INTRODUCTION TO THE ECONOMICS OF ANTITRUST

1
INTRODUCTION TO THE ECONOMICS OF ANTITRUST
2
ASSUMPTIONS OF CLASSICAL ECONOMICS

• PEOPLE ACT RATIONALLY TO MAXIMIZE THEIR OWN
  INTERESTS

3
ASSUMPTIONS OF CLASSICAL ECONOMICS

• PEOPLE ACT RATIONALLY TO MAXIMIZE THEIR OWN
  INTERESTS
• RESOURCES MOVE TO MOST VALUABLE USE IF VOLUNTARY
  EXCHANGE PERMITTED

4
VALUE

• MEASURED BY AGGREGATE CONSUMER WILLINGNESS TO PAY
  FOR THINGS

5
EFFICIENCY

• EXPLOITING ECONOMIC RESOURCES TO MAXIMIZE VALUE

6
PROBLEMS WITH ASSUMPTIONS

• DEFINITION OF VALUE
• PEOPLE OFTEN IRRATIONAL

7
PROBLEMS WITH ASSUMPTIONS

• DEFINITION OF VALUE
• CONSUMER CULTURE
• DEPENDS ON INCOME DISTRIBUTION
• MORE MORE VOTES

8
PROBLEMS WITH ASSUMPTIONS

• PEOPLE OFTEN IRRATIONAL
• OFTEN APPEAR TO ACT AGAINST SELF-INTEREST
• OFTEN PERCEIVE SELVES ACTING AGAINST SELF-INTEREST

9
DEMAND CURVE

• GENERALLY BUY MORE OF GOOD THE LESS IT COSTS

10
DEMAND CURVEGENERALLY BUY MORE OF GOOD THE LESS
IT COSTS

• SUBSTITUTION EFFECT
• INCOME EFFECT

11
DEMAND CURVEGENERALLY BUY MORE OF GOOD THE LESS
IT COSTS

• SUBSTITUTION EFFECT AS GOOD BECOMES CHEAPER, BUY
  IT INSTEAD OF ALTERNATIVES
• INCOME EFFECT

12
DEMAND CURVEGENERALLY BUY MORE OF GOOD THE LESS
IT COSTS

• SUBSTITUTION EFFECT
• INCOME EFFECT AS GOOD BECOMES CHEAPER,
  PURCHASING POWER INCREASES, SO BUY MORE

13
DEMAND
14
DEMAND CURVEGENERALLY BY MORE OF GOOD THE LESS
IT COSTSEXCEPTIONS

• INFERIOR GOODS
• LUXURY GOODS

15
DEMAND CURVEGENERALLY BY MORE OF GOOD THE LESS
IT COSTSEXCEPTIONS

• INFERIOR GOODS GOODS YOU BUY MORE OF, THE LESS
  YOU HAVE
• LUXURY GOODS

16
DEMAND CURVEGENERALLY BY MORE OF GOOD THE LESS
IT COSTSEXCEPTIONS

• INFERIOR GOODS
• LUXURY GOODS GOODS YOU BUY BECAUSE OF THE HIGH
  PRICE

17
FACTORS AFFECTING DEMAND

• PERSONAL TASTE
• INCOME
• PRICE OF COMPLEMENTARY GOODS
• PRICE OF SUBSTITUTES

18
FACTORS AFFECTING DEMAND

• PERSONAL TASTE
• INCOME
• PRICE OF COMPLEMENTARY GOODS
• PRICE OF SUBSTITUTES

19
FACTORS AFFECTING DEMAND

• PERSONAL TASTE
• INCOME
• PRICE OF COMPLEMENTARY GOODS
• PRICE OF SUBSTITUTES

20
FACTORS AFFECTING DEMAND

• PERSONAL TASTE
• INCOME
• PRICE OF COMPLEMENTARY GOODS
• PRICE OF SUBSTITUTES

21
DEMAND
22
DEMAND
23
DEMAND
24
TYPES OF PRODUCER COSTS

• FIXED v.VARIABLE COSTS
• TOTAL v. AVERAGE COSTS
• MARGINAL COST

25
FIXED v. VARIABLE COSTS

• FIXED COSTS DO NOT VARY IN SHORT RUN
• VARIABLE COSTS

26
FIXED v. VARIABLE COSTS

• FIXED COSTS DO NOT VARY IN SHORT RUN
• VARIABLE COSTS VARY WITH LEVEL OF PRODUCTION

27
TOTAL v. AVERAGE COST

• TOTAL COST ALL COSTS ASSOCIATED WITH PRODUCT
  LINE
• AVERAGE COST

28
TOTAL v. AVERAGE COST

• TOTAL COST ALL COSTS ASSOCIATED WITH PRODUCT
  LINE
• AVERAGE COST MEAN COST PER ITEM PRODUCED

29
TOTAL v. AVERAGE COST

• TOTAL COST ALL COSTS ASSOCIATED WITH PRODUCT
  LINE
• AVERAGE COST MEAN COST PER ITEM PRODUCED
• AVERAGE TOTAL COST
• AVERAGE VARIABLE COST

30
MARGINAL COST ADDITIONAL COST OF PRODUCING ONE
MORE UNIT
31
ALL COSTS INCLUDE NORMAL PROFIT
32
SUPPLY CURVE MARGINAL COST CURVE FOR INDUSTRY
AS A WHOLE
33
SUPPLY DEMAND
34
FACTORS AFFECTING SUPPLY CURVE

