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Review: Lectures 9.1, 9.2 and 10.1, Cartels and competitive constraints

A ntitrust Economics 2013. Alexis G. Pirchio CPI. Elisa Mariscal CIDE, Global Economics Group. Review: Lectures 9.1, 9.2 and 10.1, Cartels and competitive constraints. Review 19 September 2013. Date. Overview. Cartels: The Economics of Price Fixing.

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Review: Lectures 9.1, 9.2 and 10.1, Cartels and competitive constraints

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  1. Antitrust Economics 2013 Alexis G. Pirchio CPI Elisa Mariscal CIDE, Global Economics Group Review: Lectures 9.1, 9.2 and 10.1, Cartels and competitive constraints Review 19 September 2013 Date

  2. Overview

  3. Cartels: The Economics of Price Fixing Replicating the Monopoly Outcome with a Cartel: Agreements on Price and Output

  4. The Economics of Price Fixing

  5. Cartel Price Paths Railroads Citric Acid Lysine

  6. Fact About Cartel Data Harrington, CRESSE Lectures, 2011

  7. Price Agreements Monopoly Profit margin of $15 a unit and total profit of $15 million. Perfect competition MC P MR PM = $20 PC = $5 D 2,000,000 1,000,000 Q

  8. Output Agreements

  9. Cartels with Two-Sided Platforms Fixed priced to buyers, not clear to sellers

  10. Cheating and Detection The incentives to cheat and methods aimed at detecting and punishing cheaters

  11. Incentives to Cheat on a Cartel Agreement

  12. Detecting Cheating

  13. Incentives to Cheat on a Price Agreement

  14. Output Allocation and Cheating

  15. Punishing Cheating: Price Wars

  16. Importance of Cheating for Antitrust Enforcement

  17. Factors that Facilitate a Cartel

  18. What Can Competition Authorities Do?

  19. Head Them Off At The Pass: Facilitating Practices

  20. Information Exchange Agreements Help Collusion

  21. Firms Often Cooperate For Pro-Competitive Reasons

  22. Efficiencies from Cooperation

  23. Hunt Them Down: Enforcement

  24. Get them to Squeal: the Economics of Leniency Programs

  25. Carry a Big Stick: Customer Damages’ Purpose

  26. The Economics of Damages Harrington, CRESSE Lectures, 2011

  27. Competitive Constraints and Market Power

  28. Definitions of Market Power

  29. Supply = MC PM PC Demand QM QC Monopoly, Perfect Competition, and Market Power Monopoly price significantly above competitive levels And significantly above marginal cost P Textbook description of competitive industry but need to be careful in using in practice. MR Q

  30. Level Versus Changes in Market Power Why we care about market power?

  31. Market Power and Competitive Constraints

  32. Competitive Constraints Can Limit Market Power

  33. Demand-Side Substitution and the Marginal Consumer O F is an “average consumer” of beer (from O to C) F A A,B, C, D are at “the margin” of buying or not buying beer D C B G G is not a consumer of beer at current prices

  34. Entry, contestability and Supply-side Substitution

  35. Barriers to Entry Debate

  36. End of Review, Next Class Topic 10.2

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