1
`
`I
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`
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`Competition has long been viewed as a force that leads to an ideal solution of the
`economic performance problem, and monopoly has been condemned through
`much of recorded history for frustrating attainment of the competitive ideal. To
`
`The welfare Adam Smith, the vital principle underlying a market economy’s successful func-
`tioning was the pursuit of individual self-interest, channelled and controlled by
`competition. As each individual strives to maximize the value of his own capital,
`said Smith, he
`
`EC0110n1iCS Of
`
`Competition and
`
`. necessarily labours to render the annual revenue of the society as great as
`.
`.
`M0n0p01Y he can. He generally, indeed, neither intends to promote the public interest,
`nor knows how much he is promoting it.
`.
`.
`. [H]e intends only his own gain,
`and he is in this, as in many other cases, led by an invisible hand to promote an
`end which was no part of his intention.‘
`
`Smith’s “invisible hand” is the set ofmarket prices emerging in response to compet-
`itive forces. When these forces are thwarted by “the great engine of .
`.
`. monop-
`oly,” the tendency for resources to be allocated “as nearly as possible in the propor-
`tion which is most agreeable to the interests of the whole society” is frustrated?
`Much of Smith’s detailed analysis is obsolete. Yet his arguments on the efficacy
`of free competition remain intact, a philosophical lodestar to nations relying upon
`a market system of economic organization. Economists have, to be sure, amended
`their view of competition since Smith's time, and they have developed more ele-
`gant models of how competitive markets do theirjob of allocating resources and
`distributing income. One objective of this chapter is to survey these modern
`views. In addition, we shall examine some of the qualifications and doubts that
`have led to the partial or complete rejection of Smith’s gospel in many parts of the
`world.
`
`Competition Defined
`
`We must begin by making clear what is meant by competition in economic analysis.
`Two broad conceptions, one emphasizing the conduct of sellers and buyers and
`the other emphasizing market structure, can be distinguished. Adam Smith’s
`widely scattered comments, dealing with both conduct and structural features,
`typify the dominant strain of economic thought during the eighteenth and nine-
`teenth centuries.3 On the conduct side, Smith considered the essence of competi-
`tion to be an independent xtriving for patronage by the various sellers in a market.
`The short-run structural prerequisites for competitive conduct were left ambig-
`uous. Smith observed that independent action might emerge with only two sellers,
`but it was more likely (that is, collusion among the sellers was less likely) with
`
`1. Adam Smith, An Inquiry into the Nature and Cauxer oft/ze Wealth
`ofNati(m.t (New York: Modern Library edition, 1937), p. 4-23.
`2. Smith, Wealth ofNationJ, pp. 594-595. See also pp. 61, 14-7,
`and 712.
`
`3. For admirable surveys of the development of economic
`thought on the nature of competition, see George J. Stigler, “Per-
`feet Competition, Historically Contemplate-d,",/ournal ofPolitical
`Economy, vol. 65 (February 1957), pp. 1-17; M. Clark, Compe-
`
`tition ax a Dynamic Procerx (Washington: Brookings, 1961), Chap-
`ters 2 and 3; Paulj. McNulty, "A Note on the History of Perfect
`Competition,”Journal ofPolitieal Economy, vol. 75, Part 1 (August
`1967), pp. 395-399; and idem, “Economic Theory and the Mean-
`ing of Competition,” Quarterlyjournal ofEconomies, vol. 82 (No-
`vember 1968), pp. 639-656.
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`The Welfare Economics of Competition and Monopoly
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`19
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`turn has served as a model for many other nations. Asjames Madison wrote (un-
`der the pseudonym Publius) in Federalist Paper No. 10, nothing was more impor-
`tant to a well-constructed union than avoiding the imposition on all citizens of
`measures favored by narrow factions.9 Factions, continued Madison, arise most
`frequently from the unequal distribution of property, pitting the wishes of “a
`landed interest, a manufacturing interest, a mercantile interest, a moneyed inter-
`est, with many lesser interests” against the common good. The best way to avoid
`faction-dominated outcomes, said Madison, was to keep the individual factions so
`small and diverse that they would be “unable to concert and carry into effect
`schemes of oppression.”
