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ECON306: Industrial Organization

Unit 6: Business Practices: Strategies and Conduct   Competitive models tend to assume that consumers and competitors have perfect information about every firm’s single price.   In reality, however, markets deviate substantially from this scenario and indulge in all kinds of strategic behavior that makes such information ambiguous.   This behavior enables a firm, for example, to price-discriminate to its advantage; they may charge different prices for the same product either across firms (e.g. segmenting markets by geographic location) or to different customers of the same firm (e.g. airline tickets are cheaper for those who include a Saturday stay).  Other strategies may include indulging in non-price discrimination or engaging in research and development to have an edge on rivals as well as merging horizontally or integrating vertically.  We will study the impact that such behaviors have on other firms in the market.  

Unit 6 Time Advisory
Time Advisory: This unit will take you 22 hours to complete.
·        Subunit 6.1: 3.5 hours
·        Subunit 6.2: 3.5 hours
·        Subunit 6.3: 3 hours
·              Subunit 6.4: 3 hours
·        Subunit 6.5: 6 hours
·        Subunit 6.6: 1.5 hours
·        Subunit 6.7: 1.5 hours

Unit6 Learning Outcomes
Learning Outcomes:
Upon successful completion of this unit, students will be able to:
·        Define strategic behavior and identify the four elements pointed out by Thomas Schelling that are required for a move or a action to be strategic.
·        Distinguish between strategic and tactical choices.
·        Analyze the factors that influence the strategic behaviors of firms in the short run, the long run, and the very long run.
·        Solve  (mathematically, as well as graphically,) the extensive form of Stackelberg game by calculating the optimal response function of each player, and finding the subgame perfect nash equilibrium.
·        Identify the first mover advantage in the Stackelberg game.
·        Compare the results and the efficiency features of the Stackelberg equilibrium and the Cournot equilibrium.
·        Analyze the role of commitment in the Stackelberg model.
·        Define what is meant by limit output and its role in preventing entry of a new firm when the firm has contant returns to scale and economies of scale.
·        Analyze how firms use predatory pricing as strategic behavior.
·        Analyze how investments and sunk expenditures of an incumbent firm provides a cost advantage to it and deters entry of new firms and the antitrust ramifications of such behavior.
·        Define entry barriers and distinguish it from entry deterrence.
·        Derive the best response functions in a game-theoretic model.
·        Algebraically and numerically solve a two-stage model with strategic complements and strategic substitutes.
·        Define what is meant by strategic accommodation.
·        Define what is meant by learning-by-doing.
·        Define and identify switching costs.
·        Distinguish between cooperative advertising and predatory advertising..
·        Discuss the use of advertising as an instrument to deter entry.
·        Analyze the various effects of Research and Development activities undertaken by firms.
·        Define the terms "replacement effect" and "efficiency effect."
·        Analyze how governments use trade policy as instruments of strategic commitment.
·        Define the different types of mergers that firms engage in.
·        Analyze the vertical relations and vertical restraints among firms.
·        Explain the effects of resale price maintenance.
·        Analyze why firms engage in tying or bundling of two or more products.
·        Explain how managerial incentives and delelgation are important concepts in  strategic competition.       

6.1 Introduction to Strategic Behavior   - Reading: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach:"Chapter 13, Sections 13.1-13.4.1: An Introduction to Strategic Behavior" Link: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach:"Chapter 13, Sections 13.1-13.4.1: An Introduction to Strategic Behavior" (PDF)
 
Instructions: If you have not saved this PDF file, you will need to download the PDF file of the book by clicking on the "Download" tab on the right hand side of the webpage.  Please read the introduction before reading sections marked. 
 
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6.1.1 Strategic and Tactical Choices   Note: This subunit is covered by the reading assigned under Unit 6.1. 

6.1.2 The Stackelberg Model   Note: This subunit is covered by the reading assigned under Unit 6.1.

6.1.3 Entry Deterrence   6.1.3.1 Entry Deterrence With Constant Returns to Scale   Note: This subunit is covered by the reading assigned under Unit 6.1.

