GMS402 EBOOK

Additional Readings and References 611

Bodvarsson, Orn B., “Educational Screening with Output Variability and Costly
Monitoring.” Atlantic Economic Journal 17(1), March 1989, pp. 16–23.

Butler, Richard J. and Worrall, John D., “Claims Reporting and Risk Bearing Moral Hazard
in Workers’ Compensation.” Journal of Risk and Insurance 58(2), June 1991,
pp. 191–204.

Cabe, Richard and Herriges, Joseph A., “The Regulation of Non-Point Source Pollution
under Imperfect and Asymmetric Information.” Journal of Environmental Economics
and Management 22(2), March 1992, pp. 134–46.

Camerer, Colin and Weigelt, Keith, “Information Mirages in Experimental Asset Markets.”
Journal of Business 64(4), October 1991, pp. 463–93.

Charles, Joni S. James, “Information Externalities: Information Dissemination as a Policy
Tool to Achieve Efficient Investment Decisions in a Two-Firm Oil Drilling Industry.”
Studi Economici 44(39), 1989, pp. 29–49.

Copeland, Thomas E. and Friedman, Daniel, “The Market Value of Information: Some
Experimental Results.” Journal of Business 65(2), April 1992, pp. 241–66.

Cotter, Kevin D. and Jensen, Gail A., “Choice of Purchasing Arrangements in Insurance
Markets.” Journal of Risk and Uncertainty 2(4), December 1989, pp. 405–14.

Dionne, Georges and Doherty, Neil A., “Adverse Selection, Commitment, and
Renegotiation: Extension to and Evidence from Insurance Markets.” Journal of
Political Economy 102(2), April 1994, pp. 209–35.

Eaker, Mark; Grant, Dwight; and Woodard, Nelson, “International Diversification and
Hedging: A Japanese and U.S. Perspective.” Journal of Economics and Business 43(4),
November 1991, pp. 363–74.

Engelbrecht Wiggins, Richard and Kahn, Charles M., “Protecting the Winner: Second Price
versus Oral Auctions.” Economics Letters 35(3), March 1991, pp. 243–48.

Fu, Jiarong, “Increased Risk Aversion and Risky Investment.” Journal of Risk and
Insurance 60(3), September 1993, pp. 494–501.

Giliberto, S. Michael and Varaiya, Nikhil P., “The Winner’s Curse and Bidder Competition
in Acquisitions: Evidence from Failed Bank Auctions.” Journal of Finance 44(1),
March 1989, pp. 59–75.

Hausch, Donald B. and Li, Lode, “A Common Value Auction Model with Endogenous
Entry and Information Acquisition.” Economic Theory 3(2), 1993, pp. 315–34.

Hayes, James A.; Cole, Joseph B.; and Meiselman, David I., “Health Insurance
Derivatives: The Newest Application of Modern Financial Risk Management.” Business
Economics 28(2), April 1993, pp. 36–40.

Hoffer, George E.; Pruitt, Stephen W.; and Reilly, Robert J., “Market Responses to Publicly
Provided Information: The Case of Automotive Safety.” Applied Economics 24(7), July
1992, pp. 661–67.

Holt, Charles A., Jr. and Sherman, Roger, “Waiting Line Auctions.” Journal of Political
Economy 90(2), April 1982, pp. 280–94.

Horowitz, John K. and Lichtenberg, Erik, “Insurance, Moral Hazard, and Chemical Use in
Agriculture.” American Journal of Agricultural Economics 75(4), November 1993,
pp. 926–35.

Kamma, Sreenivas; Kanatas, George; and Raymar, Steven, “Dutch Auction versus Fixed
Price Self Tender Offers for Common Stock.” Journal of Financial Intermediation 2(3),
September 1992, pp. 277–307.

Kogut, Carl A., “Recall in Consumer Search.” Journal of Economic Behavior and
Organization 17(1), January 1992, pp. 141–51.

612 Managerial Economics and Business Strategy

McCabe, Kevin; Rassenti, Stephen; and Smith, Vernon, “Auction Institutional Design:
Theory and Behavior of Simultaneous Multiple Unit Generalizations of the Dutch and
English Auctions.” American Economic Review 80, December 1990, pp. 1276–83.

Meador, Joseph W.; Madden, Gerald P.; and Johnston, David J., “On the Probability of
Acquisition of Non-Life Insurers.” Journal of Risk and Insurance 53(4), December
1986, pp. 621–43.

Meurer, Michael J. and Stahl, Dale O., II, “Informative Advertising and Product Match.”
International Journal of Industrial Organization 12(1), 1994, pp. 1–19.

Rosenman, Robert E. and Wilson, Wesley W., “Quality Differentials and Prices: Are Cherries
Lemons?” Journal of Industrial Economics 39(6), December 1991, pp. 649–58.

Schlarbaum, Gary C. and Racette, George A., “Measuring Risk: Some Theoretical and
Empirical Issues.” Journal of Business Research 2(3), July 1974, pp. 349–68.

St. Louis, Robert D.; Burgess, Paul L.; and Kingston, Jerry L., “Reported vs. Actual Job
Search by Unemployment Insurance Claimants.” Journal of Human Resources 21(1),
Winter 1986, pp. 92–117.

Swaim, Paul and Podgursky, Michael, “Female Labor Supply Following Displacement: A
Split Population Model of Labor Force Participation and Job Search.” Journal of Labor
Economics 12(4), October 1994, pp. 640–56.

Tenorio, Rafael, “Revenue Equivalence and Bidding Behavior in a Multiunit Auction Market:
An Empirical Analysis.” Review of Economics and Statistics 75(2), May 1993, pp. 302–14.

Vanderporten, Bruce, “Strategic Behavior in Pooled Condominium Auctions.” Journal of
Urban Economics 31(1), January 1992, pp. 123–37.

Wiggins, Steven N. and Lane, W. J., “Quality Uncertainty, Search, and Advertising.”
American Economic Review 73(5), December 1983, pp. 881–94.

Woodland, Bill M. and Woodland, Linda M., “The Effects of Risk Aversion on Wagering:
Point Spread versus Odds.” Journal of Political Economy 99(3), June 1991, pp. 638–53.

Zorn, Thomas S. and Sackley, William H., “Buyers’ and Sellers’ Markets: A Simple
Rational Expectations Search Model of the Housing Market.” Journal of Real Estate
Finance and Economics 4(3), September 1991, pp. 315–25.

Chapter 13

Bagwell, Kyle and Ramey, G., “Oligopoly Limit Pricing.” Rand Journal of Economics
22(2), Summer 1991, pp. 155–72.

Bagwell, Kyle; Ramey, G.; and Spulber, D. F., “Dynamic Retail Price and Investment
Competition.” Rand Journal of Economics 28(2), Summer 1997, pp. 207–27.

Baumol, William J., “Predation and the Logic of the Average Variable Cost Test.” Journal
of Law and Economics 39(1), April 1996, pp. 49–72.

Biglaiser, Gary and DeGraba, Patrick, “Downstream Integration by a Bottleneck Input
Supplier Whose Regulated Wholesale Prices Are above Costs.” Rand Journal of
Economics 32(2), Summer 2001, pp. 302–15.

Bolton, Patrick; Brodley, J. F.; and Riordan, M. H., “Predatory Pricing: Response to
Critique and Further Elaboration.” Georgetown Law Journal 89(8), August 2001,
pp. 2495–2529.

Capra, C. M.; Goeree, J. K.; and Gomez, R., et al., “Predation, Asymmetric Information
and Strategic Behavior in the Classroom: An Experimental Approach to the Teaching of
Industrial Organization.” International Journal of Industrial Organization 18(1),
January 2000, pp. 205–25.

Additional Readings and References 613

Chen, C. P., “Consumer Self-Generation and Monopoly Limit-Pricing under Timing
Uncertainty of Deregulation in the Electricity Market.” Journal of Regulatory
Economics 15(3), May 1999, pp. 309–22.

