491–492 private values auctions. 92. 134–136 thirddegree price discrimination (group pricing). 546 see also oligopolistic price competition; sequential price competition price discrimination. 316–347 and bundling. 95–97 see also individual entry pricediscriminating retailer. 638–644 procompetitive vertical mergers. 93–95; arbitrage. Vol. 378–379; beforeandafter method. 431 . 318–323; McGee's reasoning. 351–354 private contracts. 434–435 feasibility of. manufacturer's optimal contract when selling to. 92–118 see also linear pricing: versus imperfect competition. 428–432 upstream and downstream profit maximization; with vertical integration. 151; retail outlets.3d 811 (6th Cir. 65; learningbydoing and experience curves. 66–67; cost variables and output decisions. 595–597 toward horizontal mergers. 79 Ramey. 171 profitability and bundling. 92–93 Raiff. 501–502 Pulley. 519n7. 152; ‘too much variety’ hypothesis. question of. 537n18 Ravenscraft. 21 profit maximizing number of retail outlets. L. 64–72 cost functions for single product firms. impact of. 158–159 quasiscope economies in banking. 375 Ramanarayanan.. 64–72; average cost. 151–154; additional shops operation. 66; cost concepts. 66; internal relationships and. 403–411 see also under horizontal mergers product variety and quality under monopoly. 84–85 Quon. D. 177–179 profitmaximizing twopart pricing. 67; neoclassical approach. S. 152–154; serving and transportation cost. 78–79; marginal cost. 154 production technology. E. 1. 84–85 quality on demand.. B. 67–68; fixed cost. J... 64–65; sunk cost. 166–168 product variety. 154; efficiency criterion. 415 PSI v. 411–414 see also under horizontal mergers toward vertical restraints. 125 Proportionally Calibrated AIDS (PCAIDS). 104 F. 500 public policy. 1997). 152–153; shop placement. 67–68 production unit(s). 412 . G.. Honeywell. B. 78n9..product differentiation. 142–172 see also horizontal product differentiation; vertical product differentiation and market size. horizontal mergers and. 75 profit concept. M. 89 readymixed concrete industry. 557n9. evidence after Leegin. 471–472; to insure provision of retail services. R. 589n3 Reiss. prices. D. preserving. 476–478 and prices. 74 Reinganum. 568–570 R&D spillovers in practice. 552 . 80. 554–556; monopoly profit and the efficiency effect. 559–561 ‘creative destruction’ innovation. 464–472 research and development (R&D). 548–577 competition via innovation. 529 Reitzes.. profit.Ray Average Cost (RAC). S. 551 market structure and the incentive to innovate. 552; product innovations. 552; development component of R&D... J. 570–573 taxonomy of innovations. 553–558; competition and the value of innovation. and social welfare. 358–361 Selten's Theorem. 74. P. 453–455 Redding. 552–553; applied research. 557–558 R&D cooperation between firms. 472; freeriding and. P. 552; process innovations. 355–358 formal description of a strategy. 462–464; service and. 561 Reisz. vertical integration in. 552; basic research. J.. 564–567; technology cooperation. 355 infinitely or indefinitely repeated games. 471–472; retail price discrimination and. J. 358 replacement effect. 460 and collusion. 562–570; noncooperative R&D. 556 Resale Price Maintenance (RPM). 410n22 Renault. 529 finitely repeated games... 