IV_Anticompetitive Strategies_part1

IV_Anticompetitive Strategies_part1 - IV...

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Anticompetitive Strategies (part 1) IV. Anticompetitive Strategies (part 1) eading: Chapter 12 3 Reading: Chapter 12 13 1
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IV.I. Limit Pricing and Entry Deterrence troduction Introduction A firm that can restrict output to raise market price has market power Microsoft (95% of operating systems) and Campbell’s (70% of tinned soup market) are giants in their industries ave maintained their dominant position for many years Have maintained their dominant position for many years Why can’t existing rivals compete away the position of such firms? hy aren’t new rivals lured by the profits? Why aren t new rivals lured by the profits? Answer: firms with monopoly power may eliminate existing rivals prevent entry of new firms These actions are predatory conduct if they are profitable only if rivals, in fact, exit Chapter 12: Limit Pricing and Entry Deterrence 2 e.g., R&D to reduce costs is not predatory
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IV.I. Limit Pricing and Entry Deterrence olution of market structure Evolution of market structure Evolution of markets depends on many factors ne is relationship between firm size and growth one is relationship between firm size and growth Gibrat’s Law begin with equal sized firms each grows in each period by a rate drawn from a random distribution this distribution has constant mean and variance over time result is that firm size distribution approaches a log normal distribution Very mechanistic no strategy for growth Including strategic decision making affects distribution ut not conclusion that firm sizes are unequal Chapter 12: Limit Pricing and Entry Deterrence 3 but not conclusion that firm sizes are unequal What about the facts in the market place?
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IV.I. Limit Pricing and Entry Deterrence onopoly power and market entry Monopoly power and market entry Several stylized facts about entry ntry is common entry is common entry is generally small scale so small scale entry is relatively easy y y y survival rate is low: >60% exit within 5 years entry is highly correlated with exit “revolving door” reflects repeated attempts to penetrate markets dominated y large firms by large firms Not always easy to prove that this reflects predatory conduct ut we need to understand the predation it if we want to find it Chapter 12: Limit Pricing and Entry Deterrence 4 But we need to understand the predation it if we want to find it
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IV.I. Limit Pricing and Entry Deterrence redatory conduct and limit pricing Predatory conduct and limit pricing Predatory actions come in two broad forms Limit pricing: prices so low that entry is deterred t pc gpc e s so o ta tety s dete ed Predatory pricing: prices so low that existing firms are driven out Outcome of either action is the same—the monopolist retains ntrol of the market control of the market Legal action focuses on predatory pricing because this case has an identifiable victim
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IV_Anticompetitive Strategies_part1 - IV...

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