`A closely related benefit is the fact that competitive market processes solve the
`economic problem impersonally, and not through the personal control of entrepre-
`neurs and bureaucrats. There is nothing more galling than to have the achieve-
`ment of some desired objective frustrated by the decisions of an identifiable indi-
`vidual or group. Who, on the other hand, can work up much outrage about a
`setback administered by the impersonal interplay of competitive market forces?
`A third political merit of a competitive market is its freedom of opportunity.
`When the no-barriers-to-entry condition of perfect competition is satisfied, indi-
`viduals are free to choose whatever trade or profession they prefer, limited only by
`their own talent and skill and by their ability to raise the (presumably modest)
`amount of capital required.
`
`The Efficiency of Admitting the salience of these political benefits, our main concern nonetheless
`Competitive Markets will be with the economic case for competitive market processes. Figure 2.1(b)
`reviews the conventional textbook analysis of equilibrium in a competitive indus-
`try, and Figure 2.1(a) portrays it for a representative firm belonging to that indus-
`try. Suppose we begin observing the industry when the short-run industry supply
`curve is S], which embodies the horizontal summation of all member firms’ margi-
`nal cost curves. The short-run marketequilibrium price is OP], which is viewed as
`a parameter or “given” by our representative firm, so the firm’s subjectively-
`perceived demand curve is a horizontal line at the level OP1. The firm maximizes
`its profits by expanding output until marginal cost (MC) rises into equality with
`the price OP,. It produces OX1 units of output and earns economic profits — that
`is, profits above the minimum return required to call forth its capital investment
`— equal to the per-unit profit GC1 times the number of units of output OX1.
`Because economic profits are positive for the representative firm, this cannot be a
`long-run equilibrium position. New firms attracted by the profit lure will enter the
`industry, adding their new marginal cost functions to the industry’s supply curve,
`and existing firms will expand their capacity, so the industry supply curve shifts to
`the right. Entry and expansion will continue, augmenting output and driving the
`price down, until price has fallen into equality with average total cost (ATC) for
`
`7. See Williamj. Baumol, John C. Panzar, and Robert D.
`Willig, Contextable Markets and the Theory oflnduxtry Structure (New
`York: Harcourt Brace jovanovich, 1982).
`i
`8. US. v. Bexxer Mfg. Co , 96 F. Supp. 304- (1951), affirmed 343
`U.S. 4-44» (1952).
`
`9. The Fedemlixt Papers, Mentor Book edition (New York: New
`American Library, 1961), pp. 77-84.
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`a. Firm
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`b. Industry
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`1?
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`#9
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`S1
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`20 Chapter 2
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`0
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`X2 X1
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`Output
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`0
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`Z1 Z2
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`Output
`
`Figure 2. 1
`Equilibrium under Pure
`
`
`
`Competition
`
` the representative firm. '0 In the figures shown, this zero-profit condition emerges
`with the short-run supply curve S2, yielding the market price OP2. The represen-
`
`
`tative firm maximizes its profits by equating marginal cost with new price OP2,
`barely covering its unit costs (including the minimum necessary return on its capi-
`tal) at the output OX2.
`The long-run equilibrium state of a competitive industry has three general
`properties with important normative implications:
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`a. The cost ofproducing the last unit of output — the marginal cost — is equal
`to the price paid by consumers for that unit. This is a necessary condition for profit
`maximization, given the competitive firm’s perception that price is unaffected by
`its output decisions. It implies efficiency of resource allocation in a sense to be
`explained momentarily.
`b. With price equal to average total cost for the representative firm, economic
`(that is, supra-normal) profits are absent. Investors receive a returnjust sufficient
`to induce them to maintain their investment at the level required to produce the
`
`industry’s output efficiently. Avoiding a surplus return to capital is considered
`desirable in terms of the equity of income distribution.
`c. In long-run equilibrium, each firm is producing its output at the minimum
`point on its average total cost curve. Firmslthat fail to operate at the lowest unit
`cost will incur losses and be driven from the ‘industry. Thus, resources are em-
`ployed at maximum production efficiency under competition.
