08-Industry_Structure_and_Performance

08-Industry_Structur - Industry Structure and Performance Econ 425 Summer I 2008 Intro Theories on competitive and noncompetitive markets suggest

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Industry Structure and Performance Econ 425, Summer I 2008
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2 Intro b Theories on competitive and noncompetitive markets suggest that the less competition a firm faces, the greater its market power. b Two implications of these theories that have been widely tested in IO: - How do markets (industries) perform? - What are the major factors that determine market performance? b Two approaches: - Traditional SCP analysis: performance can be easily measured; concentrate on relationship between structure and performance. - Modern SCP analysis: focus on more accurate ways of measuring performance or market power.
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3 Predictions based on market structure b One would expect price-cost margins and profits to vary with the number of rivals (concentration) and the size of barriers to entry. e.g. testing whether LR profits are zero is a test of free entry. 0 + or - 0 Competition + or 0 + or 0 0 π LR + or - + Oligopoly + or - + Monopoly + or - + Monopolistic Competition π SR P - MC
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4 Traditional SCP Analysis b SCP approach: industry performance depends on conduct or behavior of sellers and buyers, which in turn depends on the structure of the market. b Many economists criticize SCP approach for being descriptive rather than analytic! b A typical SCP has two main stages: - obtain measures of performance and market structure; - examine the impact of market structure on performance across industries.
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5 Measures of market performance 1. Rate of Return b A rate of return measures how much is earned per dollar of investment. b
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This note was uploaded on 05/01/2011 for the course ECON 425 taught by Professor Watugala during the Spring '06 term at Texas A&M.

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08-Industry_Structur - Industry Structure and Performance Econ 425 Summer I 2008 Intro Theories on competitive and noncompetitive markets suggest

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