Christian, S., “Limit Pricing When Incumbents Have Conflicting Interests.” International
Journal of Industrial Organization 17(6), August 1999, pp. 801–25.

Cooper, D. J.; Garvin, S.; and Kagel, J. H., “Signaling and Adaptive Learning in an
Entry Limit Pricing Game.” Rand Journal of Economics 28(4), Winter 1997,
pp. 662–83.

Depken, C. A. and Ford, J. M., “NAFTA as a Means of Raising Rivals’ Costs.” Review of
Industrial Organization 15(2), September 1999, pp. 103–13.

Elzinga, Kenneth G. and Mills, D. E., “Predatory Pricing and Strategic Theory.”
Georgetown Law Journal 89(8), August 2001, pp. 2475–94.

Fishman, A. and Gandal, N., “Experimentation and Learning with Network Effects.”
Economics Letters 44(1–2), 1994, pp. 103–8.

Granitz, E. and Klein, B., “Monopolization by ‘Raising Rivals’ Costs’: The Standard Oil
Case.” Journal of Law and Economics 39(1), April 1996, pp. 1–47.

Guiltinan, J. P. and Gundlach, G. T., “Aggressive and Predatory Pricing: A Framework for
Analysis.” Journal of Marketing 60(3), July 1996, pp. 87–102.

Hawker, N. W., “Wal-Mart and the Divergence of State and Federal Predatory Pricing
Law.” Journal of Public Policy and Marketing 15(1), Spring 1996, pp. 141–47.

Holmes, T. J., “Can Consumers Benefit from a Policy Limiting the Market Share of a
Dominant Firm?” International Journal of Industrial Organization 14(3), May 1996,
pp. 365–87.

Katz, Michael L. and Shapiro, C., “Systems Competition and Network Effects.” Journal of
Economics Perspectives 8(2), Spring 1994, pp. 93–115.

LeBlanc, G., “Signaling Strength—Limit Pricing and Predatory Pricing.” Rand Journal of
Economics 23(4), Winter 1992, pp. 493–506.

Lopatka, J. E. and Godek, P. E., “Another Look at Alcoa—Raising Rivals’ Costs Does Not
Improve the View.” Journal of Law and Economics 35(2), October 1992, pp. 311–29.

Lu, D., “Limit Pricing under a Vertical Structure.” Canadian Journal of Economics 29,
Part 1 Special Issue, April 1996, pp. S288–S292.

Majumdar, S. K. and Venkataraman S., “Network Effects and the Adoption of New
Technology: Evidence from the U.S. Telecommunications Industry.” Strategic
Management Journal 19(11), November 1998, pp. 1045–62.

Martin, S., “Oligopoly Limit Pricing—Strategic Substitutes, Strategic Complements.”
International Journal of Industrial Organization 13(1), March 1995, pp. 41–65.

Norton, R., “The Myth of Predatory Pricing—Exposed.” Fortune 141(3), February 7,
2000, p. 49.

Salonen, H., “Entry Deterrence and Limit Pricing under Asymmetric Information about
Common Costs.” Games and Economic Behavior 6(2), March 1994, pp. 312–27.

Sartzetakis, E. S., “Raising Rivals’ Costs Strategies via Emission Permits Markets.”
Review of Industrial Organization 12(5–6), December 1997, pp. 751–65.

Sawyer, W. C., “NAFTA as a Means of Raising Rivals’ Costs: A Comment.” Review of
Industrial Organization 18(1), February 2001, pp. 127–31.

Werden, G. J., “Network Effects and Conditions of Entry: Lessons from the Microsoft
Case.” Antitrust Law Journal 69(1), 2001, pp. 87–111.

Wolf, H., “Network Effects of Bilaterals: Implications for the German Air Transport Policy.”
Journal of Air Transportation and Management 7(1), January 2001, pp. 63–74.

614 Managerial Economics and Business Strategy

Chapter 14

Anthony, Peter Dean, “Regulation and Supply Externalities.” Atlantic Economic Journal
13(2), July 1985, pp. 86–87.

Banaian, King and Luksetich, William A., “Campaign Spending in Congressional
Elections.” Economic Inquiry 29(1), January 1991, pp. 92–100.

Bender, Bruce and Shwiff, Steven, “The Appropriation of Rents by Boomtown
Governments.” Economic Inquiry 20(1), January 1982, pp. 84–103.

Blackstone, Erwin A. and Bowman, Gary W., “Antitrust Damages: The Loss from Delay.”
Antitrust Bulletin 32(1), Spring 1987, pp. 93–100.

Butler, Richard V. and Maher, Michael D., “The Control of Externalities in a Growing
Urban Economy.” Economic Inquiry 20(1), January 1982, pp. 155–63.

Dearden, James A. and Husted, Thomas A., “Do Governors Get What They Want? An
Alternative Examination of the Line Item Veto.” Public Choice 77(4), December 1993,
pp. 707–23.

Falkinger, J., “On Optimal Public Good Provision with Tax Evasion.” Journal of Public
Economics 45(1), June 1991, pp. 127–33.

Fon, Vincy, “Free Riding versus Paying under Uncertainty.” Public Finance Quarterly
16(4), October 1988, pp. 464–81.

Formby, John P.; Smith, W. James; and Thistle, Paul D., “Economic Efficiency, Antitrust
and Rate of Return.” Review of Industrial Organization 5(2), Summer 1990,
pp. 59–73.

Gallo, Joseph C.; Craycraft, Joseph L.; and Bush, Steven C., “Guess Who Came to Dinner?
An Empirical Study of Federal Antitrust Enforcement for the Period 1963–1984.”
Review of Industrial Organization 2(2), 1985, pp. 106–31.

Greenway, D. and Milner, C., “Fiscal Dependence on Trade Taxes and Trade Policy
Reform.” Journal of Development Economics 27(3), April 1991, pp. 95–132.

Hanemann, W. M., “Willingness to Pay and Willingness to Accept: How Much Can They
Differ?” American Economic Review 81(3), June 1991, pp. 635–47.

Huang, Peter H. and Wu, Ho Mou, “Emotional Responses in Litigation.” International
Review of Law and Economics 12(1), March 1992, pp. 31–44.

Hwang, H. and Mai, C.-C., “Optimum Discriminatory Tariffs under Oligopolistic
Competition.” Canadian Economic Journal 24(3), August 1991, pp. 693–702.

Jianakoplos, Nancy Ammon and Irvine, F. Owen, “Did Financial Deregulation Help
Consumers? Access to Market Yield Instruments.” Applied Economics 24(8), August
1992, pp. 813–32.

Laband, David N. and Sophocleus, John P., “An Estimate of Resource Expenditures on
Transfer Activity in the United States.” Quarterly Journal of Economics 107(3), August
1992, pp. 959–83.

Lee, Eric Youngkoo and Szenberg, Michael, “The Price, Quantity and Welfare Effects of
U.S. Trade Protection: The Case of Footwear.” International Economic Journal 2(4),
Winter 1988, pp. 95–110.

Lott, John R., Jr. and Bronars, Stephen G., “Time Series Evidence on Shirking in the U.S.
House of Representatives.” Public Choice 76(12), June 1993, pp. 125–49.

Lozada, Gabriel A., “The Conservationist’s Dilemma.” International Economic Review
34(3), August 1993, pp. 647–62.

Marshall, L., “New Evidence on Fiscal Illusion: The 1986 Tax ‘Windfalls.’” American
Economic Review 81(5), December 1991, pp. 1336–44.

