Industrial Economics

Industrial Economics - Industrial Economics=Econ 171...

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Industrial Economics=Econ 171 Lecture 1 George Stocking – brilliant writer about Industrial Organization, “structure, conduct and performance” concentration George Stigler – also a major writer, University of Chicago, against Stocking’s work “Economic Theory of Regulation”, won a Nobel Prize in 1982 George Bain – first empirical economic studies, nobody believes in his work Paul Samuelson – second Nobel Prize, in 1970; neoclassical economist. -Transaction costs : any cost incurred in other than producing something. Ex. Hiring attorneys for contracts Coase-Nobel prize for Externalities: If transaction costs are 0, you don’t need externalities because they will be internal - Game theory : how oligopolies operate - Contestable markets 1937- Are market and firms two ways to organize the same variables? What determines how much input will a firm produce itself? It is relative to the cost of using market or cost of producing a product that defines it. Transaction costs vary with individuals involved and market character. Risk is not assigned to Uncertainty. How many other firms supplying input are there? The greater the # of firms, the more willing you are to rely on the market. Human factors: -Bounded rationality – we go ahead and make a decision for the situation we’re in, w/out analyzing. -Opportunism – The more you believe a firm will act opportunistic, the less likely you are to rely on the market. The greater the uncertainty is, the more opportunistic the firms are! Lecture 2 As uncertainty increases, the number of firms decreases that you depend on, you become less opportunistic, you rely on the market less. Game theory -next innovation, analyzes how would firms react. Firms are few if a firm has to have a reaction pattern. If firm 1 has strategy 1, the second firm should think about how to react to that. Most common-duopoly, a relationship. Contestability market -if price of a good rises above costs, entry would occur. Always assumed to be true, now we know that markets are not necessarily contestable. 4 structures: -Perfect competition – very common when economics was invented, now not as common. Used most often in economic models. -Monopoly – single seller, many buyers, we don’t have to worry about products. Monopsonist – 1 buyer
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-Oligopoly – few firms -Monopolistic competition – invented in 21 st century. Jane Robertson never got the Nobel prize, suggested monopolistic competition. Economics Is all about efficiency, not morality. Assumptions for per fect competition: -The product is homogeneous- consumer can’t tell the difference between products or if he can tell the difference, he doesn’t care. Ex. Brown shell eggs vs. white shell eggs -Large number of potential suppliers, all suppliers are price takers. -Free entry and exit
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Industrial Economics - Industrial Economics=Econ 171...

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