Industrial Organization: Perfect Competition vs. Monopoly - Spring 2006, Study notes of Economics

Download Industrial Organization: Perfect Competition vs. Monopoly - Spring 2006 and more Study notes Economics in PDF only on Docsity! 1 Industrial Organization, Economics 121 Spring 2006 Professor Joseph Farrell Lecture 1 What you know • Perfect competition is efficient – because it ensures price = MC • Monopoly is inefficient – because it ensures price > MC 2 So What? • Does perfect competition ever happen? • Is imperfect competition fairly efficient? – How imperfect does it tend to be? • How can we tell? – Compared to what? • Couldn’t government keep price near MC? • Anyway, why obsess over prices? – Isn’t it more important that things be run efficiently and imaginatively? – Answer to bullet #2 suggests so? You need this class • It’s your best chance to learn answers to those questions – Otherwise, you wasted that Econ 101 time • It’s where microeconomic analysis meets the real world of business and policy – Competitive strategy – Procurement – Antitrust – Regulation 5 Modularity and the Internet • Cable companies provide most residential high-speed internet access in US – Little regulation – Less and less regulation on phone companies’ internet access products too • Will Comcast do a deal with Travelocity? – Excluding Expedia – Incentives – Would it be so bad? How does that relate? (B) Class Organization • You must attend class and section – Reading the textbook is not a good substitute • It’s not my linear algebra class – Attendance will be noted – Active participation will be noted • Grading • Office hours • Class representation 6 (C) What is a Firm? • Zone of command-and-control embedded within market economy – Fuzzy idea: incentives within firms; long-term deals across firm boundaries. Nevertheless… • Biggest unit whose behavior we assume to be maximizing something (profit) – Do firms actually maximize? – Is there a better way to analyze economics? Costs (C&P chapter 2) • You know this material from 101 – How long ago? – Don’t worry about multi-product costs yet • We’ll use it, not focus on it • Don’t let jargon obstruct thought – Potential energy – Short-run and long-run – How costs feature in predation policy, trade policy 7 Warm-up exercises on costs • Baggage handlers • Diagnosing fat in gold mining Economies of Scale • Traditional IO theme – Concentration bounded (determined?) by scale economies – Too bad about the market power, but… • Stalin, Mao, and the steel industry • An envelope argument for economies of scale – Is this right? What is missing?