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`One further benefit is sometimes attributed to the working of competition, al-
`though with less logical compulsion. Because of the pressure of prices on costs,
`
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`entrepreneurs may have especially strong incentives to seek and adopt cost-saving
`
`technological innovations. Indeed, if industry capacity is correctly geared to de-
`
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`mand at all times, the only way competitive firms can earn positive economic
` profits is through innovative superiority. We might expect therefore that techno-
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`The Welfare Economics of Competition and Monopoly 21
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`logical progress will be more rapid in competitive industries. However, doubts
`concerning the correctness of this hypothesis will be raised in a moment.
`
`‘The Inefficiency of Monopolists and monopolistic competitors differ from purely competitive firms in
`Monopoly Pricing
`only one essential respect: They face a downward-sloping demand curve for their
`output. Given this, the firm with monopoly power knows that to sell an additional
`unit (or block) of output, it must reduce its price to the customer(s) for that unit;
`and if it is unable to practice price discrimination (as we shall generally assume,
`unless otherwise indicated), 11 the firm must also reduce the price to all customers
`who would have made their purchases even without the price reduction. The net
`addition to the nondiscriminating monopolist’s revenue from selling one more
`unit of output, or its marginal revenue,
`is equal to the price paid by the marginal
`customer, minus the change in price required to secure the marginal customer’s
`patronage multiplied by the number of units that would have been sold without
`the price reduction in question.” Except at prices so high as to choke off all de-
`mand, the monopolist always sacrifices something to gain the benefits of increased
`patronage: the higher price it could have extracted had it limited its sales to more
`eager customers. When demand functions are continuous and smooth, marginal
`revenue under monopoly is necessarily less than price for finite quantities sold.
`When the monopolist’s demand function can be represented by a straight line,
`marginal revenue for any desired output is given by the ordinate of a straight line
`intersecting the demand curve where the latter intersects the vertical axis, and
`with twice the slope of the demand curve, as illustrated in Figures 2.2(a) and
`2.2(b).13 We will normally use straight-line demand curves in subsequent illustra-
`tions because they make it easier to get the geometry of their associated marginal
`revenue curves exactly right.
`Now the profit-maximizing firm with monopoly power will expand its output
`
`only as long as the net addition to revenue from selling an additional unit (the
`marginal revenue) exceeds the addition to cost from producing that unit (the mar-
`ginal cost). At the monopolist’s profit-maximizing output, marginal revenue
`equals marginal cost. But with positive output, marginal revenue is less than
`price, and so the monopolist’s price exceeds marginal cost. This equilibrium con-
`dition for firms with monopoly power differs from that of the competitive firm.
`For the competitor, price equals marginal cost; for the monopolist, price exceeds
`marginal cost. This difference has important implications to which we shall return
`in a moment.
`
`10. We assume perfect imputation of all factor scarcity FCIJLS
`here. If the imputation process is imperfect, only the marginal
`firm — the firm just on the borderline between entering and not
`entering — will realize zero economic profits.
`11. The logic of price discrimination will be explored in
`Chapter 13.
`12. Generally, for the monopolist price is a function P = f(Q) of
`the quantity Q_sold. Total sales revenue R = PQ. Marginal rev-
`enue is the change in total revenue associated with a unit change
`in quantity sold, thus, MR = dR/dQ = P + Q(dP/dQ). P in
`
`the MR expression is the price paid by marginal consumers; dP/
`dQ_is the change in price necessary to attract them (usually with a
`negative sign); and Qcorresponds approximately to the quantity
`that would be sold without the price reduction.
`13. Proof: Let the demand curve have the equation
`F = a — bQ_, where Qis the quantity demanded. Total revenue
`R = PQ = aQ — bQ’. Marginal revenue dR/dQ, = a — 2bQ_.
`At Q = 0, P = MR. The slope (—2b) of the marginal revenue
`function is twice the slope (—b) of the demand curve.
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`1 I I
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`' T
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`‘ II
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`22 Chapter 2
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`21. Pure monopolist
`
`b. Monopolistic competitor
`$
`
`LRMC
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`Output
`
`P4
`
`LRATC
`
`D
`
`MR
`
`MR
`
`0
`
`X4
`
`Figure 2.2
`Equoiormm ‘moor Monopoly
`
`The competitive enterprise earns zero economic profit in long-run equilib-
`rium. Is the firm with monopoly power different? Perhaps, but not necessarily.
