Managerial economics Business strategy Chapter 13 A Manager’ s Guide to Government in the Marketplace Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999
Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Managerial Economics & Business Strategy Chapter 13 A Manager’s Guide to Government in the Marketplace
Overview I. Market failure a Market power Externalities Public goods a Incomplete Information Rent seeking III. Government Policy and International Markets a Quotas Tariffs ■ Regulations Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999
Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Overview I. Market Failure Market Power Externalities Public Goods Incomplete Information II. Rent Seeking III. Government Policy and International Markets Quotas Tariffs Regulations
Market power Firms with market power produce sociall Dead weight inefficient output levels MC ■ Too little output Price exceeds mc ■ Deadweight loss Dollar value of society's welfare loss Q MR Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999
Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Market Power • Firms with market power produce socially inefficient output levels. Too little output Price exceeds MC Deadweight loss • Dollar value of society’s welfare loss MR PM QM Deadweight Loss MC D Q P
Antitrust policies Administered by the doj and ftc Market Concentration Herfindahl-Hirshman Index: HHI=10.0002 w2 Industries in which the HHI exceed 1800 are generally deemed highly concentrated The doj or FTC may, in this case, attempt to block a merger if it would increase the hhi by more than 100 Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999
Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Antitrust Policies • Administered by the DOJ and FTC • Market Concentration Herfindahl-Hirshman Index: HHI = 10,000 S wi 2 Industries in which the HHI exceed 1800 are generally deemed “highly concentrated”. The DOJ or FTC may, in this case, attempt to block a merger if it would increase the HHI by more than 100
Sherman act (1890) Sections 1 and 2 prohibits price-fixing market sharing and other collusive practices designed to monopolize, or attempt to monopolize? a market Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999
Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Sherman Act (1890) • Sections 1 and 2 prohibits price-fixing, market sharing and other collusive practices designed to “monopolize, or attempt to monopolize” a market