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Consumers and Competition. ENCORE Workshop February 23, 2006. 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
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Consumers and Competition ENCORE Workshop February 23, 2006
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 • ….
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
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)
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).
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
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