`Figure 2.2(a) illustrates one of the many possible cases in which positive monopoly
`profits are realized: specifically, the per-unit profit margin P3C3 times the number
`of units OX3 sold. As long as entry into the monopolist’s market is barred, there is
`no reason why this profitable equilibrium cannot continue indefinitely. Figure
`2.2(b), on the other hand, illustrates the standard long—run equilibrium position of
`a monopolistic competitor. 14 The crucial distinguishing assumptions are that mo-
`nopolistic competitors are small relative to the market for their general class of
`differentiated products and that eiitry into the market is free. Then, if positive
`economic profits are earned, new firms will squeeze into the industry, shifting the
`typical f1rm’s demand curve to the left until, in long-run equilibrium, it is tangent
`to the firm’s long-run unit cost function LRATC. The best option left for the firm
`then is to produce output OX4, where marginal revenue equals marginal cost (as
`in any monopolistic situation) and the average revenue or price OP4 is barely suf-
`ficient to cover unit cost. Thus, while firms with monopoly power may secure mo-
`
`nopoly profits, they need not, especially under the plausible conditions of monop-
`olistic competition.
`We found earlier that in long-run equilibrium, the purely and perfectly com-
`petitive firm produces at minimum average total cost. Is this true also of the mo-
`nopoly? Many textbooks imply that it is not, or that it will be true only by acci-
`
`
`
`.
`
`
`
`dent.AgainconsiderFigure2.2(a).Itassumesthatthemonopolistoperatesunder
`
`constant long-run cost conditions; that is, that plants (or plant complexes) de-
`signed to produce at high outputs give rise to roughly the same cost per unit as
`those designed to produce at low outputs. We shall see in Chapter 4- that many
`real-world cost functions exhibit this property over substantial output ranges. If
`so, the firm will invest in a plant complex characterized by the short-run cost func-
`tion SRATC, with minimum short-run unit costs identical to the minimum long-
`
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`Market Structure,
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`Patents, and
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`Technological
`
`Innovation
`
`Making the best use ofrcsources at any moment in time-. is itnportattt. But in the
`long run, it is dynamic perfo1‘11ianctt that counts. As we observed in Chapter 2, an
`output handicap eunounting to 10 percent ofgross national product owing to static
`inefficiency is surtnotmtctl in twenty years ifthe output growth rate can be raisccl
`through more rapid technological progress from 3.0 to 3.5 percent. Or if the
`growth rate can be increased to 4.0 percent, the initial disadvantage is twercotne
`in 10.6 years.
`To Atlam Smith, the pin factory was the epitome ofstatic efliciency.‘ Through
`ntechaniztation and the division of labor, an average output per worker of‘l-,800
`pins per day could be achieved in the 17703. Two centuries later, thanks to count-
`less technological che'tnge.<:, output per worker had risen to 800,000 pins per day.”
`The increase scents E1Slt)I.ll1(lll'Ig‘ at first glance, but it implies an average annual
`work-dzty productivity growth rate nfonly 2.56 pert:ent per year—a rate snatched
`by many indu.-ttrie:-: over sul)st2tntial periods of time,
`From the time of Smith's successor Uavicl Ricartlo, and especially after the
`Neoclassical breakthrough of the 18703, until well into the twentieth century, the
`rnainstrcain ol‘(non-Maritizm) economic theory exhibited remarkably little sensi-
`tivity to the importance of t.'ZOI‘l'1[.)(J'l1I‘I(l productivity growth through technological
`innovation. Emphasis was on the result of combining labor and capital with
`prodttction funtttiom; olian essentially static character. Not until the 19503 (lid
`technological change become more than a side-show attraction. For the shot that
`signaled a revolution in economic thought, Robert Solow received the Nobel
`Prize.3 He set out to measure the extent to which increases in the amount of
`capital employed were responsible for the rise of U.S. nonfarm output per labor
`hour between 1909 and 194-9. To the surprise of economists mired in the static
`tradition, he found that lI‘lCI't‘)Icl8t:(l capital intensity £tCCCIl.ll‘tlf?El for only 12.5 per-
`cent (later corrected to 19 percent) of the I1'l(Ea.SL1I‘C(l growth in output per work
`hour. The rest ofthe observed {.79 percent average annual protluctivity gain was
`evidently attributable to irnprovententfs in protlttction practices and equipment
`(technological cltang: in the strictest! :it*.I1.*i{£) and to the iticreascd ability of the
`labor force. In El. SLll)S€'C]ut‘.l1l extension,
`l‘i(lW'z1l‘(l Denison cstimatetl that 13 per~
`cent of the gain in output per worker between 1929 and I982 could be cretlitetl to
`increased capital
`intensity, 34 percent
`to improved work force education, 22
`percent to the greatt.-1' l‘(:ElllZEll.lOl1{Jl_SL'2!lC ecottonties, i'll1(l6B percent to advances in
`scientilic and teclmological knowlcclge, broadly con.strued.‘* Although one can
`quibble with the detailed cst.itrtat.es, it is hztrtl to dispute the main thrust oi'Solow's
`and Denison’s conclusion: that the growth of output per worker in the United
`States (and also in other industrialized lands5) has come predominantly from the
`
`1- Adam Smith, An Inquiry into the Nature and Cause; of the
`Wealth ofNationr t" I 776), Book I, Chapter 1.
