IO Flashcards
What are the motives for collusion?
Profit maximization, risk management, exchange of information. To aviod uncertainties connected with competition.
What are the factors for cartel formation?
Seller concentration, product differentiation, cost functions, vertical integration(makes collusion less likely). Transaction costs of collusion.
What factors are affecting cartel stability?
Free riders, seller concentration, amount of tech development in the industry, transparency(producer and consumer), different goals of firms, differentiation, elasticity of demand, entry, the ability of making sanctions.
What 2 forms can collusion take?
Explicit and tacit
Which measures can be used to analyse the amount of competition in an industry?
Seller concentration indexes, entry ratio, market share mobility, return on investment, general price level, wage premium(differences in wages not explained by factors such as education or experience etc), lerner index.
What states the random growth hypothesis?
Growth of firms is random, past growth does not dictate how growth will be in the future. Firm growth is independent of its size. However industries tend to become more concentrated over time.
What is Tobins Q?
A performance measure based on the shares value over the replacement costs of assets.
What is price cost margin?
(P-Average total cost) / P
What is the formula for accounting rate of profits?
Profits/capital
What states the demsetz critique?
If higher profitability in concentrated industries is evidence for market power, It should affect all firms in an industry equally. If profitability within concentrated industries is higher for larger firms, then the positive correlation comes from efficiency of large firms.
Which forms can a merger take?
Horisontal, Vertical, conglomerate
What are the main motives for horisontal mergers?
Market power, cost saving, Managerial ambition, internal capital redeployment, hubris hypothesis
What is vertical integration?
When a company owns more links of the supply chain, upstream or downstream.
What are the motives for vertical integration?
Double mark-up, Market power, cost savings, lowering transaction costs, assured supply, reduction of uncertainty of supply, asset specifity (when 2 firms are dependent on each other due to a specific asset, creating a bilaterial monopoly)
What are the motives for diversification?
Market power, cross subsidization, cost savings, economies of scope, reducing risk and tax exposure, managerial motives, the conglomerate as an internal capital market.
