L1: Introduction to Industrial Organisation

Question 1

should there be more regulation for big tech?

Answer 1

corporations getting big in the US and globally

accumulating a lot of market share so how much do we want to regulate

Question 2

yes we should regulate big firms

Answer 2

abusing dominant positions in the market

firms deterring or buying out innovation

Question 3

no we should not regulate big firms

Answer 3

big firms are large because they are good and improve consumer welfare

size allows for network economies

Question 4

industrial organisation

Answer 4

production decisions

interaction between firms, consumers and the government

Question 5

market definitions

Answer 5

Elzinga-Hogarty test: geographic definition
- area responsible for some share of sales

SSNIP: small but significant non-transitory increase in the price test
- how much demand a firm loses if it increases prices

Question 6

the firm

Answer 6

organisation transforming inputs into outputs

Question 7

types of firms

Answer 7

corporations
- separate legal entities with rights and responsibilities
- limited liability
- can sell stock as a way to raise money

sole proprietorship (firm is the owner)
- unlimited liability so whatever happens to the firm also happens to the owner

partnerships
- some have limited liability so whatever happens to the firm is independent to the endowment of the owner

Question 8

how to think about firms

Answer 8

firm boundaries
- transactions organised within a firm vs. within a market

ownership vs. control
- who is making choices and incentives?
- incentive alignment between shareholders, managers and board of directors

common ownership
- investment funds own multiple firms within an industry
- concern that common ownership decreases competition in the economy

Question 9

Zipf’s law

Answer 9

probability that a firm is larger than size s is inversely proportional to s

growing is difficult so the bigger you want to get, the more difficult it is to get there

Question 10

how do firms expand?

Answer 10

horizontal expansion:
- producing more
- buying competitors, horizontal merger (FB and IG)

vertical expansion
- producing your own inputs
- buying suppliers, vertical merger

conglomerates
- firms in unrelated businesses combining into the same structure of ownership