`2. Clifford F. Pratten, “The Manufacture of Pins,"_]oumal of
`Elittmmir Literature, vol. I8 (March 1980), pp. 93-96.
`3- Robert M. Solow. “Technical Change and the Aggregate
`I "ldllttititl Function," Review ofEwn0mics and Stalixticx, vol. 39
`i“:8"-‘l ISM). pp. 312-320.
`.
`1
`'—llW}I!'<i F. Denison, Trend: in American Economic Growth,
`
`1929-1982 (Washington: Brookings, 1985) p. 30. The percent-
`ages add to more than 100 because there are also negative factors,
`for example, a decrease in hours worked by the average employee
`( — 25 percent) and the effects of government regulation ( -4
`percent).
`5. See, for example, Edward F. Denison,
`Differ (Washington: Brookings, 1967).
`
`I/Viz} Growth Rates
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`622 Chapter 17
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`The Basic Logic
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`._s__._.________—_..__....:_.§..__,
`
`to the employing corporation, in whose name the patent is then issued. Thus, a
`distinction is made between corporate and “individual” patent grants. The share of
`all U.S. patents issued to individual inventors was 91 percent in 1901, 72 percent
`in 1921, 42 percent in 1940, 25 percent during the 1960s, and 18.5 percent during
`the early 1980s.
`
`The funds supporting invention and the commercial development of inventions
`are front-end “sunk” investments; once they have been spent, they are an irretriev-
`able bygone. To warrant making such investments, an individual inventor or cor-
`poration must expect that once commercialization occurs, product prices can be
`held above postinvention production and marketing costs long enough so that the
`discounted present value of the profits (or more accurately, quasi rents) will ex-
`ceed the value of the front-end investment. In other words, the investor must ex-
`pect some degree of protection from competition, or some monopoly power. The
`patent holder’s right to exclude imitating users is intended to create or strengthen
`that expectation. Patents also confer a property right which the original patent
`holder can sell, recouping its original investment and letting another entity exclu-
`sively commercialize the patented subject matter. Partial “sale” is also possible, for
`example, when the patent holder licenses others to exploit the invention and
`charges a royalty for the right.27
`The simplest case of a product innovation covered by patent protection is
`shown in Figure 17.1(a). If the product is really new and useful, it creates a wholly
`new demand curve D1 -one that did not exist previously. With an exclusive right
`to make and sell its product, the patent holder is a monopolist. It derives its margi-
`nal revenue MR1, equates marginal revenue with marginal production and distri-
`bution cost MC , and sets price OP1, realizing “monopoly” profits in the amount of
`rectangular area PIAXM. These are not pure profits, however, because the inno-
`vator’s sunk R&D costs must be taken intoaccount. To make that one-time lump
`sum consistent with Figure 17. 1(a), which is expressed in annual “flow” terms, let
`us assume that the innovator finances its R&D investment by taking out a
`seventeen-year mortgage whose annual payment obligation is given by the area of
`the inset rectangle I_]KL.23 If the patent monopoly lasts for seventeen years, the
`annual “profit” PIAXM will more than cover the annual R&D debt service cost,
`and the innovator will be well compensated for its efforts. It is not true, however,
`that the monopoly innovator is the only one to gain. The ordinates of demand
`curve D1 array the values diverse consumers place upon having the new pmrlucl
`to consume. The product’s availability on monopolized terms generates not only
`producer’s surplus PIAXM, but also c:m1:sur11::1's’ surplus BAP1. With linear de-
`mand and constant marginal production and (_li.<;lribution costs, as shown in Fig‘
`ure 17. 1(a), the monopolist is said to “appm|)ri;1u-." to itself only two-thirds of the
`total surplus its product creates.” The 1':-:n'1ai11i1'|g third goes to consumers.