478–480 RPM agreements; advantage of. top patentreceiving industries, 550 research intensity reaction function, 565 research joint venture (RJV), 563, 568 research subsidies & international trade, formal analysis, 674–675 retail price discrimination and RPM agreements, 462–464 retail price maintenance, as vertical price restraints, 472–476 retail services provision, RPM agreements to insure, 464–472 revenue, 21 loss, 26 revenue equivalence theorem, 644 Reynolds, R., 388n4 Rhine, S. L., 78n9 Richards, D., 408n18 Riley, J., 644n5, 651n10 Riordan, M. J., 340n18 Ritter, G., 7 Roberts, M. J., 288, 288nn6–7 RobinsonPatman Act of 1936, 83, 339 Rohlfs, J., 613, 618 Roller, L., 78n9 Romer, D., 549 Rosen, S., 157n7 Rosenthal, R. W., 281n8 Ross, T., 499n14 Rotemberg, J., 361n9 ‘rule of reason’ approach, 7–8, 501–502 Round, D. K., 520n9 Rovere, M., 92, 93t Rubinfeld, D. L., 377n27 Sakakibara, M., 603 SalaiMartin, X., 549n4 Salant, S., 388n4 Salinger model, 441 Salop, S. C., 403n11 Salvo, A., 401–402 Samuelson, L., 288, 288nn6–7 Samuelson, W., 644n5 Samwick, A., 450 Sanchirico, C. W., 377n27 Santos, M. C., 78n9 Satterwaite, M., 78n10 scale economies, 71, 78 in banking, 83–85 see also under banking scale economy index, 88 Scarre, C., 637n1 Schaffer, G., 464n5 scheduling strategy, 5 bridging, 5 counterprogramming, 5 infant protection, 5 quick openers, 5 Scheinkman, J., 248n5 Schelling, T., 12, 216n3, 277n7, 351n4 Scherer, F. M., 339n17, 340, 412, 561 Schmelzer, J. R., 235 Schmitt, N., 78 Schott, P. K., 74 Schumpeter, J. A., 549n4, 559 Schumpeterian hypothesis, 560–562 evidence on, 561–562 Schwalbach, J., 287 Schwartz, A., 528n14 in banking, 83–85 see also under banking cost complementarities, 75 multiproduct scale and, 74–77 Scotchmer, S., 584 Scott Morton, F., 112, 317n2, 342 Scott Morton, Zettelmeyer, and SilvaRisso (SZS), in fixing car price, 112–113 Scott, J. T, .561 screening devices, 106–108 seconddegree price discrimination (menu pricing), 129–134 highdemand consumers, quantity discounts for, 132 implementation strategies, 130 incentive compatibility, 131–132 lowdemand customers, 132–133 menu options, 132 social welfare with, 134–136 secondprice sealed bid auction, 638 Selten, R., 272, 276n5, 358 semiconductor industry, 604–607 patent law and patent practice in, 604–607 479–480 social surplus. in optimal patent breadth. J. K.. 134–136 .... 597–601 sequential mergers. 401–402 sequential price competition. J. 10 Sherman Antitrust Act of 1890.. 10 ‘New’ Sherman Act and. D. J. 7.sequential innovation and patent thickets. L. 595–597 with first and seconddegree price discrimination. 51n3 Smirlock. 268–272 credible commitment. D. M. 412 signaling. B. C. 394. cost functions for.. 590–592 Sleuwaegen... 503n18 1890 Sherman Act. 525–529 experience goods. 374n23 Siegel. 112 single product firms. 318 Shih. 111 ‘short and fat’ approach. 271 Shanley. 30–32 social welfare. 393 Shaw.. 64–72 see also under production technology Skinner. 526 SilvaRisso. 92–93 sleeping patents. 28–32 see also under economic efficiency monopolist and. S. M. 582 Sidak. 448n8 Shapiro. informative advertising and. 78n9 Smith. 391n6... R. 277–280 Stackelberg leader. 631 Multiplan. 519 solution concept. 421–422 . A. 65 Stackelberg beats Cournot. 631 Quatro Pro.. 221–222 Sorgard.. merged firm as. 403n11 after a merger. R. M. 172 Solow. 675 Excel. 397 Stackelberg leaderfollower model with several leaders. D... Nash equilibrium. 375 spatial market. mergers in. 394–400 twostage competition. 631 VP Planner. 380n28 Spulber. equilibrium prices in. 404–411 spatial model.. 374 Spencer. 401–402 Spagnolo. 109–112; welfare effects.. 143–144 without a merger. 631 Sproul. B. 310. equilibrium prices in. L. 631 SuperCalc. 