EC 360: Issues in IO
Preface
Lecture 1
What is Industrial Organization?
In this class
Market Power
Example 1
Example 2
Why do we care?
How does it happen?
Predatory Pricing
High startup costs
Legal Protection
The Firm and Profit Maximization
What is a firm?
Profit Maximization
Common Assumptions
Profit Maximization
Intuition
Price-taking firms
Proit Maximization
Solving profit max problem algebraically
Threats to profit maximization
Lecture 2
In previous class…
What is a model?
Perfect competition
What do we mean by perfect competition?
Market Equilibrium
Reaching market equilibrium: example 1
Reaching market equilibrium: example 2
Are perfectly competitive markets realistic?
Are perfectly competitive markets socially optimal?
Time horizon: short run and long run
What is a monopoly
Are monopolies realistic?
How do monopolies happen?
Monopolist’s profit maximization
Simple example
Another example with implications
Social Cost of Monopolization
How to eliminate deadweight loss
Issues with regulation
Innovations and Monopolies
Dominant Firm
Model Assumptions
Results
Examples of markets where a dominant firm (fringe) model is appropriate
Solving the dominant firm model
Reference
Lecture 3
Antitrust
Antitrust background: Pre-Civil War
Antitrust background: Post-Civil War
Antitrust background: Cartels
Antitrust background: Cartel cheating
Antitrust background: Trusts
Sherman Antitrust Act
Issues with the Sherman Act
Penalties and Sanctions
Sanctions Example
Legislative Intent of the Sherman Act
Bork Interpretation
Lande Interpretation
Consequences of Varying Interpretations
Early Enforcement
The Clayton Act
Price Discrimination
Exclusionary Practices
Mergers
Federal Trade Commission Act
Public Enforcement
Department of Justice
DOJ Success
DOJ Antitrust Division
Criminal Case Stats
Exemptions
Labor
Labor but not firms
Agricultural Co-ops
Regulated Industries
Patents
Reference
Lecture 4
Private Antitrust Enforcement
Private Enforcement History
Antitrust Standing
Who is a person?
What constitutes a business or property?
What is antitrust injury?
Returning to the lysine example…
Apple Inc. v. Pepper et al. (2019)
The cost-plus contract exception
In pari delicto
Damages
Measuring Damages
Proving Antitrust Damages
“But for” damage estimation
“But for” damage estimation: graphical explanation
Net Harm
Methodologies
Flaws with damage estimation methodologies
Joint Liability
Class Action and Parens Patriae
Class action suits
Parens Patriae Suits
Attorney’s Fees
Settlements
Instruments of Discovery
Lecture 5
Market Definition
Questions
DOJ and FTC Horizontal Merger Guidelines
Geographic Space: Demand-Side
Geographic Space: Supply-Side
Evidence of Geographic Markets
Product Space: Demand-Side
Product Space: Supply-Side
Evidence of Product Markets
The Law of One Price
Modern Evidence of Markets
Market Power
Measuring market power: the Lerner index
Lerner Index: Dominant Firm Extension
Market Power and Market Definition
Market Power in Practice
Excess Profit
Entry Barriers
Some practice problems
Market definition in practice
Lecture 6
Section 2 of the Sherman Act
Natural monopoly
Related court cases
Standard Oil Company v. US (1911)
US v. American Tobacco Company (1911)
US v. US Steel (1920)
US v. Aluminum Company of America (1945)
US v. Griffith (1948)
Grinnell test
Aspen Skiing Company v. Aspen Highlands Skiing Corporation (1985)
Eastman Kodak Co. v. Image Technical Services, Inc. (1992)
US v. Microsoft (2001)
Case summary
Industry background
Conflicting view of competition
Microsoft’s expert economist
Elements of market power
Barriers to entry
Exclusionary conduct
Judicial decision
Attempts and conspiracies
Attempts to monopolize
Specific intent
Conspiracies to monopolize
Consipracies to monopolize: dangerous probabilities
Injury and damages
Lecture 7
Sherman Act: Exclusionary Practices
Predatory pricing
Conditions to rationalize predatory pricing
Empirical evidence of predatory pricing
Areeda Turner rule
Relevant Court cases
Barry Write Corp. v. ITT Grinnell Corp (1983)
Masushita Electric Industrial Co. v. Zenith Radio Corp. (1986)
Brook Group Ltd. v. Brown & Williamson Tobacco Corp. (1993)
Recoupmment
Example
Bundling
Anticompetitive Bundling Example
Lecture 8
Clayton Act: Price Discrimination
Types of Price Discrimination
First-degree price discrimination (perfect price discrimination)
Second-degree price discrimination
Third-degree price discrimination
Solving for Optimal Production
Conditions for Success
Robinson-Patman Act of 1936
Primary-Line Injury
Utah Pie Co. v. Continental Baking Co. (1967)
Secondary-Line Injury
FTC v. Morton Salt Co. (1948)
Indirect Price Discrimination
Unequal Cost Defense
Scale cost differences
Robinson-Patman treatment of big buyers
Lecture 9
Cartel Theory
Perfect Competition
Mutliplant Monopoly
Cartel Theory
Cartel Problems
Entry Problems
Cartel Cheating
Unequal Costs
Court Cases
United States v. Trans-Missouri Freight Assoc. (1897)
United States v. Trenton Potteries Co. (1927)
United States v. Socony-Vacuum Oil Co. (1940)
Market Division
Threats to Market Division
Enforcement
Oligopolies and Tacit Collusion
Oligopoly
Nash Equilibrium
Example
Example Question
Lecture 10
Cournot model
Example
Another Example
Chamberlain model
Example
Problems
Practices leading to tacit collusion
Price visibility
Price preannouncement
Precommitments
Price leadership
Dominant firm price leadership
Low cost price leadership
Barometric price leadership
Collusive price leadership
Antitrust enforcement dilemma
Court cases
Interstate Circuit, Inc. v. United States (1939)
E.I. Du Pont De Nemours & Co. v. FTC (1984)
US v. International Harvesters Co. et al (1927)
Kleen Products LLC. Georgia Pacific LLC (2018)
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EC 360: Issues in Industrial Organization
Lecture 3
In today’s lecture we will go over antitrust laws and its evolution over the last 150 years