Additional Readings and References 615

Mayshar, J., “On Measuring the Marginal Cost of Funds Analytically.” American

Economic Review 81(5), December 1991, pp. 1329–35.
Millner, Edward L. and Pratt, Michael D., “Risk Aversion and Rent Seeking: An Extension

and Some Experimental Evidence.” Public Choice 69(1), February 1991, pp. 81–92.
Murthy, N. R. Vasudeva, “Bureaucracy and the Divisibility of Local Public Output: Further

Econometric Evidence.” Public Choice 55(3), October 1987, pp. 265–72.
Nollen, Stanley D. and Iglarsh, Harvey J., “Explanations of Protectionism in International

Trade Votes.” Public Choice 66(2), August 1990, pp. 137–53.
Pratt, Michael D. and Hoffer, George E., “The Efficacy of State-Mandated Minimum

Quality Certification: The Case of Used Vehicles.” Economic Inquiry 24(2), April 1986,
pp. 313–18.
Rittennoure, R. Lynn and Pluta, Joseph E., “Theory of Intergovernmental Grants and Local
Government.” Growth and Change 8(3), July 1977, pp. 31–37.
Romer, Thomas; Rosenthal, Howard; and Munley, Vincent G., “Economic Incentives and
Political Institutions: Spending and Voting in School Budget Referenda.” Journal of
Public Economics 49(1), October 1992, pp. 1–33.
Stanton, Timothy J., “Regional Conflict and the Clean Air Act.” Review of Regional
Studies 19(3), Fall 1989, pp. 24–30.
Thistle, Paul D., “United States versus United Shoe Machinery Corporation: On the
Merits.” Journal of Law and Economics 36(1), Part 1, April 1993, pp. 33–70.

NAME INDEX

Page numbers followed by n refer to footnotes.

Acs, Zoltan J., 207 Berger, Mark, 184 Capra, C. M., 612
Adams, William J., 445 Berndt, E., 88 Carlsson, Bo, 207
Adamy, J., 274 Besanko, David, 607 Carroll, K., 446
Adrangi, Bahram, 605 Biglaiser, Gary, 610, 612 Carroll, Sidney L., 606
Ahlseen, Mark J., 609 Bikhchandani, Sushil, 486 Carter, John R., 606
Ahrens, F., 590 Black, Dan, 184 Casadesus-Masanell, Ramon, 225
Alberts, William W., 361 Blackstone, Erwin A., 609, 614 Case, Steve, 563
Albrecht, James W., 610 Blair, Douglas H., 609 Cassiman, Bruno, 607
Alchian, Armen A., 241 Blair, Roger D., 609 Caudill, Steven B., 361
Allen, Bruce T., 604 Blom, Neels, 344 Caves, Douglas W., 602
Amato, Louis, 605 Bodvarsson, Orn B., 611 Chaloupka, Frank J., 599
Anders, Gary C., 34 Bohanon, Cecil E., 599 Chan, Anthony, 598
Anderson, Evan E, 207 Bolster, Paul J., 605 Chang, Cyril F., 599
Anderson, Kyle, 562n Bolton, Gary E., 408 Chang, Winston W., 606
Angwin, J., 590 Bolton, Patrick, 521, 612 Charles, Joni S. James, 611
Anthony, Peter Dean, 614 Bosch, Jean Claude, 610 Chen, C. P., 613
Antle, Rick, 241 Botsas, Eleftherios N., 601 Chen, Carl R., 598
Arbatskaya, Maria, 435 Bowman, Gary W., 609, 614 Chen, Dong, 562n
Arnold, Michael A., 604 Bradley, James W., 605 Chen, Fang Yueh, 606
Arnold, R. Douglas, 598 Braid, Ralph M., 610 Chen, Susan, 437
Aron, Debra J., 604 Brandau, M., 274 Chen, Yu Min, 207, 607
Atkinson, Scott E., 604 Brandenburger, Adam M., 10n Cheng, Doris, 607
Audretsch, David B., 207 Brander, James A., 361 Cheung, Francis K., 609
Ault, Richard W., 75 Brastow, Raymond, 607 Chiles, Ted W., Jr., 121
Breit, William, 560 Chow, Garland, 605
Bagwell, Kyle, 612 Brester, G., 93 Chressanthis, George A., 600
Balachandran, Kashi R., 598 Brien, Michael, 600 Christ, C., 192
Ballantine, John W., 610 Brodley, J. F., 612 Christensen, L. R., 192
Balvers, Ronald J., 610 Bronars, Stephen G., 614 Christian, S., 613
Banaian, King, 614 Brooking, Carl G., 600 Clark, Gregory, 34
Barnhart, A., 590 Brown, John Howard, 607 Clark, Robert M., 603
Barton, Joe, 579 Brueckner, Jan K., 521 Clement, Michel, 394
Barzel, Yoram, 599 Bryan, William R., 598 Cleveland, Frederick W., 610
Basu, K., 609 Bui, L., 88 Clinton, Bill, 49
Bates, John M., 603 Bull, Clive, 604 Coase, Ronald H., 241
Bates, R. J., 590 Burgess, Paul L., 609, 612 Coates, Daniel E., 446, 602
Batina, Raymond G., 599 Burrows, Thomas M., 599 Colburn, Christopher B., 602
Battalio, Raymond C., 34, 161, 486 Buschena, David E., 608 Cole, Joseph B., 611
Baum, T., 446 Bush, George W., 49 Combs, J. Paul, 601
Baumol, William J., 147, 161, 612 Bush, Steven C., 614 Commanor, W. S., 85
Baye, Michael R., 85, 86, 88, 93, 94, Butler, Richard J., 611 Conant, John L., 273
Butler, Richard V., 614 Conrad, Cecilia, 609
98, 107, 258, 262, 347, 364, Byrd, John W., 604 Cooper, D. J., 613
437, 511 Copeland, Thomas E., 611
Beard, T. Randolph, 609 Cabe, Richard, 611 Corcoran, William J., 606
Beck, Paul J., 598 Cadell, Nicholas Scott, 604 Cordell, Lawrence R., 604
Becker, Klaus G., 361 Cain, Paul, 446 Corman, Hope, 602
Bell, Frederick W., 599 Callan, Scott J., 604 Cornwell, Christopher, 604
Belson, K., 590 Camerer, Colin, 611 Cotter, Kevin D., 611
Bender, Bruce, 614 Campbell, Charles, 601 Cox, Steven R., 608
Benson, Bruce L., 607, 608, 609 Cannings, Kathleen, 598 Crafton, Steven M., 599
Bental, Benjamin, 521

