17 votes
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Why do low-budget films charge the same amount at the box office as super-high budget films?

Opportunity Cost of the Seats Once the movie is made the cost of production is sunk and irrelevant to the proper pricing of tickets. Only the marginal costs of serving an additional customer and the ...
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9 votes
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Can destruction be profitable?

It can be profitable for the monopolist to do so. For the conventional producer who is a price taker the profit objective function looks like this: $$\max_{q} \Pi^c $$ where $\Pi^c = P \cdot q - C(q)$....
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9 votes
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Collusion and number of firms

Iet's say we have n identical firms and an infinite horizon of time. The n firms sustaining the collusion, will find optimal to fix the same price $p_m$ where $p_m$ is the price of the monopoly level ...
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  • 235
9 votes
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Price dispersion in online retail

Yes, this has actually been quite an active area for research within the consumer search literature. As a starting point, I would recommend looking at the following: BAYE, M. R., AND J. MORGAN (2001):...
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9 votes
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Nash equilibrium of a Bertrand game with different marginal costs

Yes, there is no equilibrium in pure strategies. For any price charged by firm 2 above $c_1$, firm one could only best respond by charging the largest price that is strictly smaller. which is ...
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8 votes

Books friendly to self-studying Industrial Organization

While taking Industrial Organization I remember working with: Strategies and games: theory and practice by Dutta Introduction to industrial organization by Cabral Industrial organization: theory and ...
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7 votes
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How successful will OPEC's predatory dumping strategy be?

This is the cost curve of oil production (North American shale at $65): Source And this is the cost curve of major American projects: Source While "Citi's Ed Morse highlighted this chart, showing ...
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7 votes

Under what conditions is a monopoly undesirable?

Firstly, suppose we take a utilitarian welfare standard that is linear in money. That is to say, suppose that both utility and profits are linear in the amount of money that consumers and firms have (...
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7 votes
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Monopolistic and Bertrand (Nash) Competition

The following paper compares the efficiency of the Bertrand and Cournot game in the case of product differentiation. However, their utility function is more general than the Dixit/Stiglitz case. You ...
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  • 1,822
6 votes

Can destruction be profitable?

Cannibalization Assuming that the [near] expired goods cannot be sold at full cost anymore, offering them for sale at a significant discount (instead of destroying them) will compete with your own ...
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  • 488
6 votes

Does merger control really affect market structure?

Clifford Winston´s excellent book Government Failure versus Market Failure: Microeconomics Policy Research and Government Performance surveys the literature on the effects of government regulation ...
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6 votes

Collusion model with imperfect public monitoring

You'll get different answers depending on assumptions, so the answer is maybe. Two papers come to mind. For a continuous time model, see Sannikov and Skrzypacz (2007). They show that collusion is ...
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  • 2,167
6 votes

Nash equilibrium of a Bertrand game with different marginal costs

It is my impression that this has been formalized under the $\varepsilon$-equilibrium concept ("epsilon-equilibrium"). It is even called "approximate-Nash" equilibrium. Shamelessly copying from the ...
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6 votes
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What is the difference between Herfindahl Index and the Concentration Ratio

From the Industrial Organization by Belleflame and Petiz (Page 34/35, Chapter 2): While the m-firm concentration ratio adds market shares of a small number of firms in the market, the so-called ...
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  • 142
6 votes

Interpretation of $\frac{\partial }{\partial p_1}Q_1(p_1, p_2)/\frac{\partial}{\partial p_2} Q_1(p_1, p_2)$

One interpretation I can offer. The demand function can be expressed as: $$Q_1 = Q_1(p_1,p_2)$$ Let us take the total differential: $$dQ_1 = \frac{\partial Q_1(p_1,p_2)}{\partial p_1}dp_1+\frac{\...
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5 votes
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Should Costs of Travel to Buy Goods be Regarded as Transaction Costs?

