Week by week summaries of textbooks and readings in ECOF

Week by week summaries of textbooks and readings in ECOF -...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Component 1: Cooperation Many Bases For Cooperation • AMD/American Austin/San Jose flights • Complements – Wintel (MS/Intel) – Intel/Rambus • No negative advertisements • Major Elements of cooperation – Shared interest – Punishment for misbehavior – Recovery Basic Theory • Cooperate on a variety of matters, not just price, • Identify the basis for cooperation, • Share the proceeds of cooperation sufficiently that the relevant parties participate, • Identify punishments for misbehavior that are an adequate deterrent,
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Basic Theory, Cont’d • Identify punishments that will credibly be used, • Set a trigger to start a punishment, • Fix a method for recovering from punishment and returning to cooperation, • A fixed length punishment is often a good choice – if it is credible. Grim Trigger Strategy • Cooperate if •o r • True if δ near 1, false if n(1- δ )>1. δ π + 1 1 1 n m c π ) 1 ( 1 n n m c Problems of Price Cooperation • Confessions • Too many firms • Product differentiation • Reaction time • Random demand
Background image of page 2
3 Problems, Continued • Efficient allocation and bargaining • Unenforceable contracts • Communication is risky • Small or failing firms • Entry, substitutes • Quality competition Phases of the Moon Solutions • Industry association • Published price lists • Exclusive territories • Pre-announced price increases • Incrementalism
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 Solutions, Continued • Multi-market contact • Multi-level contact • Excess capacity • Grow (or crush) small or bankrupt firms Cooperation Summary • Cooperate on a variety of matters, not just price, • Identify the basis for cooperation, • Share the proceeds of cooperation sufficiently that the relevant parties participate, • Identify punishments for misbehavior that are an adequate deterrent, Cooperation Summary, Cont’d • Identify punishments that will credibly be used, • Set a trigger to start a punishment, • Fix a method for recovering from punishment and returning to cooperation, • A fixed length punishment is often a good choice – if it is credible.
Background image of page 4
5 Component 2: Organization Theory and Incentives Make or Buy • Centralization – Economies of scale – Coordination of distant operations • Decentralization – Incorporation of local information – Incentives Make • Holdup • Coordination in Production and Design • Double Marginalization • Foreclosure • Information Leakage • Input suppliers as a source of future competition • Low marginal costs (price war)
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Simple Theory of Holdup • Contracts exogenously incomplete • Holdup takes 50% (Nash bargaining) of marginal proceeds to investment • Ownership of assets limits holdup • Asset ownership determined by maximizing efficiency of investments Example • Coal costs $10/ton at mineshaft • Transport is $10/ton • Electric utility at mineshaft viable needs $14 coal to be viable
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/11/2009 for the course ECOF 3001 taught by Professor - during the Three '09 term at University of Sydney.

Page1 / 27

Week by week summaries of textbooks and readings in ECOF -...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online