616

Name Index Everett, Carol T., 610 617
Everly, S., 590
Craig, Ben, 599 Grant, Dwight, 611
Crandall, R., 121 Fabrikant, G., 590 Grant, P., 590
Crane, Steven E., 606 Falkinger, J., 614 Graves, Philip E., 604
Crawford, David L., 609 Faminow, M. D., 607 Gray, Wayne B., 606
Crawford, Robert G., 241 Fayissa, Bichaka, 606, 608 Greene, W. H., 192
Craycraft, Joseph L., 614 Feinberg, Robert M., 607 Greenhut, John G., 610
Cremer, Helmuth, 608 Ferrier, Gary D., 207 Greenhut, M. L., 609
Cremer, Jacques, 608 Fesmire, James M., 609 Greenway, D., 614
Crocker, Keith, 222 Fischer, Marc, 394 Griffin, Peter, 603
Crowe, Russell, 370 Fishman, A., 613 Gritta, Richard, 605
Cummins, J. David, 486 Fizel, John L., 34, 605 Gropper, Daniel M., 207
Cunningham, James, 600 Fon, Vincy, 614 Grosskopf, Shawna, 603
Ford, J. M., 613 Grossman, Michael, 602
Dansby, R. E., 262, 273 Forge, Simon, 266 Gruca, Thomas, 598
Danziger, Sheldon, 602 Formby, John P., 560, 600, 614 Guiltinan, J. P., 613
Darrat, A. F., 608 Fox, William F., 601 Guindlach, G. T., 613
Davidson, Carl, 609 Freeman, S., 163 Gulley, O. David, 599
Davis, Douglas D., 273 Friedman, Daniel, 608, 611 Gupta, Barnali, 607
Davis, J., 161 Friedman, James W., 361, 408
De Bondt, Raymond, 607 Friedman, Milton, 76 Habiby, M., 342
De Vries, Caspar G., 437 Frieze, Irene Hanson, 76 Hackett, Steven C., 605, 609
Dearden, James A., 604, 614 Fu, Jiarong, 611 Hall, W. Clayton, 608
DeGraba, Patrick, 612 Fuess, Scott M., Jr., 608 Halperin, Robert, 610
Deily, Mary E., 606 Hamilton, James L., 608
Dell, Michael, 506 Gabel, David, 521 Hamilton, Jonathan H., 486
Demsetz, Harold, 241 Gal-Or, Esther, 321, 361 Haneman, W. M., 614
Depken, C. A., 613 Gallaway, Lowell, 600 Hanna, Timothy H., 606
DeSerpa, Allan C., 610 Gallo, Joseph C., 614 Hansen, Robert G., 408
Dewatripont, Mathias, 521 Gandal, N., 613 Hansen, Robert S., 604
Diamond, Charles A., 606 Gardner, Roy, 408 Harris, R. Scott, 603
Dikeman, Neil J., 599 Garen, John, 184 Hartigan, James C., 608
Dionne, Georges, 611 Garvin, S., 613 Hartley, Keith, 606
Dobitz, Clifford P., 602 Gates, Bill, 490 Haupert, Mike, 599
Doherty, Neil A., 611 Gatti, J., 107 Hausch, Donald B., 611
Doroodian, Khrosrow, 608 Gaughan, Patrick, 598 Hawker, N. W., 613
Dorsey, Stuart, 604 Gegax, Douglas, 598, 607 Haworth, Charles T., 606
Dranove, David, 606 Gerking, Shelby, 598 Hayashi, Paul M., 603
Dubin, Jeffrey A., 601 Gerlowski, Daniel A., 607 Hayes, James A., 611
Duchatelet, Martine, 602, 609 Gibbons, Robert, 241 Heinen, D., 601
Duggal, Vijaya G., 599 Giertz, J. Fred, 602 Hekmat, Ali, 606
Dumas, Edward B., 601 Gifford, Sharon, 34 Henson, Steven E., 601
Duncan, Kevin C., 599 Gilad, Benjamin, 161 Herriges, Joseph A., 602, 611
Dyer, Nichola J., 521 Gilbert, Richard J., 408, 521 Hickman, Kent A., 604
Giliberto, S. Michael, 611 Hiebert, L. Dean, 606
Eaker, Mark, 611 Gillespie, Robert W., 599 Hirao, Yukiko, 605
Eaton, C., 207 Gilley, O. W., 608 Hirschman, Albert O., 273
Eckard, E. Woodrow, Jr., 603, 610 Giordano, James N., 598 Hirshleifer, David, 486
Economides, Nicholas, 521, 560 Gius, Mark Paul, 321 Hite, Arnold, 607
Eggerton, J., 590 Godek, P. E., 613 Hoffer, George E., 599, 600, 611, 615
Elledge, Barry W., 601 Goeree, J. K., 612 Holahan, William L., 607
Elzinga, Kenneth G., 560, 613 Golbe, Devra L., 273 Holcomb, James H., 603, 609
Engelbrecht Wiggins, Richard, 611 Gold, B., 207 Holmes, T. J., 613
Englander, Fred, 599 Gomez, E., 612 Holt, Charles A., Jr., 273, 611
Englander, Valerie, 599 Goodfellow, Gordon P., Jr., 602 Honig Haftel, Sandra, 605
Episcopos, Athanasios, 598 Goodman, Allen C., 602 Hopkins, Mark Myron, 604
Erekson, O. Homer, 604 Gradstein, Mark, 560 Horowitz, John K., 611
Espana, Juan R., 76 Granitz, J. P., 613 Horowitz, L., 609
Evans, Dorla A., 603 Horsky, Dan, 610
Evans, William N., 161, 606 Hossain, Tanjim, 428

618 Name Index

Hotelling, Harold, 122 Kessides, Ioannis, 606 Liebowitz, S. J., 521
Houthakker, H., 121 Kidane, Amdetsion, 601 Lin, An Ioh, 601
Howard, Ron, 370 Kilts, James, 319 Lind, Barry, 486
Hsing, Yu, 601 Kim, E. Han, 273 Lindsay, Malcolm A., 610
Huang, Peter H., 614 Kim, H. Youn, 603 Linke, Charles M., 598
Huckins, Larry F., 603 Kingston, Jerry L., 612 Lippman, J., 591
Huettner, David A., 599, 603 Kirkpatrick, D., 590 Loeb, Peter D., 161, 601
Husted, Thomas A., 614 Klein, Benjamin, 225, 241, 613 Loewenstein, Mark A., 608
Huth, William L., 602 Klingaman, David, 602 Lopatka, J. E., 613
Hviid, Morten, 435 Knowles, Glenn, 599 Lopus, June S., 121
Hwang, H., 614 Knox, A., 207 Lott, John R., Jr., 614
Hwang, Hae Shin, 608 Koeller, C. Timothy, 609, 610 Louie, Kenneth K. T., 605
Kogut, Carl A., 34, 161, 611 Love, B., 590
Ickes, Barry W., 604 Kohn, Robert E., 207 Lovell, C., 207
Iglarsh, Harvey J., 615 Koller, Roland H., II, 610 Lozada, Gabriel A., 614
Ingberman, Daniel E., 605 Kong, Chang Min, 601 Lu, D., 613
Inman, Robert P., 560 Korn, Donald H., 605 Lucking-Reiley, David, 486
Irvine, F. Owen, 614 Koshal, Manjulika, 603 Luksetich, William A., 601, 602, 614
Isidore, C., 163 Koshal, Rajindar K., 603 Lynch, Gerald J., 599
Kridel, Donald J., 600 Lyon, Thomas P., 605
Jackson, John D., 75 Kripalani, G. K., 607
Jain, Dipak C., 607 Kyle, Reuben, 606 Ma, Barry K., 607
Janjigian, Vahan, 605 MacDonald, Don N., 602
Jansen, D. W., 85, 86, 93, 94 Laband, David N., 614 MacDonald, Gregor D., 604
Jarrell, Stephen, 606 Lamdin, Douglas J., 321 MacDonald, James M., 446, 603
Jeitschko, T. D., 446 Lancaster, Kelvin, 161 Machina, Mark H., 486
Jensen, Gail A., 611 Landon, John H., 603 MacKie-Mason, Jeffrey K., 522
Jensen, Michael C., 241 Lane, Sylvai, 606 MacKrimmon, Kenneth, 161
Jianakoplos, Nancy Ammon, 614 Lane, W. J., 612 Madden, Gerald P., 612
Johnson, Dennis A., 603 Lange, David C., 598 Magas, Istvan, 607
Johnson, Joseph E., 602 Lange, Mark D., 601 Maher, Michael D., 614
Johnson, Ronald N., 273 Larsen, James E., 605 Mai, Chao cheng, 609, 614
Johnston, David J., 612 Larson, Douglas M., 602 Majumdar, Sumit K., 605, 613
Johnston, Richard S., 602 Latour, A., 590 Malko, J. Robert, 610
Jones, Clifton T., 601 Lau, Lawrence, 607 Mallela, Parthasaradhi, 606
Jonish, James, 603 Lazear, Edward P., 233 Maloney, Michael, 192
Joskow, Paul, 222 Lazonick, William, 598 Malueg, David A., 322
Joyce, Theodore J., 602 Leach, Michael L., 602 Maness, R., 88
Jubenville, Alan, 601 LeBlanc, Greg, 521, 613 Manley, Donald, 598
Lee, Dwight R., 604 Mara, Janis, 590
Kagel, John H., 161, 486, 613 Lee, Eric Youngkoo, 614 Marburger, Daniel R., 609
Kahn, Charles M., 611 Lee, Jae-Woo, 85, 86, 93, 94, 258, 262 Marcus, Richard D., 598
Kaish, Stanley, 161 Lee, Joe W., 601 Margolis, Stephen E., 521
Kalt, Joseph P., 605 Lee, Tong Hun, 601 Marra, Vincent, 533
Kamarei, H., 408 Leeworthy, Vernon R., 599 Marshall, L., 614
Kamma, Sreenivas, 608, 611 Lehman, Dale E., 600 Martin, Charles L., 161
Kanatas, George, 611 Lerman, Paul, 598 Martin, Linda R., 605
Karikari, John A., 609 Lerner, A. P., 273 Martin, Randolph C., 600
Karni, Edi, 446 Levin, Dan, 446 Martin, S., 613
Karpoff, Jonathan M., 605 Levin, Gerald, 563 Marx, Groucho, 464
Kashala, J. P., 149 Levin, Richard C., 171 Masson, Robert, 446
Kask, Susan B., 605 Levin, Sharon G., 606 Masten, Scott, 218, 222
Kasulis, Jack J., 599 Levin, Stanford L., 207, 606 Matulich, Scott C., 601
Kats, Amoz, 607 Levine, Dan, 486 Max, Wendy, 600
Kattuman, Paul, 107 Levy, David T., 361, 607 Maxwell, Nan L., 121
Katz, Barbara G., 609 Lewis, Tracy R., 241, 361 Maxwell, W. D., 603
Katz, Lawrence F., 76 Leyden, John, 528 Mayshar, J., 615
Katz, Michael L., 613 Li, Lode, 611 McAfee, R. Preston, 10n, 446, 486
Kaun, David E., 602 Lichtenberg, Erik, 611 McCabe, Kevin, 612
Keeler, James P., 560 Lichtenberg, Frank R., 603 McCall, Charles W., 560

