IOA msc

Preemption effect Innovation: Firms with more market power have to innovate to deter laggards form innovating

Creative destruction Innovation: monopolist replacing itself with new innovations following threat of potential new entrant

Replacement effect Innovation: the self-cannibalization that comes when introducing a new product

Drastic innovation Innovation: Large innovation that leads to a (temporary) monopoly position

Non-drastic innovation Innovation: Small innovation that leads to an advantage over competitors but does not allow a monopoly posiiton

Schumpeter 1 Innovation: More innovation leads => higher market power

Schumpeter 2 Innovation: higher market power => more innovation

Monopolist Innovation: Who has the larger incentive buy a patent for a new innovation?

Joint profit effect Innovation: Other word for pre-emption effect (innovation as a form of foreclosure)

Preemption effect Innovation: Which effect dominates when threat of competition is high?

Replacement effect Innovation: Which effect dominates when threat of competition is low?

Agglomeration economies Market foreclosure: clusters, firms in the same industry tend to be located close to each other

Endogenous entry cost Market foreclosure: Entry costs that are part of firms (that are already in the market) strategy. Number of firms is less sensitive to changes in market size

Structure conduct performance Market foreclosure: Framework for analyzing industries (SCP)

Collusion hypothesis Market foreclosure: concentration implies market power through increased collusion between firms, implies a reduction in allocative efficiency

Efficiency hypothesis Market foreclosure: (Chicago School), Lower marginal costs by one firm implies redistribution in market shares where concentration and market power increase

Allocative efficiency Market Power: resources are distributed in a way that maximizes total societal welfare

Productive Efficiency Market power: Occurs when goods and services are produced at the lowest possible cost. This means that all resources (labor, capital, etc.) are being used to their fullest potential without waste

Business steal effect Market foreclosure: the transfer of business between firms when a new firm enters the market

Consumer surplus effect Market foreclosure: entry implies an increase in consumer surplus that is not captured by the firms

Predatory pricing Market foreclosure/price discrimination: setting price below marginal cost

Market foreclosure: An increase in market size increseas number of firms

Market foreclosure: An increase in fixed costs decreases number of firms

Market foreclosure: An increase in variable costs decreases number of firms

positive externality Market foreclosure: When an action provides a benefit to a third party we have a...

negative externality Market foreclosure: When an action imposes a cost on a third party (e.g., the business steal effect) we have a...

Endogenous entry costs Market foreclosure: Entry costs that depend on firm’s action or strategic movement

A market is considered blockaded when entry is naturally unprofitable for potential entrants, regardless of the incumbent's actions

Deterrence Market foreclosure: involves strategic actions taken by an incumbent firm to prevent potential competitors from entering the market.

Limit pricing Market foreclosure strategy: Setting prices low enough that potential entrants perceive the market as unprofitable

Capacity expansion Market foreclosure strategy: Expanding production capacity to signal the ability to flood the market if an entrant appears.

excessive Market foreclosure: Caused if Product differentiation unimportant and soft competition leads to business-stealing effect dominating, and free entry is ...

insufficient Market foreclosure: : product differentiation important and fierce competition, leads to consumer surplus effect dominating, and free entry is

Market foreclosure: a critique of the SCP paradigm is that we have reverse causality between price and quantity. So it is hard to assume N or (p-c) as exogenous

fixed costs Market foreclosure: Deterrence is only profitable when we have...

Vertical Product differentiation: product differ along quality. Assumes Bertrand competition

Horizontal Product differentiation: product differ along taste (function etc., )

Strategic effect Product differentiation: The effect on the equlibrium price adjustment form the other firm following an adjustment of some choice variabel (location, quality) etc.

Direct effect Product differentiation: the effect on the firms profit following an adjustment in some variable (quality, location etc., )

Product differentiation: Under vertical differentiation the strategic effect dominates the other, since firms want to be as differentiated as possible

Characteristics approach Product differentiation: estimate product demand based on characteristics of a product

Search goods Product differentiation: goods that a consumer can research beforehand

address models Product differentiation: Models where we can view competition spatially (eg. Hotelling)

Product differentiation: When prices are fixed and product differ in "taste" we only have the direct effect which causes firm to minimize differentiation

Bunching Product differentiation: the phenomenon where competing firms or sellers locate themselves very close to each other (often at the same point) in a market, despite appearing to reduce consumer convenience

minimum differentiation Product differentiation: with fixed prices the Hotelling model leads to..

Product differentiation: The strategic effect is more important than the other effect if transportation costs are quadratic

Product differentiation: With endogenous pricing, quadratic transportation costs, we get the principle of maximum differentiation in the Hotelling model

Experience goods Product differentiation: goods that a consumer won’t be able to search until they are experienced

Interior firm Product differentiation: firms that two close competitors on the hoteling line

Peripheral firm Product differentiation: firms that only have one close competitor on the hoteling line

Network externalities Networks: Each consumers valuation is increasing in the number of other ocnsumers

Single-homing Networks: When users or entities rely exclusively on a single platform, service, or network. High switching costs, strong network effects, dominant platform.