`Suppose, however, that there were no patent protection and no other l:a:'1‘ic'I‘3
`to the imitation of the innovator’s invention. Then a scenario like the one shown 1“
`panel (b) of Figure 17.1 might unfold. Soon after the new product appears;
`peting firms will introduce their imitating products, squeezing the demand 55
`ule left for the original innovator to D2. With less residual demand, the ilIl1DV3mr
`.
`.
`.
`‘cc
`must derive a new marginal revenue function MR2 and set a new. lower P“
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`EC0NOM/STS /NCORPORA TED
`SUITE 600, 1233 20th STREET. N.W.
`WASHINGTON, 0.6‘. 20036
`
`Industrial Market Structure
`
`and Economic Performance
`
`Third Edition
`
`F.M. Scherer
`
`Harvard University
`
`David Ross
`
`Williams College
`
`Houghton Mifflin Company Boston
`Dallas
`Geneva, Illinois
`Palo Alto
`Princeton, NJ
`
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` Contents
`
`
`List of Figures
`x
`List of Tables
`xiii
`
`Preface
`
`xv
`
`Chapter 1
`Introduction
`1
`
`
`The Scope and Method of Industrial Organization Analysis
`An Introductory Paradigm
`The Role of Public Policies
`
`2
`4
`7
`
`Chapter 2 The Welfare Economics of Competition and
`Monopoly
`1 5
`
`
`Competition Defined
`
`The Case for Competition
`Qualifications and Doubts
`
`The Problem of Second Best
`
`Doubts Concerning the Profit Maximization Hypothesis
`Workable Competition
`Conclusion
`
`15
`
`18
`29
`
`33
`
`38
`52
`55
`
`Chapter 3
`Industry Structure
`57
`
`
`The Position of the Largest Corporations
`Concentration in Particular Markets
`
`The Diversification of American Corporations
`
`Vertical Integration in American Industry
`
`57
`70
`
`90
`
`94
`
`Chapter 4 The Determinants of Market Structure
`97
`
`
`Economies of Scale
`
`Stochastic Determinants of Market Structure
`
`The Impact of Government Policies
`
`:
`
`97
`
`141
`
`146
`
`Chapter 5 Mergers: History, Effects, and Policy
`153
` _Mj
`
`Broad Trends in Merger Activity
`
`The Motives for Merger
`
`Statistical Evidence on Merger Outcomes
`
`153
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`159
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`167
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`vi Contents
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`U.S. Policies toward Mergers
`Merger Policy in Other Nations
`Conclusion
`
`1 74
`194
`198
`
`199
`Chapter 6 Economic Theories of Oligopoly Pricing
` _________
`Oligopolistic Interdependence
`199
`The Contributions of Game Theory
`208
`Imperfect Information and Uncertainty
`215
`Dominant Firm Behavior
`221
`Conclusion
`226
`
`Appendix to Chapter 6
`The Quantity-Coumot Model
`The Cournot Model with Conjectural Variations
`The von Stackelberg Leader-Follower Model
`Forchheimer’s Dominant Firm Model
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`227
`227
`229
`231
`233
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`Chapter 7 Conditions Facilitating Oligopolistic Coordination
`Overt and Covert Agreements
`Price Leadership
`Rule-of-thumb Pricing as a Coordinating Device
`Focal Points and Tacit Coordination
`Order Backlogs, Inventories, and Oligopolistic Coordination
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`Appendix to Chapter 7
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`235
`235
`248
`261
`265
`268
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`2 75
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`273 Conclusion
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` 275
`Cartel Pricing When Costs Differ
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`Chapter 8 Conditions Limiting Oligopolistic Coordination
`Number and Size Distribution of Sellers .;
`Product Heterogeneity
`’
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`Dynamic Implications of Cost Structures
`A Digression on Cutthroat Competition
`Lumpiness and Infrequency of Orders
`Secrecy and Retaliation Lags
`The Social Scene
`Conclusion
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`277
`277
`279
`285
`294
`306
`308
`311
`315
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`Contents
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`vii
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`Chapter 9 Antitrust Policies Toward Price-Fixing
`Arrangements
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`The Evolution of U.S. Law
`
`Remedies and Penalties in Price-Fixing Cases
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`Antitrust Abroad: A Comparison
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`The Per Se vs. Rule of Reason Question Revisited
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`Oligopoly Pricing and the Conscious Parallelism Doctrine
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`Price Leadership
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`Trade Association Price and Cost Reporting Activities
`Conclusion
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`3 1 7
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`317
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`325
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`328
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`335
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`339
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`346
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`347
`352
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`Chapter 10 The Dynamics of Monopoly and Oligopoly Pricing
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`353