Name Index 619

McCarthy, Patrick S., 91 Norton, Seth W., 606 Raymar, Steven, 611
McCraw, T. K., 497 Nowotny, Kenneth, 607 Raymond, Richard D., 601
McDonald, J. R. Scott, 603 Nunnikhoven, Thomas S., 34 Rayner, Tony J., 603
McDowell, John M., 606 Reaume, David M., 601
McMillan, John, 446, 486 Obama, Barack, 49 Reiley, D., 88
McNamara, John R., 34 Ockenfels, Axel, 470 Reilly, Robert J., 599, 611
Meador, Joseph W., 612 Ohta, Hiroshi, 34 Reinhardt, F., 497
Meehan, James, 218 Oi, Walter Y., 437n, 446 Reitzes, James D., 361
Meesen, B., 149 Okamura, Kumiko, 604 Reuther, Carol Jean, 606
Mehrzad, Nasser, 604 Okunade, Albert Ade, 603 Rhine, Sherrie L. W., 600
Meisel, John B., 606 Olivella, Pan, 604 Rhyne, R. Glenn, 602
Meiselman, David L., 611 Olson, Dennis O., 603 Rice, Edward M., 605
Mentzer, Marc S., 605 Olson, Josephine E., 76 Richtel, M., 590
Mercuro, Nicholas, 34 O'Neill, June, 76, 600 Riley, John G., 486
Meurer, Michael J., 612 O'Neill, Patrick B., 273 Riordan, M. H., 612
Meyer, D. J., 608 Ormiston, Michael B., 610 Rittennoure, R. Lynn, 615
Meyer, John R., 599 Ostaszewski, Krzysztof, 610 Rivlin, A. M., 560
Milgrom, Paul, 486, 522 Oster, Clinton V., Jr., 608 Roberts, John, 522
Miller, Norman C., 610 Ostrom, Elinor, 408 Robison, H. David, 603
Millner, Edward L., 600, 615 Overdahl, James A., 605 Rock, Steven M., 608
Mills, D., 207 Romano, Richard E., 446
Mills, D. E., 613 Page, Frank H., 610 Romer, Thomas, 615
Milner, C., 614 Pal, Debashis, 607 Rosenman, Robert E., 612
Mirman, L. J., 608 Papathanasis, Anastasios, 606 Rosenthal, Howard, 615
Mixon, Franklin G., Jr., 361 Parker, A., 591 Rosenthal, Robert W., 408
Moini, A. H., 606 Parker, Darrell F., 600 Ross, Howard N., 361
Monahan, Dennis, 600 Parkman, Allen M., 273 Roth, Alvin E., 470
Monroe, Scott A., 601 Parsons, George R., 34 Rothschild, K. W., 273
Moomow, Ronald L., 604 Parsons, Richard, 563 Roufagalas, John, 609
Morgan, John, 107, 344, 347, 428, 511 Pasztor, A., 591 Rupert, J., 107
Morrison, C. C., 408 Peck, J., 608 Rystrom, David, 607
Mount, Randall I., 122 Peoples, James, 606
Mudambi, R., 446 Perloff, Jeffrey M., 608 St. Joseph, Robert D., 612
Mulgerin, J. Harold, 605 Perry, Martin K., 607 Saba, Richard P., 75
Mullen, John K., 603 Perry, Philip R., 608 Sackley, William H., 612
Mulligan, James G., 602 Phillips, Owen R., 34, 608, 610 Saffer, Henry, 599, 600
Munley, Peter H., 600 Pindyck, Robert S., 34 Sahoo, P. K., 610
Munley, Vincent G., 615 Plott, Charles R., 361, 486 Sailors, Joel, 34
Murphy, Kevin J., 76, 241 Plutta, Joseph E., 615 Salinger, Michael, 607
Murthy, N. R. Vasudeva, 615 Podgursky, Michael, 612 Salonen, H., 613
Musango, L., 149 Polachek, Solomon, 76 Salop, Steven C., 486, 522
Porter, Michael E., 8, 10 Saltzman, Cynthia, 599
Nahata, Babu, 606, 610 Powell, Michael, 579 Samuelson, Larry, 604
Nalebuff, Barry J., 10n Prasnikar, Janez, 598 Samuelson, William F., 408
Nantz, Kathryn, 605 Pratt, Michael D., 615 Sanders, Anthony B., 610
Nasar, Sylvia, 370 Pratt, Robert W., Jr., 122 Sandler, Ralph D., 607
Nash, John Forbes, Jr., 370 Prendergast, Canice, 233 Sandy, Jonathan G., 599
Nelson, Julianne, 609 Pruitt, Stephen W., 611 Sanghvi, Arun P., 599
Nelson, Paul S., 609, 610 Prus, Mark J., 599 Sappington, David E. M., 241
Nerlove, Marc, 192 Sartzetakis, E. S., 613
Netter, Jeffry M., 605 Racette, George A., 612 Sass, Tim R., 610
Newman, Robert J., 601 Raffiee, Kambiz, 601 Sattler, Edward L., 608
Nguyen, Dung, 322 Ramagopal, K., 600 Saurman, David S., 610
Nguyen, Hong V., 601 Ramaswamy, Sunder, 600 Sawtelle, Barbara A., 122
Nickerson, Peter H., 600 Ramaswamy, Venkatram, 605 Sawyer, W. Charles, 603, 613
Niroomand, Farhang, 603 Ramey, G., 612 Sayre, A., 591
Nitzan, Shmuel, 560 Ramin, Taghi, 601 Scahill, Edward, 600
Nollen, Stanley D., 615 Rasmusen, Eric, 408 Schlager, Edella, 609
Norman, G., 609 Rassenti, Stephen, 612 Schlarbaum, Gary C., 612
Norton, R., 613 Ravenscraft, David J., 599 Scholten, Patrick, 347

