Static Models&Imperfect Competition

Question 1

Strategic complements and substitutes - difference

Answer 1

(was hat das mit Bertrand und Cournot zu tun?)
Es geht darum wie sich verschiedene strategien verhalten, nicht die spezifischen firmen!!:

Complements: strategien der firmen correlieren positiv - cooperative dynamik. z.b. beide investieren in innovation, um kompetitiv zu bleiben. beispiele: advertising, innovation, or entering new markets

Substitutes: strategien sind negativ korreliert: 2te firma produziert weniger/billiger, wenn erste firma mehr/teurer produziert (abl dj nach xi)
leads to direct competition, includes pricing and production strategies (amount)

Question 2

linear cournot duopoly

Answer 2

1: firms choose quantity

Question 3

inverse residual demand 1 firm cournot

Answer 3

p(Q)=a-bQ-i-bq1 (q1 ist unsere firma, Q-i ist alle q ohne unsere)

Question 4

Max in Cournot Duopoly

Answer 4

inverse demand times qi - ci times qi - fix!!! - Ableiten und 0 setzen!!!

Question 5

general cournot model maximization

Answer 5

πi=pi(Q)qi - ciqi

Question 6

Lerner Index / Alternative mit HHI

Answer 6

(p-c)/p oder - (1/epsilon) mal HHI

epsilon ist elastizität der Nachfrage

Question 7

Harvard vs. chicago school

Answer 7

harvard: marktmacht schlecht für konsumenten bzw. marktkonzentration führt zu anticompetitive behaviour
chicago: marktmacht heißt effiziente firma - intervention will lead to less efficient markets

Question 8

was passiert wenn n unendlich bei einer cournot competition

Answer 8

preis gleich GK

Question 9

what delivers higher prices? cournot or bertrand competition? noch beantworten

Answer 9

cournot competition, Preiswetbewerb ist aggressiver. Preiswettb.=strategische complimente - sie unterbieten sich gegenseitig. Menge=Strategische komplimente, Mengenerhöhung führt zu Mengenreduktion!

Question 10

bertrand model with homogenous products and costs (price setting) - warum bertrand paradox

Answer 10

p=GK!! nash exquilibrium weil immer inventive zum abweichen - trifft allerdings in realität nicht zu, deshalb paradoxon!!

Question 11

Was ist ober und unterlimit bei preissetzung (bertrand)

Answer 11

Monopol und GK preis!!

Question 12

edgeworth cycle bertrand

Answer 12

firmen unterbieten sich gegenseitig mit günstigen preisen bis zum untersten niveau, dann wieder ganz rauf, dann wieder unterbieten etc.

Question 13

maximisation in bertrand competition (duo)

Answer 13

gewinn= (p-c) * q(funktion von p)
oder pq(funktion von p) - cq(funktion von p)

Question 14

what happens to profits when the firm becomes relatively more efficient (differenciated products)

Answer 14

profits increase

Question 15

compare bertrand and cournot (not formal)

Answer 15

1: bertrand prices usually lower
Why is bertrand cheaper???

Question 16

approaches for identifying market power

Answer 16

1: SCP
2: direct(lerner)
3: price transmission studies
4:production theoretic approach
5: demand-based approach
6: strucural models (NEIO)

Question 17

explain direct approach to estimate market power

Answer 17

just estimating the marginal cost (only possible in very simple markets) and then computing the lerner index!

Question 18

explain problems with price transmission studies

Answer 18

observed price adjustment to demand changes. demand changes can be observed, as well as previous and changed demand curves. however the Marginal cost cannot be observed and so its very hard to tell if the firm simply put the new equilibrium price or if they adjusted their price because of their market power. - unless the cost is constant, then the price should stay the same without market power. - in specific cases where we can measure marginal costs like very simple products or we know marginal cost should be constant.

in other words: impact of market power depends on form of demand and cost functions

Question 19

explain production-theoretic approach to measure market power

Answer 19

compute lerner index from estimating production function
1 - (expenditure share of labour divided by output-elasticity (one more labour or capital=how much more output), estimated from production function) = Lerner index (lower the better)

höhere relative ausgaben für arbeit=weniger marktmacht
niedrigere output elastizität (ein arbeiter ist nicht viel mehr produktion, produktion ist ausgereizt=niedrige marktmacht

Question 20

explain demand-based approach and problems

Answer 20

1 dividiert durch nachfrage-Elastizität mal HHI ergibt Lerner index!
höhere elastizität ist weniger marktmacht
Hierarchical Demand Model: Muss zuerst Elastizität der Nachfrage errechnen, z.B. mit AIDS-Model!

Question 21

explain structural models and problems

Answer 21

1.competition intensity ϕ between 0 and 1, needs to be estimated - its a function of marginal cost, price(of Q), elasticity and the market share!!
2. its a combination of other approaches!
3. value between 0 and 1. 1 is no competition, 0 is Wettbewerb!
Problems: rationality assumptions of firms (profit seeking), regulatory environment effects, strategic behaviour such as price signaling may not be captured - lastly the data is difficult to find as always.

Question 22

indistinguishability theorem

Answer 22

firms make detection for antitrust authorities hard by misrepresenting certain info. thats why hard to find out using just market-based info

Question 23

SCP approach

Answer 23

Structure (S): This refers to the market structure, including the number and size of firms, the degree of product differentiation, and barriers to entry, demand elasticity..

Conduct (C): pricing strategies, output decisions, and competitive practices,Ads..

Performance (P): outcomes including measures like prices, profits, and efficiency.

Question 24

How are entry thresholds measured?

Answer 24

relationship between nr of firms and market size. effect of entry on market conduct (competitive behaviour before/ after) is 1 - if larger market is needed for entrant to break even, then there was market power before.

Question 25

what is the contestable markets theory

Answer 25

small number of firms is also competitive equilibrium, because of entry threat.
a. no entry or exit barriers
b. no sunk costs
c. same tech for incumbents