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`Substitution and Long-Run Demand Functions
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`Limiting Small-Scale Entry
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`Deterring Large-Scale Entry
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`Entry Deterrence Through Plant Location Strategy
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`Entry Deterrence Through Product Differentiation
`
`Other Dynamic Influences Affecting Price
`Conclusion
`
`Chapter 11 Market Structure and Performance: Empirical
`Appraisal
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`‘
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`Basic Paradigm
`Measurement Problems
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`Cross-Section Studies
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`Time Series Studies
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`Conclusion
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`353
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`356
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`374
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`396
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`404
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`407
`410
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`41 1
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`412
`415
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`426
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`440
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`446
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`Chapter 12 Antitrust Policy Toward Monopoly Market
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`'
`Structures
`449
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`Monopoly and Monopolization
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`The Emergence of a Rule of Reason
`The Alcoa Case and Its Aftermath
`Renaissance and Decline
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`The Predatory Pricing Problem
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`Proposals to Reform Sherman Act Section 2
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`Policy toward Monopoly Positions Abroad
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`449
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`450
`453
`458
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`468
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`479
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`483
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`viii Contents
`
`Chapter 13 Price Discrimination
`Standard Theoretical Cases
`Types of Discrimination Found in Practice
`The Implications of Discrimination for Economic Welfare
`Antitrust Policies Toward Price Discrimination
`
`Chapter 14 Buyer Power and Vertical Pricing Relationships
`
`The Extent of Buyer Concentration
`The Exercise of Buyer Power: Theory
`Countervailing Power and Consumer Prices
`Conclusion
`
`Appendix to Chapter 14
`
`Chapter 15 Vertical Restraints: Law and Economics
`
`The Theoretical Paradox and Its Resolution
`Resale Price Maintenance in Theory and Practice
`Exclusive Franchising
`
`Exclusive Dealing, Requirements Contracts, and Tying
`Conclusion
`
`xv
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`Chapter 16 Product Differentiation, Market Structure, and
`Competition
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`489
`489
`491
`494
`508
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`517
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`51 7
`519
`527
`535
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`537
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`541
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`541
`548
`558
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`562
`569
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`5 7 1
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`Advertising, Information, and Persuasion
`Advertising, Image, and Monopoly Power
`The Role of Market Structure
`Market Structure and Product Variety
`Conclusion
`
`572
`580
`592
`600
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`Chapter 17 Market Structure, Patents, and Technological
`Innovation
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`Industrial Innovation
`The Logic ofPatent Protection
`The Links Between Market Structure and Innovation
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`614
`621
`630
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`The Evidence
`Conclusion
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`Chapter 18 Market Structure and Performance: Overall
`Appraisal
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`661
`The Welfare Losses Attributable to Resource Misallocation
`Other Inefficiencies
`
`Contents
`
`ix
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`661
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`Other Effects of Monopoly Power
`Conclusion
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`Author Index
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`Subject Index
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`667
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`679
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`685
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`687
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`703
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