620 Name Index

Schotter, Andrew, 604 Stahl, Dale O., II, 612 Weber, Harry R., 364
Schroeter, John R., 608 Stanley, Linda R., 604 Weigelt, Keith, 604, 611
Schuler, Richard E., 607 Stano, Miron, 122 Weilaard, Robert, 490
Schulman, Craig T., 608 Stanton, Timothy J., 615 Weinberg, John A., 522
Schulze, William, 598 Stegeman, Mark, 322 Weisman, Dennis L., 600
Schutte, David P., 608 Steiner, R. L., 560 Welch, Ivo, 486
Schwarz, Peter M., 610 Stine, William F., 601 Welch, Patrick J., 606
Scitovsky, T., 446 Strassmann, Diana L., 522 Wen, Guanzhong James, 604
Scott, Charles E., 600 Strickland, Thomas H., 606 Wendel, Jeanne, 601
Scott, Frank A., Jr., 184, 599 Strong, John S., 608 Werden, G. J., 613
Scott, Loren C., 606 Sullivan, Dennis H., 601, 602, 604 Whinston, Michael D., 446
Scott, Robert C., 608 Suslow, Valerie Y., 608 White, Edward D., 526
Seldon, Barry J., 608 Suwanakul, Sontachai, 609 White, Lawrence J., 273, 560
Senauer, Ben, 602 Svejnar, Jan, 598 White, Michael D., 602
Sengupta, Jati K., 601, 604 Swaim, Paul, 612 White, William D., 606
Sesnowitz, Michael L., 601 Sweeney, George H., 609 Whitney, Gerald, 34
Sexton, Robert L., 604 Sweeney, Vernon E., 602 Wiggins, Steven N., 88, 612
Shaanan, Joseph, 446, 607, 610 Swidler, Steve, 598 Wilder, Ronald P., 600, 602, 605
Shaffer, Greg, 435 Szenberg, Michael, 614 Williams, Donald R., 601
Shankar, Venkatesh, 394 Williams, Harold R., 122
Shanley, Mark, 606 Tashman, Leonard J., 602 Williams, Martin, 603, 604
Shapiro, C., 613 Taube, Paul M., 602 Williams, Mary L., 599
Shapiro, Matthew D., 255, 256, 258 Tauman, I., 608 Williamson, Oliver E., 76, 241
Sharma, S., 372 Taussig, Michael K., 602 Willig, R. D., 262, 273
Shell, K., 608 Taylor, Larry W., 121, 600 Wilson, John Sullivan, 600
Sherman, Roger, 611 Taylor, Patrick A., 600 Wilson, T. A., 85
Sherony, Keith, 599 Taylor, Thomas N., 610 Wilson, Wesley W., 612
Shieh, Yeung Nan, 607 Tennyson, Sharon, 486 Windle, Robert J., 602
Shoenhair, John D., 241 Tenorio, Rafael, 612 Wingfield, N., 590
Shogren, Jason F., 605 Thistle, Paul D., 560, 614, 615 Winn, Daryl N., 241
Shook, D., 591 Thomas, Dave, 9 Wirl, F., 610
Showalter, Dean M., 361 Thomas, Janet M., 604 Wohar, Mark E., 604
Shwiff, Steven, 614 Thomas, Ravi, 605 Wohlsenant, M. K., 93
Siegel, Donald, 603 Thornton, James, 192 Wolf, H., 613
Siegfried, John J., 600 Toda, Maseo, 161 Woodard, Nelson, 611
Silver, Stephen J., 603 Torregrosa, Paul, 604 Woodland, Bill M., 612
Simon, Curtis J., 606 Tschirhart, John, 604 Woodland, Linda M., 612
Simon, Herbert A., 76, 322 Tulckman, Howard, 599 Workman, William G., 601
Singal, Vijay, 273 Worrall, John D., 611
Singh, Nirvikar, 605 Urban, G., 88 Wu, Ho Mou, 614
Slaets, Patrick, 607 Wu, Mickey T. C., 600
Slutsky, Steven, 560 Van Cott, T. Norman, 599 Wu, Yangru, 34
Smart, Denise T., 161 Vanderporten, Bruce, 612
Smith, Abbie, 241 Varaiya, Nikhil P., 611 Yaisawarng, Suthahip, 603
Smith, Adam, 6, 7, 370 Várdy, F., 344 Yamawaki, H., 497
Smith, Dean H., 610 Varian, Hal, 522 Yandle, Bruce, 607
Smith, G., 342 Vedder,. Richard K., 600 Yeh, Chiou nan, 609
Smith, Scott L., 608 Venkataraman, S., 613 Yellen, Janet I., 445
Smith, Vernon L., 76, 612 Vickers, John, 522 Yen, Steven T., 600
Smith, W. James, 614 Viscusi, W. Kip, 161 Yoda, Yasushi, 604
Snyder, Edward, 218 Vroman, Susan B., 610 Young, A. R., 610
Sollars, David L., 121 Young, Nathan, 602
Sophocleus, John P., 614 Wagner, Curtis L., III, 599 Young, S., 590
Sourbis, Haralambos, 34 Waldfogel, J., 146
Sparks, Roger, 605 Walker, James, 609 Zang, Y., 608
Spiegel, Menahem, 521 Walsh, Carl E., 607 Zeita, Joachim, 608
Spiller, Pablo T., 521 Warner, Abe, 567 Ziegler, Lawrence F., 603
Spiro, Michael H., 321 Warner, Harry, 567 Zivney, Terry L., 598
Spulber, Daniel F., 225, 612 Warner, Jack, 567 Zorn, Thomas S., 598, 605, 612
Srinidhi, Bin, 598, 610 Warner, Sam, 567 Zuber, Richard A., 600
Srivastava, S., 372 Waterman, D., 591 Zupan, Mark A., 322, 605
Watkins, Thomas G., 600

GENERAL INDEX

Page numbers followed by n refer to footnotes. Department of Justice role, 529 of radio spectrum licenses, 41–42, 77–78,
European Union, 490, 528 447, 479
Accounting costs vs. economic costs, 194 Federal Trade Commission role, 529
Accounting profit vs. economic profit, 5–6 Herfindahl-Hirschman index and, revenue equivalence, 477
Addyston Pipe and Steel Company v. with risk-averse bidding, 478
528–529 risk-neutral bidding, 472–476
United States, 526 major early cases, 526 second-price, sealed-bid, 470
Adjusted R-square, 105–106 merger policy, 527–529 winner's curse, 475–476
Adobe, 431 Microsoft case, 490 wireless, 77–78, 111–112
Ad valorem tax, 50 Paramount Decree of 1938, 568 Yahoo!, 511
Advanced business strategy; see and predatory pricing, 498 Audit Bureau of Circulation, 573
Robinson-Patman Act, 527 Automobile industry
Business strategy role of courts, 526–527 adaptable technologies, 49–50
Adverse selection, 463 rule of reason, 527 China, 64, 283
Sherman Antitrust Act, 525–526 decline in profitability, 10
and hidden characteristics, 463 Anti-Usury Act, Poland, 60 India, 194
in insurance, 463–464 AOL Canada, 565 input decisions, 227
Advertisement-supported cable networks, 578 AOL Europe, 565, 567 new car sales and gas prices, 91
Advertising AOL Time Warner supply in globalization, 64
comparative, 309 losses in 2002, 562 Average cost, 186–187
as demand shifter, 40, 42–43 merger failure, 563 derivation of, 187
incremental costs, 310 stock price decline, 562 relation to marginal cost, 209
incremental revenues, 310 Applebee's, 493 Average fixed cost, 186
to induce brand loyalty, 435–436 Apple Inc., 9, 10 Average product, 166
informative, 42 Arc elasticity of demand, 84 Average product of labor, 173–174
one-shot games, 372–373 Asahi Breweries, 41 Average total cost, 187, 191–192
optimal decisions, 310–312 Asia, recession in, 41 Average variable cost, 186–187
persuasive, 42 Asymmetric information, 462 Avis, 62
profit-maximizing advertising-to-sales adverse selection and, 462–463
cause of market failure, 543 Barriers to entry
ratio, 310–311 between consumers and firms, 462 copyrights, 293
regulation of, 545 contract enforcement, 545–547 in five forces framework, 8–9
varying by industry, 261 hidden actions and, 463 in industry, 255
Advertising elasticity of demand, 94 hidden characteristics and, 463 marketing implications, 301–303
Aerospace Workers Union, 198 and managerial decisions, 462–463 patents, 291, 293
Affiliated value estimates, 472 and moral hazard, 465–466 trademarks, 293
Agriculture, as perfect competition, 276 reduced by certification, 543–544
Airline industry on schools, 544 Baumol hypothesis, 148
air clubs, 19 in stock market, 462 Beautiful Mind, 370
American Airlines, 498 truth in advertising, 545 Bell South, 447, 577
price discrimination, 528 ATM fees, 60 Bentley University Business School, 457
randomized pricing, 437 AT&T, 247, 447, 568 Bertelsmann AG, 565, 567
star networks, 509 Auctions, 468 Bertrand duopoly, 346–348
Amazon.com, 247 Dutch, 470–471
Amcott, 1, 26 on eBay, 471 pricing decisions, 369–372
American Airlines, 498 English, 469 Bertrand duopoly game, 366
America Online, 490, 506; see also Time expected revenues, 477–478 Bertrand equilibrium, 349
first-price, sealed-bid, 469–471 Bertrand oligopoly, 346, 433
Warner case study importance for managers, 469
company background, 564–565 information structures, 471–472 airline industry, 437
market conditions, 565–566 lack of perfect information, 471 brand loyalty, 434
operations, 566–567 online, 428 compared to other models, 348–351
revenue decline, 566 conditions for, 346
Analog TV, 575 differentiated-product, 348, 361–363
Antitrust policy, 525 homogeneous products, 346–348
Canada, 546
Celler-Kefauver Act, 527–528 621
Clayton Act, 527

