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Consumers and Competition

This workshop delves into competition policy through economic insights, focusing on how consumer search and switching costs influence market behaviors. Key topics include the implications of monopolistic practices, strategic behaviors like collusion and entry deterrence, and the effects of durable goods producers on their own aftermarkets. Presentations explore dynamic pricing strategies, merger decisions, and consumer search implications. The discussion fosters a critical analysis of new economic models and their application in real-world competition contexts.

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Consumers and Competition

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  1. Consumers and Competition ENCORE Workshop February 23, 2006

  2. Most Competition Policy • Based on Economic Insights where consumer search and switching cost do not play a rule • Perfect Competition / Monopoly • Strategic Behavior: • Collusion • Merger decisions • Entry deterrence / Abuse of Dominant positions • ….

  3. Today’s Focus • Cost Consumer has to make in order to get • Information about available products and prices (search cost) • Cost (time) to visit shop where product is available • Cost of searching where product is available • Another product than what she has bought in the past (switching cost) • Sometimes literally money (number portability, pensions) • Cost of getting acquainted with use (software) • …. • “Radically” different modeling outcomes

  4. Waldman’s Paper(s) • Should durable goods producers be allowed to Monopolize their own Aftermarket? • Ex: Kodak Cameras / Cars. Once you bought a Ford, are you tight to Ford Dealer for repairs? (ex. refusal to sell spare sparts to competitors) • Context: competitive market • Without switching cost: there is an inefficiency as too many consumers substitute maintenance for replacement • Monopolization (switching cost) eliminates inefficiency • Yes, Monopolization should be allowed (in this case)

  5. Second Case Waldman • Should tying of a complementary product by a monopolist be allowed? • Whinston: if primary good is essential, tying cannot increase monopoly profits. • Waldman: In case of switching cost, this is no longer true. Monopolist will engage in tying and social welfare deteriorates • No, tying should not be allowed (in this case).

  6. Focus comes at a Cost • Analysis presented today not always superior to traditional analysis. • There is not one encompassing model • A model focuses on some aspects (forces), leaving other out • Applying models is art: what are important factors in a certain context • Focus of academics is on new aspects; old is not necessarily wrong • Useful to get better idea how new forces may work

  7. Today’s program 13.30 Introduction 13.45 Yongmin Chen (Colorado) “Dynamic Price Discrimination with Asymmetric Firms”   14.45 Maarten Janssen (Erasmus; TI) “Consumer Search: Implications for Merger Decisions and Price Matching Strategies” 15.30 Break 16.00 Jose-Luis Moraga-Gonzalez (Groningen)“Estimation of Search Costs” Discussion  17.00 Drinks

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