• TECHNOLOGICAL CHANGE

35
FACTORS AFFECTING SUPPLY CURVE

• TECHNOLOGICAL CHANGE
• INPUT PRICES

36
SUPPLY DEMAND
37
PRODUCERS GOAL

• MARGINAL REVENUE
• MARGINAL COST

38
PRODUCERS GOAL

• IN COMPETITIVE MARKET
• MARGINAL REVENUE
• PRICE
• MARGINAL COST

39
SUPPLY DEMAND
40
OPTIMUM CONDITIONS FOR COMPETITIVE EQUILIBRIUM

• FUNGIBLE PRODUCT
• SUPPLIERS CANT AFFECT EACH OTHERS PRICING/OUTPUT
• MOBILITY/EQUALITY OF RESOURCE AVAILABILITY
• GOOD INFORMATION/LOW TRANSACTION COSTS

41
OPTIMUM CONDITIONS FOR COMPETITIVE EQUILIBRIUM

• FUNGIBLE PRODUCT
• SUPPLIERS CANT AFFECT EACH OTHERS PRICING/OUTPUT
• MOBILITY/EQUALITY OF RESOURCE AVAILABILITY
• GOOD INFORMATION/LOW TRANSACTION COSTS

42
OPTIMUM CONDITIONS FOR COMPETITIVE EQUILIBRIUM

• FUNGIBLE PRODUCT
• SUPPLIERS CANT AFFECT EACH OTHERS PRICING/OUTPUT
• MOBILITY/EQUALITY OF RESOURCE AVAILABILITY
• GOOD INFORMATION/LOW TRANSACTION COSTS

43
OPTIMUM CONDITIONS FOR COMPETITIVE EQUILIBRIUM

• FUNGIBLE PRODUCT
• SUPPLIERS CANT AFFECT EACH OTHERS PRICING/OUTPUT
• MOBILITY/EQUALITY OF RESOURCE AVAILABILITY
• GOOD INFORMATION/LOW TRANSACTION COSTS

44
OPTIMUM CONDITIONS FOR COMPETITIVE EQUILIBRIUM

• FUNGIBLE PRODUCT
• SUPPLIERS CANT AFFECT EACH OTHERS PRICING/OUTPUT
• MOBILITY/EQUALITY OF RESOURCE AVAILABILITY
• GOOD INFORMATION/LOW TRANSACTION COSTS

45
SUPPLY AND DEMAND
46
SUPPLY DEMAND
47
SUPPLY DEMAND
48
(No Transcript)
49
(No Transcript)
50
ELASTICITY

• (SENSITIVITY TO PRICE CHANGES)
• CHANGE IN OUTPUT NECESSITATED BY 1 CHANGE IN
  PRICE

51
ELASTICITY gt 1

• DEMAND IS ELASTIC
• CONSUMERS RESPONSIVE TO PRICE CHANGES
• GOOD SUBSTITUTES EXIST

52
ELASTICITY lt 1

• DEMAND IS INELASTIC
• CONSUMERS UNRESPONSIVE TO PRICE CHANGES
• FEW GOOD SUBSTITUTES

53
TOTAL REVENUE/DEMAND
54
(No Transcript)
55
(No Transcript)
56
(No Transcript)
57
(No Transcript)
58
(No Transcript)
59
MONOPOLY PROBLEMS

• HIGH PRICES
• LOWER OUTPUT
• WEALTH TRANSFER (?)
• DEADWEIGHT LOSS

60
BARRIERS TO ENTRY

• LIMITED ACCESS TO KEY RESOURCES
• GOVERNMENT REGULATION
• HIGH FIXED COSTS
• BRAND LOYALTY

61
MONOPOLY PROBLEMS

• HIGH PRICES
• LOWER OUTPUT
• WEALTH TRANSFER (?)
• DEADWEIGHT LOSS
• PREDATORY CONDUCT
• RENT-SEEKING BEHAVIOR

62
DEFINING MARKETS
63
MARKET DEFINITIONTIPS

• FOCUS DEFENDANTS PRODUCT

64
MARKET DEFINITIONTIPS

• FOCUS DEFENDANTS PRODUCT
• ADD OTHERS NECESSARY TO GET MARKET POWER

65
MARKET DEFINITIONTIPS

• FOCUS DEFENDANTS PRODUCT
• ADD OTHERS NECESSARY TO GET MARKET POWER
• PRODUCT GEOGRAPHIC MARKETS

66
MARKET DEFINITIONTIPS

• FOCUS DEFENDANTS PRODUCT
• ADD OTHERS NECESSARY TO GET MARKET POWER
• PRODUCT GEOGRAPHIC MARKETS
• TRY SEVERAL ALTERNATIVES

67
MARKET DEFINITIONTIPS

• FOCUS DEFENDANTS PRODUCT
• ADD OTHERS NECESSARY TO GET MARKET POWER
• PRODUCT GEOGRAPHIC MARKETS
• TRY SEVERAL ALTERNATIVES
• ART NOT SCIENCE

68
MARKET DEFINITION FACTORS
69
MARKET DEFINITION FACTORS
70
MARKET DEFINITION FACTORS
71
MARKET DEFINITION FACTORS
72
MARKET DEFINITION FACTORS