Managerial economics – Samenvatting
Inhoudsopgave
LECTURE 1: Introduction and reminders from Microeconomics ............................................................. 4
Hoofdstuk 1: Industrial Organization: Concepts and Definitions ........................................................ 4
Hoofdstuk 2: Reminders from Microeconomics .................................................................................. 4
Hoofdstuk 3: Reminders from Game Theory ....................................................................................... 8
Hoofdstuk 4: Market definition & Market Power .............................................................................. 10
Relevant market............................................................................................................................. 10
Market structure............................................................................................................................ 11
Market power ................................................................................................................................ 11
Hoofdstuk 5: Appendix -> geen examenleerstof!!!!!......................................................................... 12
Reminders Micro ........................................................................................................................... 12
Reminders Game Theory ............................................................................................................... 12
More on market definition and market power.............................................................................. 13
LECTURE 2: oligopolistic competition .................................................................................................... 14
Hoofdstuk1: Oligopolistic competition .............................................................................................. 14
........................................................................................................................................................... 14
Hoofdstuk 2: Quantity competition ................................................................................................... 14
Cournot model – duopoly ............................................................................................................. 14
Cournot model – oligopoly ............................................................................................................ 15
Dynamic – Stackelberg Leadership model by quantity competition ............................................. 15
Hoofdstuk 3: Price competition ......................................................................................................... 16
Bertrand model (with identical MC and no capacity constraints) ................................................. 16
Bertrand with different MC ........................................................................................................... 17
Bertrand with capacity constraints................................................................................................ 17
The Bertrand Trap .......................................................................................................................... 18
Hoofdstuk 4: Additional insights ....................................................................................................... 18
Stackelberg model by price competition ....................................................................................... 18
Stackelberg & commitment ........................................................................................................... 18
Strategic complements & strategic substitutes ............................................................................. 19
Cournot or Bertrand? .................................................................................................................... 19
LECTURE 3: product differentiation & product variety .......................................................................... 20
Hoofdstuk 1: differentiation .............................................................................................................. 20
Hoofdstuk 2: horizontal product differentiation ............................................................................... 21
, Exogenous location of firms .......................................................................................................... 21
A simple location model ................................................................................................................ 22
The Hotelling model ...................................................................................................................... 23
The Salop model ............................................................................................................................ 24
Hoofdstuk 3: vertical product differentiation .................................................................................... 26
Vertical product differentiation ..................................................................................................... 26
The model ...................................................................................................................................... 26
Hoofdstuk 4: variety and degree of differentiation ........................................................................... 29
Definitions and measures .............................................................................................................. 29
Too much or too few products ...................................................................................................... 29
Hoofdstuk 5: appendix ...................................................................................................................... 30
LECTURE 4: entry deterrence, predation and collusion ........................................................................ 31
Hoofdstuk 1: entry deterrence and predation .................................................................................. 31
Entry and barriers to entry ............................................................................................................ 31
Strategies & reactions on entry barriers ....................................................................................... 33
Limit and predatory pricing ........................................................................................................... 35
Non price strategies: monopolization practices ............................................................................ 36
Hoofdstuk 2: collusion and cartels .................................................................................................... 37
Formation and stability of cartels .................................................................................................. 37
Sustainability of cartels.................................................................................................................. 41
Detecting and fighting collusion .................................................................................................... 43
LECTURE 5: horizontal & vertical mergers ............................................................................................. 44
Hoofdstuk 1: definitions .................................................................................................................... 44
Hoofdstuk 2: vertically related markets ............................................................................................ 44
Vertical relationships ..................................................................................................................... 44
Double marginalization with monopolists..................................................................................... 45
Double marginalization with oligopolies ....................................................................................... 47
Some solutions to the double marginalization .............................................................................. 48
Hoofdstuk 3: mergers ........................................................................................................................ 49
Vertical mergers............................................................................................................................. 49
Horizontal mergers ........................................................................................................................ 50
Conglomerate mergers .................................................................................................................. 52
Mergers & sustainability of collusion ............................................................................................ 53
Hoofdstuk 4: quantifying the effects of a merger ............................................................................. 55
LECTURE 6: advertising & information .................................................................................................. 57
Hoofdstuk 1: introduction ................................................................................................................. 57
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Debode Marie
, Hoofdstuk 2: views on advertising .................................................................................................... 57
Persuasive view ............................................................................................................................. 57
Informative view ............................................................................................................................ 58
Complementary view .................................................................................................................... 60
Hoofdstuk 3: advertising intensity..................................................................................................... 60
Hoofdstuk 4: empirical evidence ....................................................................................................... 61
LECTURE 7: R&D and innovation ........................................................................................................... 62
Hoofdstuk 1: how to innovate? ......................................................................................................... 62
Hoofdstuk 2: incentives to innovate .................................................................................................. 63
The incentive problem ................................................................................................................... 64
Intellectual property protection .................................................................................................... 64
Hoofdstuk 3: market structure & innovation .................................................................................... 65
Links between R&D and market structure .................................................................................... 65
Drastic vs non drastic innovations in oligopoly ............................................................................. 66
The replacement effect ................................................................................................................. 67
The efficiency effect....................................................................................................................... 71
Which effect dominates? ............................................................................................................... 72
Industry states, competition & innovation .................................................................................... 73
Appendix........................................................................................................................................ 75
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Debode Marie
,LECTURE 1: Introduction and reminders from Microeconomics
➔ Deze cursus gaat in het algemeen over strategieën om market power te verhogen
Hoofdstuk 1: Industrial Organization: Concepts and Definitions
Industrial Organization is concerned with the workings of markets and industries, in particular, the
way firms compete with each other"
Firms are for-profit companies producing a good or service.
