Market Structure and Competition Policy: Game Theoretic Approaches

Market Structure and Competition Policy: Game Theoretic Approaches

Market Structure and Competition Policy: Game Theoretic Approaches

Market Structure and Competition Policy: Game Theoretic Approaches

Synopsis

Market Structure and Competition Policy applies modern advances in game theory to the analysis of competition policy and develops some of the theoretical and policy concerns associated with the pioneering work of Louis Phlips. Containing contributions by leading scholars from Europe and North America, this book observes a common theme in the relationship between the regulatory regime and market structure. Since the inception of the new industrial organization, economists have developed a better understanding of how real world markets operate. These results have particular relevance to the design and application of anti-trust policy.

Excerpt

In his doctoral thesis published in 1962, Louis Phlips argued that European firms in the cement industry attempted to coordinate their actions by using basing-point pricing systems and more or less formal agreements about geographical markets. At the time that Louis was formulating his ideas, European competition policy was still in its infancy. It is perhaps no surprise that those who were formulating policies at that time paid little attention to the work of a doctoral student. It is somewhat ironic that these have come to centre stage at the end of Louis' distinguished academic career. It is also amusing to note that after a long and productive detour through consumption analysis, applied econometrics and industrial economics, Louis himself has chosen to return to his original love as shown by his Competition Policy: A Game-Theoretic Perspective.

Game-theoretic methods are now indispensable in the design, formulation and testing of competition policy in Europe and anti-trust policy in the United States. Until very recently, the connection was from market structure through market behaviour, as explained by game-theoretic tools, to competition policy. We can see this timeline, for example, in the formulation of merger policy and policies with respect to cartels. What is new is the realisation that this is a two-way street. Just as market structure affects competition policy, competition policy equally affects market structure. As European competition policy is becoming more active, it has become increasingly endogenised in the strategic decisions of the firms whose behaviour the policy is intended to affect. It is dangerous for policy makers to ignore this change in behaviour. For example, we are now aware that in some circumstances making a market more competitive is not necessarily beneficial to consumers. Rather, the additional competition may increase market concentration and may facilitate tacit or even explicit coordination among the surviving firms. This connection from competition policy to market structure and the welfare effects of policy is a recurrent theme of this book.

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