622 General Index

manager vs. consumer views, 346 Cambridge University, 107 comparison of oligopoly models, 349–351
price competition, 347 Canada in Cournot oligopoly, 340–342
price matching, 434 factors affecting, 381–383
randomized pricing, 435 Competition Bureau, 546 for high prices, 371–372
Bertrand pricing game, 378–381 minimum wage law, 60 known final period games, 388
Bertrand trap, 347, 348 Capital supported by trigger strategy, 378–381
Best Buy, 11 average product of, 166 tacit, 382
Best-response function, 331 and average product of labor, 173–174 Collusive duopoly, 350
Billboard advertising game, 387 optimal level of, 179–181 Comcast, 568
Block pricing, 424–426 production input, 164 Commissions, 231
Boeing Company, 163, 198, 247 substituted for labor, 182 Commitment
Bonuses, 12 Capital requirements as barrier to entry, 255 as profitable strategy, 492
Book publishers, 573 Cash gifts, 142–145 in Stackelberg oligopoly, 344
Bottlenecks, 509–510 Causal view of industry, 263 Commitment mechanisms, 492–493
Boxes Ltd., 123, 152–153 CBRE Group, 247 Commodity bundling, 426–429
BP America, 526 Celler-Kefauver Act, 527–528 price frames, 428
Brand equity, 309 Census Bureau, 251, 252 Common value, 472
Brand loyalty, 435–436 Certification Compaq Computer, 11, 506
Brand myopic, 310 of physicians, 544 Comparative advertising, 309
Bristol-Myers Squibb, 260–261 purpose, 543–544 Comparative static analysis, 62
Broadcast networks, 578 of schools, 544 change in demand, 62–64
Budget constraint Chain stores, 453 change in supply, 64
and credit cards, 132 Change in demand, 40, 62–64 income changes, 138–139
effect of income changes, 138 Change in quantity demanded, 40 income effect, 140–142
graphing, 129–130 Change in quantity supplied, 48 price changes, 136–137
Budget line, 129, 140 Change in supply, 48, 62–64 simultaneous shifts in supply and demand,
with buy one, get one free, 141–142 Cheating
with cash gifts, 143–144 benefits of, 379 64–67
and credit cards, 132 on collusive agreements, 341–342 substitution effect, 140–142
with gift certificates, 143–144 finitely repeated games, 385–386 Compensation; see Managerial compensation
and income changes, 131–133 gain to, 384 Competition
and market rate of substitution, 130–131 by OPEC members, 342, 343 and barriers to entry, 8–9
and price changes, 133–134 and trigger strategies, 382 among consumers, 13
Budget set, 129, 140 Chery Automobile Company, 64 cut-throat, 348
Buena Vista Pictures Distribution, 569 Chevron, 526 direct broadcast satellite operators, 577
Bundling; see Commodity bundling Chili's, 493 in magazine publishing, 572
Burger King, 304, 312 China, automobile industry, 64, 283 in movie industry, 570–571
Business cycles, and income effect, 139 China Daily, 56 predatory pricing to lessen, 497–500
Business environment, 488 Choices among producers, 13
first-mover advantage, 504–506 by consumers, 141–145 raising rivals' costs to lessen, 500–502
Business strategy equilibrium, by consumers, 135 for Time Warner, 594
business environment, 488 income–leisure, 145–147 Competition Act, Canada, 546
cost considerations, 488 by workers and managers, 145–149 Competition Bureau, Canada, 546
first-mover advantage, 504–506, 510–511 Class action lawsuits, 572 Competitive market equilibrium, 54–55
limit pricing, 488–498 Clayton Act, 527, 545 Competitive output rule, 279–280
network effects, 507–513 Clean Air Act, 535–537 Complementary drink game, 398
penetration pricing, 507–513 Coal contracts, 222 Complements, 42, 44
predatory pricing, 497–500 Cobb-Douglas production function, 173 and price changes, 137
price discrimination, 503–504 formula, 173 and profitability, 10–11
raising rivals' costs, 500–503 isoquants, 177 Completeness, 125
response to entry threat, 487, 513 marginal product for, 174–175 CompuServe, 565, 566
second-mover advantage, 507 Coca-Cola Company, 42, 247, 252 Computer industry, 266
BusinessWeek, 2 Coefficient of determination, 104–106 first-mover advantage, 506
Buyer concentration, 9 Coefficients, 102–103 profits and evolution of, 11
Buyer power, 9 Cola wars, 372 Computers, labor substituted for, 183
Buy one, get one free, 141–142 Colgate-Palmolive Company, 306 Concentration ratios, 248
Collective bargaining, 163, 198, 395–397 four-firm concentration ratio, 248–249, 250
C. H. Robinson Worldwide, 247 Collusion Herfindahl-Hirschman index, 249, 250,
Cable Communication Policy Act, 579 cheating in, 379
cheating on agreements, 341–342 259–260
limitations, 251–253