Competition refers to a rivalry where two or more firms strive for a common goal (e.g. selling a
product to make a profit).
Markets and industries: a market is where demand and supply meet. It encompasses individuals,
firms, products, and prices. An industry is a group of firms that produce and sell similar products or
services to consumers while simultaneously competing against one another.
2 extremen:
• Monoplie: one firm in the market, veel market power
• Perfect competition: veel firms, geen market power, fragmented industry
• => in het midden OLIGOPOLIE (focus in deze cursus) => imperfectly competitive markets =
market where a few firms operate, normaal wel een beetje marketpower
o Vb. Oligopolie: markt van gsm, videogames, music streaming
Duopolie: markets are only served by two firms
Analyseren van imperfect competitive is beter want hier knn we verschillende strategieën van de
bedrijven om hun profits te verhogen beoordelen: bvb. Pricing strategies / Product innovation /
Advertising / Horizontal and vertical differentiation of products / Mergers and acquisitions
▪ Firms are strategic players
▪ Firms’ strategies are characteristic of market interaction (= relatie tssn beslissingen en
outcomes -> ene bedrijf beïnvloedt ook het andere met zijn beslissingen)
We need to remember from game theory:
- How firms set their quantity and prices
- How consumers make choices
- Strategic interactions in static and dynamic games
Hoofdstuk 2: Reminders from Microeconomics
Market:
▪ Buyers & sellers
▪ Local (lokaal) or global (wereldwijd)
▪ Goods or services
▪ Homogeneous (electricity) or differentiated (smartphones)
▪ Physical or virtual space
▪ One-sided (supermarket) or multi-sided (platforms like Vinted)
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Debode Marie
,Production function (= productiefunctie) = relatie tussen de inputs (productiefactoren) en de output
(productie) van een productieproces. Het beschrijft hoe de inputfactoren, zoals arbeid, kapitaal,
grondstoffen en technologie, worden gecombineerd om goederen en diensten te produceren -> hoe
veranderingen in de inputfactoren van invloed zijn op de output
→ bvb. Q = f(K, L) -> Q geeft de output bij bepaalde input van kapitaal en arbeid
→ bvb. Quantity = α + β1Capital + β2Labour -> bèta’s staat voor het gewicht van de variabelen
→ bvb. Cobb Douglas: Y = A.L^β. K^α
✓ Y is de totale output, L en K de input, A de productiviteitfactor, alfa en bèta
zijn de elasticiteiten van de output van L en K
✓ Alfa en bèta beiden tssn 0 en 1
✓ Alfa + bèta = 1
Fixed costs: Vaste kosten; deze kosten moeten worden betaald, ongeacht of er iets wordt
geproduceerd of verkocht -> niet afhankelijk van productiehoeveelheid (bvb lonen, huur, ..)
Sunk costs: verzonken kosten; costs cannot be recovered, ongeacht welke beslissing er in de
toekomst wordt genomen (bvb advertising, onderzoekskosten, kosten van training & opleiding) ->
mogen geen invloed hebben op besluitvorming
▪ Sunk costs are always fixed costs, but not all fixed costs are sunk.
Economies of scale (schaalvoordelen): naarmate een bedrijf groeit en meer produceert, kunnen de
gemiddelde kosten per eenheid productie dalen -> belangrijk om concurrentiepositie te versterken
(bvb. inkoopvoordelen)
Economies of scope (bereikvoordelen): kostenbesparingen door meerdere producten of diensten te
produceren onder één dak dan om ze afzonderlijk te produceren of te outsourcen -> besparingen
door het combineren van meerdere producten of diensten binnen dezelfde organisatie -> ‘it is
cheaper to produce a variety of products together than to produce each of them on their own bcs
their might be complementarity in the production processes or shared input’
(bvb. gezamenlijke marketing / gedeelde middelen)
Profit maximization:
▪ Profit function: Π(q) = Revenue(q) − Costs(q)
▪ First order condition:
▪ MR = marginale oprbrengst => extra
omzet bij verkoop van 1 extra eenheid
▪ MC = marginale kost => verandering in de
totale kost die ontstaat door het produceren
van 1 extra eenheid
▪ Profit hangt af van q (= hoeveelheid), p (= prijs) en C(q) (= kost per eenheid)
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Debode Marie
,Market demand: The market demand for a good is the quantity that consumers purchase of that
good, at various prices → de vraag van de markt hangt sterk af van de prijs en de interesse
(advertising / innovation)
o Monopolie: market demand = firms demand (-> enkel prijs heeft invloed op de vraag)
o Competitieve markt: keuzes van andere bedrijven hebben invloed op jou -> market structure
(= aantal concurrenten), market growth (= aantal buyers) en product / prijs / marketing / …
van concurrenten spelen ook een rol
Consumers:
▪ Rational -> choose the best option
▪ Price takers
▪ Maximize their utility
▪ Vraag daalt als prijs stijgt (meestal)
▪ Normal good: als inkomen stijgt, stijgt de vraag (bvb. restaurant, kledij)
▪ Inferior good: als inkomen stijgt, daalt vraag (bvb. mcdo, bus)
▪ Complements: de vraag naar X daalt, als de prijs van Y stijgt (bvb. Printer en inkt)
▪ Substitutes: de vraag naar X stijgt, als de prijs van Y stijgt (bvb. Iphone en samsung)
▪ Vraag naar een goed stijgt with advertising effort -> consumers are sensitive to advertising
Zie market demand curve oefn
- a = vraag als prijs heel laag is
- Market demand hangt af van: prijs, inkomen, voorkeuren, concurrenten, …
- Dit gaan we doen:
1) Wat zou mijn potentiële marktvraag zijn?
