From 43 43 traditional assessment which threshold of

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Unformatted text preview: icient if entry is easy, or strong buyers buyers If If share below 40%, firm may not have market power. If share is above 50% firm can be dominant EC is not so explicit, but behaves similarly. 44 44 Capacity and Potential entry If If firm tries to increase prices, rivals may increase capacity aggressive response limits market power market Easy, potential entry also limits market power high fix cost and sunk cost are an obstacle to entry History of industry may also be informative: if entrants History were always aggressively fought by incumbents, entry may not be likely (reputation effect) may 45 45 Buyer power concentration of the buyers matters market power is generally larger, the smaller and market dispersed buyers are dispersed However: However: Few buyers make entry less attractive, as it may be difficult to break long-term seller-buyer relationships relationships Even if entrant is more efficient, buyers may not Even coordinate and winning a few buyers may not be attractive enough for entry attractive Empirical Empirical result: buyer concentration affects market power of sellers negatively! market 46 46 Merger Case: Nestlé / Perrier 47 47 Intro Merger has been challenged by EC, as it would give rise Merger to joint dominance joint Mineral Water industry 1991: IFINT (Italian company owned by Agnelli family) 1991: launched bid to gain control over Perrier. launched Counter offer by Nestlé (Swiss Multinational) Nestlé won takeover battle Nestlé already has an agreement with BSN (both in mineral Nestlé water industry) water Under terms of agreement, they would have sold the Volvic Under source of Perrier to BSN. source Merger was cleared subject to certain merger remedies. 48 48 Definition of relevant product market Does Does mineral water belong to same market as softdrinks? market EC: EC: water has image of pure, natural product; associated with healthy living, satifies basic needs. Soft drinks do not have such Soft characteristics, consumed in more occasional way. way. E...
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