Market Structure

the competition and market regulation module uses relevant models of imperfect competition to consider the strategic behaviour of firms in a range of different market setups,

it examines the role of market regulation to ensure that competition is not restricted or undermined in ways that are detrimental to the economy and society.

the module uses competition policy to evaluate alternative regulatory interventions for markets.

the module introduces various theoretical tools for the analysis of the structure, conduct and performance (SCP paradigm) of markets.

what does competition and market regulation include?

• industrial organisation

  • IO takes a strategic view of how firms interact in imperfectly competitive markets

  • structure-conduct - performance vs new industrial organisation

• competition policy

  • strategic interaction among firms contributes to outcomes to consumers and overall societal goals

  • the overall aim of competition policy is to foster mobility of resources, increase economic efficiency, improve consumer and societal welfares by maintaining and encouraging conductive competitive environment

• market regulation

  • states, regulators (CMA, FTC)

  • consumer welfare/social welfare

contemporary industrial organisation

• the study of imperfect competition and strategic interaction

• study of how firms behave in markets focusing on imperfect competition

• whole range of business issues:

  • price of a dozen roses

  • which new products to introduce in mobile industry

  • merger and acquisition decisions

  • methods for attacking or defending markets

• IO takes a strategic view of how firms interact

• how:

  • build on game theory foundation

    • focuses on strategy and interaction

  • derive empirically testable propositions

    • measure scale economies for entry deterring actions

    • experiment with penalty for price-fixing

    • examine the impact of advertising

  • econometric estimates of relations predicted by theory

  • construct models: abstractions

    • well established tradition in all science simplification but gain the power of generalisation

• why:

  • motivated largely by antitrust concerns

  • also, interest in private solutions to inefficient market outcomes

  • long-standing concern with market power

    • need for anti-trust policy recognised by Adam Smith: “the monopolists, by keeping the market constantly understocked, by never fully supplying the effectual demand, sell their commodities much above the natural price.”

    • “people of the same trade seldom meet together, even for merriment or diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

types of imperfect competition:

• monopoly

• oligopoly

• monopolistic competition

• oligopsony

• monopsony