Main Industrial Organization: Markets and Strategies Industrial Organization: Markets and Strategies Paul Belleflamme , Martin Peitz Industrial Organization: Markets and Strategies provides an up-to-date account of modern industrial organization that blends theory with real-world applications. Written in a clear and accessible style, it acquaints the reader with the most important models for understanding strategies chosen by firms with market power and shows how such firms adapt to different market environments. It covers a wide range of topics including recent developments on product bundling, branding strategies, restrictions in vertical supply relationships, intellectual property protection, and two-sided markets, to name just a few. Models are presented in detail and the main results are summarized as lessons. Formal theory is complemented throughout by real-world cases that show students how it applies to actual organizational settings.
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With any other price, one of the firms would have the incentive to lower its price and undercut the rival in order to steal customers. Cost asymmetries will drive firms out of the market. Any factor that reduces the profitability of undercutting reduces the intensity of rivalry and creates market power i. However, there might exist reasons why firms do not want to locate at extremes — consumers not being uniformly distributed but concentrated around the centre, consumer close to the centre deciding not to buy if the firm locates too far, price competition is banned or regulated.
This also applies to vertical differentiation: firms will be incentivized to choose different quality levels. It will be enforced as long as the short-term benefit of a deviation is lower than the long-term cost. Therefore, a more sever punishment, a less profitable deviation, and higher collusion profits will make collusion more likely successful.
Specifically, structural factors that facilitate it are concentration, entry barriers, regularity and frequency of orders, stable and increasing demand, market transparency, symmetry. However, collusion cannot be inferred form market data but requires hard evidence. Ex-post policies include leniency programs and facilitating police search powers. However, markets characterized by variable size investments as opposed to fixed exogenous sunk costs or strategic barriers exhibit returns that increase with market size.
Credibility is fundamental.
Industrial Organization: Markets and Strategies