6.1.3.2 Entry Deterrence With Economies of Scale   Note: This subunit is covered by the reading assigned under Unit 6.1.

6.1.4 Limit Pricing   Note: This subunit is covered by the reading assigned under Unit 6.1.

6.2 Anticompetitive Strategic Behavior   6.2.1 Predatory Pricing   - Reading: Ohio State University: Kerry M. Tan's Economics 367.02: Current Economic Issues in the United States: “Lecture 3: Predatory Pricing” Link: Ohio State University: Kerry M. Tan's Economics 367.02: Current Economic Issues in the United States: “Lecture 3: Predatory Pricing” (PDF)
 
Instructions: Please click on the hyperlink titled “Lecture 3: Predatory Pricing,” and read the slides to learn about predatory pricing in detail.
 
Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.

6.2.2 Entry Deterrence   6.2.2.1 Sunk expenditures and Investments   - Reading: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach:"Chapter 14, Sections 14.1: The Role of Investments in Entry Deterrence" Link: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach: "Chapter 14, Sections 14.1: The Role of Investments in Entry Deterrence" (PDF)
 
Instructions: If you have not saved this PDF file, you will need to download the PDF file of the book by clicking on the "Download" tab on the right hand side of the webpage.  Please read the introduction before reading sections marked. 
 
Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.

6.2.2.2 Entry Barriers   - Reading: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach:"Chapter 14, Sections 14.3: Entry Barriers" Link: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach: "Chapter 14, Sections 14.3: Entry Barriers" (PDF)
 
Instructions: If you have not saved this PDF file, you will need to download the PDF file of the book by clicking on the "Download" tab on the right hand side of the webpage.  Please read the introduction before reading sections marked. 
 
Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.

6.3 Principles of Strategic Behavior   - Reading: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach:"Chapter 15: Strategic Behavior: Principles" Link: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach: "Chapter 15: Strategic Behavior: Principles" (PDF)
 
Instructions: If you have not saved this PDF file, you will need to download the PDF file of the book by clicking on the "Download" tab on the right hand side of the webpage.  Please read the introduction before reading sections marked. 
 
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6.4 Applications of Strategic Behavior   - Reading: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach:"Chapter 16, Sections 16.1-16.8: Strategic Behavior: Applications" Link: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach: "Chapter 16, Sections 16.1-16.8: Strategic Behavior: Applications" (PDF)
 
Instructions: If you have not saved this PDF file, you will need to download the PDF file of the book by clicking on the "Download" tab on the right hand side of the webpage.  Please read the introduction before reading sections marked. 
 
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6.5 Non-Price Discrimination   6.5.1 Advertising   - Reading: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach:"Chapter 17: Advertising and Oligopoly" Link: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach: "Chapter 17:  Advertising and Oligopoly" (PDF)
 
Instructions: If you have not saved this PDF file, you will need to download the PDF file of the book by clicking on the "Download" tab on the right hand side of the webpage.  Please read the introduction before reading sections marked. 
 
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6.5.2 Research and Development   - Reading: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach:"Chapter 18: Research and Development " Link: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach: "Chapter 18: Research and Development" (PDF)
 
Instructions: If you have not saved this PDF file, you will need to download the PDF file of the book by clicking on the "Download" tab on the right hand side of the webpage.  Please read the introduction before reading sections marked. 
 
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6.6 Horizontal Mergers   - Reading: Ohio State University: Kerry M. Tan's Economics 367.02: Current Economic Issues in the United States: “Lecture 7: Horizontal Mergers” Link: Ohio State University: Kerry M. Tan's Economics 367.02: Current Economic Issues in the United States: “Lecture 7: Horizontal Mergers” (PDF)
 
Instructions: Please click on the hyperlink titled “Lecture 7: Horizontal Mergers,” and read the slides in their entirety to learn about predatory pricing in detail.
 
Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.
 

6.7 Vertical Integration and Vertical Restraints   - Reading: Ohio State University: Kerry M. Tan's Economics 367.02: Current Economic Issues in the United States: “Lecture 8: Vertical Mergers” Link: Ohio State University: Kerry M. Tan's Economics 367.02: Current Economic Issues in the United States: “Lecture 8: Vertical Mergers” and “Lecture 9: Resale Price Maintenance” (PDF)
 
Instructions: Please click on the hyperlink for “Lecture 8: Vertical Mergers,” and read the slides in their entirety.  Then, please click on the hyperlink for lecture 9 titled “Resale Price Maintenance.”   Read the slides in their entirety to learn about predatory pricing in detail.
 
Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.