Key Examples

• Bertrand games


  One-shot games where firms compete on price
• Efficient rationing


  The amount of demand now served by the firm with the higher price depends on the type of rationing
• Proportional rationing


  The amount of demand now served by the firm with the higher price depends on the type of rationing
• Kreps and Scheinkman (1983) model

  1. Capacity choosing stage

  2. Price setting stage

  3. Produces a Cournot outcome
• General Collusion Cases


  • Sotheby's and Christie's
  • Vitamin Cartel
• Stochastic demand (high or low)

  Firms will sustain collusion in periods of low demand but will have price wars in boom times (Rotemberg and Saloner 1986)
• Stochastic demand (firm's individual demand not observable)


  Predicts price wars after slump in demand (Porter and Green 1984)
• Albaek et al. (1997) - Danish government tried to make concrete prices more transparent but this actually meant that firms couldn't secretly cheat on collusive agreements, so prices rose
• Evans and Kessides (1994) - Multimarket contact in US Airline industry
• Larger markets


  Have more firms, but the rise is not proportionate (Bresnahan and Reiss 1991, Campbell and Hopenhayn 2005)
• Without the integer constraint on firms, entry in Cournot is socially excessive due to the fact that output per firm is depressed by the entry of an extra firm (Mankiw and Whinston 1986)
• Strategic complements


  Upward sloping reaction functions
• Strategic substitutes


  Downward sloping reaction functions
• Investment results in a direct and a strategic effect on profit (Bulow, Geanakoplos and Klemperer 1985)
• Fudenberg and Tirole (1984) - Animal Taxonomy of Business Strategies
• Ghemawat (1984) - DuPont announced new factory to deter entry but it was not profitable for DuPont, and by 1985 5 competitors had left the market
• Lieberman (1987) - Entry deterrence was uncommon (3 out of 34 cases) and ineffective (0 successful instances) in the chemical industry
• Linear City (Hotelling 1929)


  Model of product differentiation
• Circular City (Salop 1979)


  Model of product differentiation
• Schmalensee (1978) - Top 6 firms in the ready-to-eat breakfast cereal industry introduced 80 new brands in 22 years, and entrants had to enter with multiple brands but incumbents filled up product space (Product Proliferation)
• Shaked and Sutton (1982) - Vertical Differentiation
• Hausman (1997) - Estimated the demand for cereal to provide approximation for social value of a new product, and found surprisingly large value for consumer surplus
• Pigou (1920) - 3 degrees of price discrimination


  First, second, and third degree
• First-degree price discrimination


  • De Beers made first-degree take it or leave it offers on rough diamonds
• Third-degree price discrimination


  • Microsoft Office in 2013 was £120 in Eurozone and £74 in China
• Second-degree price discrimination


  • IBM sold 2 printers, one printed at 12 pages per minute and the other had instructions to slow it down to 8 pages
  • Intel 486 chip had 2 versions, one with the math-coprocessor working and the other had it purposely switched off
• Thisse and Vives (1988) - Firms in a Hotelling duopoly at opposite ends of the line would prefer to not be able to discriminate as it lowers prices and equilibrium profit
• Benham (1972) - Eyeglass prices substantially higher in states where advertising was banned
• Kwoka (1984) - Found similar effects to Benham in optometry, both support an informative view of advertising
• Milyo and Waldfogel (1999) - Effect of the end of a ban on liquor price advertising in Rhode Island, found advertising stores had significantly lower prices
• Dixit and Norman - Welfare effects from advertising, advertising excessive at the margin if price raising (e.g. with persuasive advertising) but too low at the margin if advertising is informative
• Cunningham, Ederer and Ma (2021) - Found 5-7% of acquisitions were killer ones which occurred disproportionately just below the threshold for antitrust scrutiny
• Competition


  Has an inverted U-shape relationship with innovation (Aghion et al. 2005)
• Williamson (1968) - Antitrust authorities face a trade-off as a merger will likely increase market power of a firm but also could lead to synergies
• Farrell and Shapiro (1990) - Analysing welfare effect of mergers using only pre-merger market share data
• Farrell and Shapiro (2010) - Upward Pricing Pressure
• Ashenfelter, Hosken and Weinberg (2013) - Maytag-Whirlpool merger, found using diff-in-diff methods that Maytag dishwasher prices rose by 7% and Whirlpool dryer prices rose by 17%
• Miller and Weinberg (2017) - Miller-Coors merger, found again using DiD methods that merger resulted in significant changes in prices of ABI products as well as Miller-Coors
• Hastings (2004) - Petrol retail merger, found a 5 cents change in prices post merger
• Autor et al (2020) - Found significant increases in CR4 and CR20 ratios across multiple industries, suggests technological change pushes sales to most productive firms in an industry hence rising concentration is a consequence of success as opposed to lenient antitrust policy