Io Presentation on Bhevioral

8/13/2019 Io Presentation on Bhevioral

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On this chapter we will try to answer the following

questions:

Why do firms in some industries make pure profits?When Oligopolies make pure profits, how come

entry of new

firms does not always occur, thereby eliminating all

pure profits?What can explain mergers among firms in a given

industry?

What is and what should be the regulators attitudes

towards concentrated industries?


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Concentration Measures

Compare concentration among differentindustries in the same

or different countries

regulating authority would like to intervene or

prevent

What is a concentrated industry?

The number of firms in the industryThe distribution of output among the firms

, Problems...

Market share of firm


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The four firm concentration ratio


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Merges (takeovers, acquisitions,

integration)Independently owned firms join under the same

ownership

We investigate the gains and incentives to merge

and consequences on productivity and

performance

Three general categories of mergers

Horizontal merger

Vertical merger


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Mergers (takeovers, acquisitions,

integration) cont:Top 10 M&A deals worldwide by value (in mil.

USD) from

1990 to 1999


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Horizontal Merger


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Horizontal Merger

Under Cournot market structure, a merger

among firms leading to an increase in

concentration does not necessarily imply an

overall welfare reduction.

There exist a trade o between product

efficiency and thedegree of monopolization

What would happen if firms play Bertrand?


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Merger between Supplier of an intermediate good and producer ofthe final good.

Intermediate-good suppliers is called upstream firms

Final-good producers is called downstream firms

Lets think about the case where upstream and downstream

markets are characterized by a Bertrand price competition.

Assume Bertrand price competition for the upstream market

and Cournot quantity competition for the downstream market.

Vertical Merger


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Downstream

Competition


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Upstream Competition Before the Merger


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Upstream and downstream

merge


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Upstream and downstream merger

Proposition : A merger between an upstream and

downstream firms increases the output level of the

merged firms and reduces the output level of thedownstream firms that does not merge.

Proposition

1 .The combined profit of the merging upstream and

downstream firms increase after they merge.

2. A merger between the upstream and the downstream

firms will not foreclose the market of the disjoint

downstream firms but will only reduce its profit.


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Horizontal merger among firms producing

complementary goods


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Thank you

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Io Presentation on Bhevioral