425–426 of product differentiation.and group pricing.. M. 425 Spence. M.. 631 PlanPerfec. 110 socially optimal number of retail outlets. 631 Lotus 1–2–3. 292. 661n1. 549n4 Solow. G. O.. 522 U. 470.S.Stackelberg model of quantity competition. 214–240 dominant and dominated strategies. 535 Stocking. 277–280; inequality aversion. 1 (1911). 674–675 strategic R&D game without subsidies. 12n15. formal analysis. 662 strategic R&D subsidies. 217–220 of simultaneous moves. et al. 279 Cournot outcomes and. H. 478 static efficiency concept.. N. 265 StackelbergNash equilibrium production levels. L. 53n4 Stokey. 472n7. E. 667–668 strategic subsidies at the Canadian Wheat Board (CWB). P.. 502n16 Stigler. 40n13 strategic commitments and international trade. 460–461. G. 7n4 State Oil v. 412 Standard Oil Co. 464. 533n17. 669–672 strategic subsidies in international cournot model.. United States. 3 (1997). 661–675 Hamilton's analysis. von. 265–268 Cournot beaten by Stackelberg. 661 research subsidies & international trade. 267 Stackelberg.S. 215–217 Steiner. of New Jersey v. 464.. n11 Steiner. 174n2. L. 662–664 . 30n9 static games. Khan. 522. G. 221 U.. 218 static models of oligopoly see Cournot model/theory strategic interaction. R. 267 Stafford. 64–90 see also production technology learningbydoing and experience curves. 409n19 structurebased analysis dominance. 10–11 structureconductperformance (SCP) approach. 260n13 technology and cost... 370 Sweezy. 568–570 Tedlow. 9–11. 374n23 Switzer. 300 strategy combination. 10 weaknesses in. 665–667 trade agreements as commitment devices. D. 80–83 see also individual entry technology cooperation. 290–291 Taylor.. 234. S. V. 78–79 noncost determinants of industry structure. 388n4 SylosLabini. 214n1 . P. 215 Straume. 72–73 supply chain management (SCM). 665–666; production and profit in. 412 see also market structure ‘New’ Sherman Act and. R. 53 Suslow. 665 strategic use of bundling. 67–68 and market structure. P.. 275 sunk cost. 668–669 twocountry cournot game.... 11 subgame definition. 374 Taylor. C.strategic tariffs and scale/scope economies. O. . 647n9 Thepot. 189–190 Tirole.. 109–112; welfare effects. 272. 285 ‘too much variety’ hypothesis. 449 Turner. 101; marginal revenue. 101; equilibrium quantities. J. D. 98 Thisse. R. J. rules. 533 Thaler. 106–108 social welfare and. 100; monopolist's marginal cost function. 255n11. 110 ‘twice as steep’ rule. identifying.. identifying. 26 trade agreements as commitment devices. 103–109; screening devices. 661n1 Toker. 189–190 lowdemand consumers. 323n10. 492n11. 156. 95 implementing. 410n21 75/90 threshold. 188–191 antitrust and.. 457.Teece. 472n7. 99 features. 40n13 thirddegree price discrimination (group pricing). F. 102 product variety and. deriving. 339n17. 598n10. 55 tiein sales. 196–204 commodity bundling versus. L. 668–669 see also strategic commitments and international trade transactions costs in conglomerate mergers. 22 total revenue. 449 Telser. 340 . 97–103; aggregate marginal revenue equating with marginal cost. R. D. J. 101; equilibrium price. 188 highdemand consumers. 277n7... F.. 95–97 constant marginal cost.. 154 total market supply. 415 U. Microsoft Corp. 148 F. 221 U. (1974).C. 545 (1960). 271 (6 Cir.R. Loew's Inc. v. 187 F.. Supp. 26. 38 (1962). 472–476 competition inducing. 97 F. 125 ‘twice as steep’ rule. G. 451. 2d 30 (D. 624–626 ‘twice as steep rule’. 123 tying.S. 1945).S. United States. 2000). 12n16 United States v. 284n3 United States v. as vertical price restraint. Supp.S.. 487–488 Urban. 