2) Wat is de beste prijs voor mijn product?
Elasticiteiten:
• Elasticity: geeft de verandering in q, als p stijgt -> (in absolute waarde):
o >1 => elastisch -> prijsgevoelig: vraag verandert heel veel als p stijgt
o (bvb. Cola)
o =1 => proportioneel -> p en q veranderen evenveel
o (bvb. Wijn)
o <1 => inelastisch -> prijsongevoelig: hogere p zal de vraag niet veel beïnvloeden
o (bvb. Cigaretten)
o =0 => perfect inelastisch -> vraag volledig ongevoelig voor prijsveranderingen
o (bvb. Levensreddende medicatie)
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Debode Marie
, • Own price elasticity (= eigen prijselasticiteit): verandering in de vraag, als p stijgt
• Cross elasticity (= kruiselasticiteit): verandering in de vraag naar X, als de prijs van Y stijgt
Zie vb slide 30-31, 34-35
Perfect competition:
▪ Firm is a price taker -> chosen by market
▪ Each firms production is small relative to the market
▪ Evenwicht markt als vraag en aanbod elkaar snijden
▪ Optimal output level voor 1 bedrijf: MR = P = MC
▪ Som van alle q = Q
▪ Winst = 0
Monopoly:
▪ Price maker -> kiest zelf zn prijs
▪ Market demand = firms demand
▪ Only suppier of a good / service
▪ Output decisions affect market price (bij p1 hoort q1
en bij p2 hoort q2)
▪ L = loss revenue bcs price reduction from p1 to p2
▪ G = gain in revenues bcs of additional units
→ if G > L => meer winst
▪ Marginal revenue from change in price = G – L
▪ P > MC
▪ The Monopolist maximizes profit by equating marginal
revenue with marginal cost (MR = MC) -> this produces
output qM with market clearing price pM
▪ Winst > 0
▪ Zie samenvatting: perfect competition & monopoly
Samenvatting:
*pm > Pc and qm < qc
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Debode Marie
, Efficiency and surplus
Efficiency: a market outcome is efficient when it is not possible to find a small change that would
improve the well-being of individuals without hurting others
- The monopoly equilibrium is inefficient and thus unwanted -> driehoek is deadweight loss
o Wrm deadweight loss bij monopoly? => The key is to realize that increasing the
output requires a reduction in price. -> Assuming the lower price is charged to
everyone, the Monopolist earns less by producing more. -> The Monopolist bases its
decisions solely on the surplus it gets, not on the consumer surplus. => Thus, the
Monopolist “undersupplies” relative to the competitive outcome.
- The competitive equilibrium is efficient => maximum total surplus
Consumer surplus: verschil tssn wat consument bereid is te betalen vs wat deze effectief betaald
Aggregate Consumer Surplus: totaal consumersurplus
Producer Surplus: verschil tssn verkoopprijs en productieprijs van een sale
Aggregate Producer Surplus: totaal producentensurplus
Total surplus = consumer surplus + producer surplus
Hoofdstuk 3: Reminders from Game Theory
Game theory: analyseert situaties waarin de uitkomst van de keuzes van de ene deelnemer
afhangt van de keuzes die anderen maken -> bewust zijn van dit kruiselings effect
▪ Srategic games onderscheiden zich van individuele besluitvormingssituaties door de
aanwezigheid van kruiseffecten van acties en wederzijdsebewustzijn van dit kruiseffect.
▪ Strategies are the choices available to the players.
▪ Payoff: a number, also called utility, that reflects the desirability of an outcome to a player.
▪ Simultaneous games: spelers kiezen gelijktijdig hun acties zonder kennis te hebben van de
keuzes van de andere spelers op dat moment (bvb. Blad, steen, schaar)
▪ Sequential games: de spelers kiezen hun acties één voor één, waarbij elke speler reageert op
de voorgaande acties van andere spelers (Stackelberg Leader)
✓ We use backward induction to solve sequential games -> zo nash equilibrium vinden
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