Since it was mentioned in an another answer let's clear this first: whether the transportation (and its time and monetary costs) should be associated with the intended consumption of the good you are ...
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5 votes
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Lemma 2 in Tirole and Maskin's Dynamic Oligpoly I (1988)

The monotonicity result that they prove in their lemma 1 (p. 556) is stronger than you think: it states that whenever $q>q'$, the support of $R_1(q)$ is "uniformly below" the support of $R_1(q')$. ...
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  • 3,202
5 votes

Literature on the effects of third-party certification on industrial dynamics?

For models of the informational role/effects of third-party certifiers on an industry, you might like to look at Lizzeri, Alessandro (1999). “Information Revelation and Certification Intermediaries”. ...
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5 votes
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Salop (1979) model for labor markets

I have provided one reference where Salop (1979) is applied to labor markets: Staiger et. al (2010) 'Is There Monopsony in the Labor Market? Evidence from a Natural Experiment' Journal of Labor ...
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  • 3,176
4 votes

Collusion and number of firms

This is how I would try to model this. It needs some more detail, but I think this is the basic gist of it. You need to allow firms to imperfectly observe other firms' prices. One way that I would do ...
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  • 9,155
4 votes

Oligopolistic producers and retail price wars

A producer won't always want the retail outlets to compete on price. This is the reason for minimum resale price maintenance. By competing on price, it may be that the retailers competition amounts to ...
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  • 2,167
4 votes

BLP using micro data

Yes, the same authors Berry, Levinsohn, Pakes have written a second paper that uses both macro and micro data to estimate demand for automobiles as a function of the characteristics of the car. "...
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4 votes
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How can I calculate Q, P, TP from AR=20-2Q?

Here's how I would solve it : Finding Q, P, and $\pi$ $AR = 20 - 2Q$ Know : $AR = \frac{R}{Q}$ and $R = PQ$ Therefore : $R = 20Q - 2Q^2$ $PQ = 20Q - 2Q^2$ $\Rightarrow$ $ P = 20 - 2Q$ $\...
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  • 346
4 votes
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What is a good way te represent analytically two markets with different price elasticities of demand?

How about constant elasticity demand: $Q(p)=p^a$, where $a<0$? Such functions, as their name implies, have the advantage that the price elasticity of demand is constant along their entire length: ...
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4 votes
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Long Run Equilibrium of Oligopolies

The 'long run' assumption is not about whether the firms already on the market are price takers (perfect competition) or oligopolists but whether entry to the market is free. If entry to the market is ...
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4 votes

Limit of this sequence // broadness of inputs

I think the appropriate discretisation should be something like $$C_i=\left[\int_0^i\!c(i)^{1-\alpha}\,di\right]^{\frac{1}{1-\alpha}}=\lim_{I\rightarrow\infty}\left[\sum_{j=0}^{(I-1)i}\frac{1}{I}c\...
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4 votes

Solving a Cournot Equilibrium, the case of Q=q1+q2, Q(q1,q2)=q1+q2

First point: you write "I am struggling with the differentiating between when to use $ Q=q_1+q_2$ and $Q(q_1,q_2)=q_1+q_2$". But these are the same thing: both define $Q$ as a function of $q_1$ and $...
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  • 16.6k
4 votes
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Literature on the effects of third-party certification on industrial dynamics?

This is also a big theme in agriculturaland environmental economics given the amount of nutritional, healthy, organic and other labels that we see on food these days. Here are a few references to ...
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  • 2,330
4 votes

Calculating Market Concentration without sales data

Why not using the number of workers? And simply replacing sales (or output) by workers in the HHI or C4 indices. I saw this in the literature, but where? May be in a report of the German "...
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  • 2,692
4 votes

What is the difference between personal consumption expenditure price and PCE quantity?

Personal consumption expenditure (PCE) is the primary measure of consumer spending on goods and services in the U.S. economy. It accounts for about two-thirds of domestic final spending, and thus it ...
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