85 F. Addyston Pipe & Steel Co.D. General Dynamics Corp. 473 integrated monopolist manufacturer facing.Tweedledum and Tweedledee. 202n11 United States v. 106 (1911). 2d 59 (D. 306n12 United States v. 7n3 United States v. 10n9 United States v.. 1898). of America (ALCOA). 175n3 United States v. TransMissouri Freight Association 166 U.. 251 U. 155 United Shoe Machinery Corp. 460n2 United States v. Colgate & Co.. 173–212 see also commodity bundling; tiein sales uncertain demand. Microsoft Corp.S. 417 (1920). 8n7 upstream competition and exclusive dealing.D.244 (D. United States Steel Corporation.S. 250 U. 10n11 United States v. 2000). Supp. 473 uniform delivered pricing. 236 F. Aluminum Co.. 7n5 United States v. American Tobacco Co.C. 50 twopart pricing. 258 U.S.Supp.2d 416 (2 Cir. Jerrold Corporation. U. 371 U. Grinnell Corp. 1964). 7n3 United States v.S. 98. 290 (1897).I. 289 . 201n10 United States v. 122–127 profitmaximizing. 123 twodigit codes.S. 300 (1919). 87 F.. 473 resale price maintenance and. 323. 478n13 vertical mergers. 323n9 VanReenen. Steel case of 1920. Continental Baking Co..S. 432–436 GEHoneywell merger.U. 446–447 in differentiated products setting. 468–469 as a response to doublemarginalization. 305 Utah Pie Co. 122n1 Varian. market foreclosure and. 392–394 Varian. 386 U.. 163 profitmaximizing quality. 427–458 see also under Cournot model; procompetitive vertical mergers anticompetitive effects of. H. 10. 95n2 Vergé. Aluminum Co.S. 436–446 price discrimination facilitating. H.. 441–446 oligopoly. T. 10n12. 561 variable costs. 148 F. 434–435 in readymixed concrete industry. price and quality choice with. 460; MillerTydings Act of 1937. J. 8 U. 461–462 retail price maintenance and uncertain demand. 685 (1967). 469–471 monopoly retailer and monopoly manufacturer. 453–455 vertical price restraints.. v. merger reducing. et al. 459–485 see also nonprice vertical restraints antitrust policy toward. 387. impact of. 157–166 just one product. of America. 161–166; incentive compatibility constraint. 460 competitive retailing. v. 435–436; formal oligopoly models of. 158–159 vertical restrictions . 478. 472–476 vertical product differentiation.S. 2d 416 (1945). 143. 12. 160 quality on demand. R. 157–161 offering more than one product. 460–461; 1952 McGuire Act. 69n5 Weiman. L.. 367n14 Whinston. 12 vonHippel. J. X.. The. D. 637 wasteful competition.. K.. 78n9.. 478n13... 496–501 and market foreclosure. L. D. 466–468 Vickers.. 501–502 vertically integrated monopoly. J. M.in aftermarkets.. optimal provision of retail services versus. R. E. E. R.. 11 Willig. 545 Waterman. 500 Walrasian auctioneer. 412n23. O. 65... A. 306 welfare loss (WL). 12 Wilde. 220n7. J. D. 305n9.. 341 Willig. J. 338n15. 58 West. 488n3 White. D. 6.. 306n10 Whinston. 412 Vives. 84 Von Neumann.. F. 491–496 public policy toward. 308n14 Volkwein. 490n9 vickrey auction see secondprice sealed bid auction Video Cassette Recorders (VCRs). 528n14 Williamson. 563 Vorrasi. 285n5. 342 . 621 Vijh. M... L. 548n3 Wealth of Nations. .. 510 Zang.. 563. 464n5. R. 515. 37n12. 561 Wolfram. 255 Winter... 287 Winter. J. G... 112 Zhang... A. R. S. G. 519 Winston. S.. 260n13 . 604–607 Zimerman. A. I. S. 187 Yergin.Willig... A. D.. M. C. B. F. D.. 472n8. 223n8 Yamey. 488 Winter.. 536 Zanarone. T. 74–75 Wilson.. H. 317n2. 318n6 Yorukoglu. R. C... 238 Ziedonis. 213. P. 321n7 Yellen. 569n17 Zettelmeyer.
Report "Answers to Practice Problems - Industrial Organization_ Contemporary Theory and Empirical Applications, 5th Edition.pdf"