Multi-homing Networks: When users or entities engage with and participate in multiple platforms, services, or networks simultaneously. Low switching costs, common in competitive markets

Networks: A monopoly platform internalizes network externalities in its optimal price.

Openness and price Networks: The two main strategies a platform much choose between are..

Networks Networks: High-tech TMT market are classified as

Two-sided markets Networks: media, payment systems, and matching markets are examples of

Price discrimination Market frictions: practice of setting different prices for the same good.

Customer markets Market frictions: markets where the sales terms are tailored to individual customers. In this market we often have perfect price discrimination

Arbitrage Market frictions: When segmenting the market he possibility of resale becomes available

Search costs Market frictions: cost of finding each firm sales price. Failure of law of one price for homogenous products.

Damaged goods Market frictions: Intentionally producing or reducing the quality of a good to be able to sell it at a lower price

Incentive constraint Market frictions: Ensuing that no customer with a higher willingness to pay purchases a good at the lower price

Participation constraint Market frictions: Setting the price at the low-end consumers’ willingness to pay level. Results in the low-end consumer getting a surplus of zero

Pure bundling Market frictions: selling goods as a packaged deal where the consumers purchases all or nothing

mixed bundling Market frictions: selling goods as a packaged deal where the consumers purchases one item or the package

Durable goods Market frictions: goods with long lifetime

Non-linear pricing Market frictions: pricing that is not the same across the demand curve

Two-part tariff Market frictions: a fixed part which each consumer must pay regardless of the quantity purchased and a variable part proportional to the quantity purchased

Shrouded attributions Market frictions pricing strategy: pricing strategy where features of a product are hidden until after the purchase. The equilibrium intuition is like search cost

Search costs Market frictions pricing strategy:: cost of researching a good, often leads to firms not informing consumer

obfuscation Market frictions pricing strategy: Making the selling terms unclear, to confuse customer about the fairness of the price of comparison of the goods

search cost Market frictions pricing strategy: cost of finding each firms price, which causes price dispersion where consumers have to "travel" to find lower prices

Switching costs Market frictions pricing strategy: consumer are less likely to switch from one good to another because of the Hassel

harvesting effect Market frictions pricing strategy: consumer are locked in and firms can charge higher prices since they know consumer will not leave

investment effect Market frictions pricing strategy: when competing for new customers it could lead to firms pricing more aggressively since the promise of future rents are great

Selection by indicators Market frictions: price discrimination based on some sort of identification criteria from the firm

Rent-extraction effect Market frictions: Effect of third-degree price discrimination, given oligopoly competition, when firms’ price closer to WTP --> price increase.

Competition effect Market frictions: Effect of third-degree price discrimination, given oligopoly competition, when consumers have more homogenous valuations, competition increases--> price decrease.

Prospect theory Market frictions: consumers like paying lower prices than others, therefore price discrimination can be viewed as a fairness issue

Horizontal agreement Collusion: When firms set fixed prices we say that they enter a

Explicit collusion Collusion: Collusion that is illegal is called

Implicit collusion Collusion: firms have a mutual understanding, obtained without talking, that is in joint interest to limit competition

Cooperation phase Collusion: firms play collusive game as log as the other firms deos

Punishment phase Collusion: Deviation from collusive agreement by one firm leads to competition

Collusion: collusion is more likely the lower the discount factor

Collusion: is more likely the lower the profit from the deviating firm

Collusion: is more likely the lower the expect profits it would make once punishment starts

Collusion: is more likely the more weight firms attach to the future

Collusion: is more likely the more transparent firms are about current and future porices

Collusion: is more likely in concentrated markets

Collusion: is more if we have cross-ownership

Collusion: is more likely when we have multi-market contact

Horizontal merger Merger: A merger between two competitors

Vertical merger Merger: A merger between firms on differnt part of the value chain

Unilateral effect Merger: increased in concentration following a merger. Reduction in number of purchasing choices

Collusion effect Merger: re-distribution of market shares. Easier to collude when market shares are similar

Merger paradox Merger: in Cournot competition with homogenous goods a meger is only profitable if n = 2 i.e., merger into monopoly

free riding story Mergers: outsider gains from merger if no cost efficiencies are present

Preemptive mergers Merger: mergers that occur to prevent a competitor from doing so

Double marginalization Merger: Manufacturer and retails both charge price above marginal cost

Remedies Merger: Mergers can be approved with the condition of firms taking certain actions (structural/behavioural)

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