General Index 623

Conde Nast Publications, 572 with asymmetric information, 462 algebraic forms, 190–191
Conduct across industries; see Industry; and Bertrand duopoly, 346–348 average fixed cost, 186
brand loyalty, 435–436 average total cost, 187
Structure–conduct–performance choices, 141–145 average variable cost, 186–187
paradigm equilibrium choice, 135 constant returns to scale, 193–194
Confidence intervals, 103 fairness of price discrimination, 417 Cournot oligopoly, 348–349
Conglomerate mergers, 260 objectives, 134 cubic, 190–191
Constant returns to scale, 193 sequential bargaining game, 397 diseconomies of scale, 193–194
Constraints utility maximization, 161–162 economic vs. accounting costs, 194
budget, 129–131, 132 Consumer search economies of scale, 193–194
identifying, 4–5 costs, 455 estimating, 192
income change, 131–133 expected benefits, 454–455 fixed and sunk costs, 189–190
and market rate of substitution, 130–131 free recall, 454 long-run costs, 191–193
price changes, 133–134 optimal strategy, 455 marginal, 191
types of, 128 replacement, 454 marginal cost, 187–188
Consumer behavior reservation price, 454–456 in monopoly, 296
applications of indifference curve analysis, rule, 455 multiple-output, 195–198
uncertainty in, 453–456 multiproduct, 291
141–145 Consumer surplus, 46–48 in perfect competition, 280–281
comparative static analysis and industry performance, 261–262 relations among costs, 185–186, 188–189
pricing strategies to extract short-run costs, 184–186
income changes, 138–139 Stackelberg duopoly, 349
income effect, 141 block pricing, 424–426 value of, 184
price changes, 135–137 commodity bundling, 426–429 Costly bargaining, 216
substitution effect, 150–151 cross-subsidies, 430–431 Cost minimization, 179–181, 211–212
completeness, 125 peak-load pricing, 429–430 in acquiring inputs, 224–226
constraints on, 128–134 price discrimination, 416–422 input mix, 180
diminishing marginal rate of transfer pricing, 431–433 Cost-minimizing input rule, 181
substitution, 127 two-part pricing, 422–424 Costs
implications of scarcity, 134 Consumer tastes, 42 calculus of, 207–209
indifference curve analysis, 125–128 Contestable market, 351 economic vs. accounting, 194–195
marginal rate of substitution, 126 absence of sunk costs, 351–352 incremental, 24
more is better, 125–126 conditions for, 351 Cournot duopoly, 350, 415
need for model of, 124 equilibrium price, 351 marginal revenue, 332–333
opportunities, 124 free entry, 351 raising rivals' costs, 500–501
preferences, 124, 125 market power, 351 reaction functions, 333–334
risk preferences, 128 Continuous decisions, 22–24 spreadsheet, 350
stockpiling, 43 Contract enforcement, 546–547 Cournot equilibrium, 332, 339, 340–342,
transitivity, 127 Contracts, 213
and uncertainty coal and natural gas, 222 348–349, 501
chain stores, 453 General Motors and Fisher Body, 225 Cournot oligopoly, 330, 348–349
consumer search, 453–456 incentive, 228, 229–230
insurance, 453 for optimal input procurement, 220–223 best-response function, 331
product quality, 451–453 optimal length, 221–223 changes in marginal costs, 338–340
risk aversion, 451–452 pay-for-performance, 233 collusion in, 340–342
risk loving, 451 specialized investments, 220 compared to other models, 348–351
risk neutral, 451 up-front expenditures, 220 compared to Sweezy oligopoly, 339–340
Consumer choices; see Choices Control variable, 20, 23 conditions for, 330
Consumer–consumer rivalry, 13 Coordination decisions, 373–374 equilibrium, 330–335
Consumer equilibrium, 134–135 Coordination game, 374 isoprofit curves, 336–338
effect of income changes, 138–139 Copyright protection, 293 marginal revenue for duopoly, 332–333
effect of price changes, 135–137 Corel, 89 Organization of Petroleum Exporting
and income effect, 141 Correlated value estimates, 472
and substitution effect, 140–141 Correlated values auction, optimal bidding Countries, 342
Consumer expectations, 43 strategy, 475–476 pricing rule, 414–416
Consumer lock-in, 510–511 Cost complementarities, 195–196, 291 reaction functions, 330–335
Consumer opportunities, 124 from cross-subsidies, 431 spreadsheet, 350
Consumer preferences, 124 source of monopoly power, 291 Credit cards, 132
and indifference curves, 125–128 Cost considerations, legal, 488 Cross-advertising elasticity of demand, 94
ordering, 125–127 Cost curves, 279 Cross-price elasticity of demand, 89
utility function, 161 Cost function, 183 examples, 90
Consumer–producer rivalry, 13 formula, 89
Consumers, 124 linear demand function, 95–96

624 General Index

new car sales, 91 Demand curve Division managers, 431–433
nonlinear demand function, 96–99 to ascertain value, 46–48 Dixons Group, 567
pricing decisions of firms, 90 graphing, 45–46 Dodd-Frank Wall Street Reform and Consumer
and substitutes, 89 and indifference curves, 150, 151
Cross-subsidy, 430–431 kinked, 330 Protection Act, 544
Crown Holdings, 246, 247 market, 39–40 Dominant strategy, 367–369, 505
Cubic cost function, 190–191 in monopolistic competition, 304 Double marginalization, 432
Customers; see Consumers for monopoly, 288–289, 292 Dow Chemical, 247
Cut-throat competition, 348 movement along, 40 Downstream divisions, 431–433
peak-load pricing, 429–430 DreamWorks, 570
Dansby-Willig performance index, 262 in perfect competition, 276, 278 Duality theory, 192
Deadweight loss, 303 and price discrimination, 418 Duopoly
shift factors, 40–44
of in-kind gifts, 146 shifts in, 40 Bertrand, 366, 369–372
of monopoly, 302–303, 525 Sweezy oligopoly, 328–329 collusive, 350
of price ceilings, 59 Cournot, 350
Decision making, 3–4; see also Output Demand estimation, 100–101 pricing game, 384–387
Demand function, 44 spreadsheet for calculation, 350
decisions Stackelberg, 350
in advertising, 310–312 Cournot oligopoly, 348–349 Dutch auction, 470
with asymmetric information, 462–463 inverse, 45–46, 295 expected revenues, 477–478
continuous decisions, 22–24 linear, 44–45, 80–81, 95–96, 101, 295, 413 risk-averse bidders, 478
discrete decisions, 20–22 log-linear, 106–108
identifying goals and constraints, 4–5 obtaining elasticities from, 94–99 Earthlink, 566
incremental decisions, 24–25 and pricing decisions, 413 eBay, 428, 470, 511
by managers, 147–149 Stackelberg duopoly, 349 EchoStar, 577
and market trends, 38 Demand schedule, 39 Econometrics, 100–101, 111
multiplant, 299–301 Demand shifters, 40–44, 109 Economic costs vs. accounting costs, 194
risk and, 451–453, 458–459 advertising, 40, 42–43 Economic profit, 5
sunk costs, 189–190 consumer expectations, 43
timing for first movers, 504–506 consumer tastes, 42 versus accounting profit, 5–6
by workers, 145–147 income, 40, 41–42 Economics, 3
Decision nodes, 390–391 population composition, 43
Decrease in demand, 40 prices of related goods, 40, 42 proficiency in, 25–26
Decrease in supply, 48 Department of Commerce, 94 purposes of terminology, 25
Decreasing marginal returns, 168 Department of Justice reasons for studying, 2
Dedicated assets, 215 and American Airlines, 498 Economic trade-off in acquiring inputs, 224–226
Dell Inc., 11, 82, 195, 266, 506 Horizontal Merger Guidelines, 259, 267, Economies of scale, 193, 289
Demand; see also Law of demand as barrier to entry, 255
changes in, 40, 62–64 528–529, 552 in electricity market, 192
comparative static analysis, 62–64 and mergers, 259–260 in international companies, 194
decrease in, 40 Microsoft case, 490 natural monopoly, 529
elastic, 80 Dependent variable, 104–105 source of monopoly power, 289–290
factors affecting, 38–39 Deregulation of electricity, 533 Economies of scope, 195, 290
increase in, 40 Design patent, 293 and cost allocation, 198
individual, 150 Deutsche Telekom, 567 from cross-subsidies, 431
inelastic, 80 Differentiated-product Bertrand oligopoly, 348, and mergers, 197–198
for labor, 170–172 source of monopoly power, 290–291
law of, 40 361–363 and subsidiaries, 197–198
linear, 95–96 Digital TV, 575 Elastic demand, 80
log-linear, 897–899 Digital video recorders, 480–481 perfectly, 83
and marginal revenue, 87 Dilemma, 371 Elasticity, 79
market, 151 Diminishing marginal rate of substitution, 127 short- vs. long-term, 86
in market economies, 38 Diminishing marginal returns, 168 Elasticity of demand
in oligopolies, 327–328 Direct broadcast satellite operators, 577 advertising elasticity, 94
perfectly elastic, 83 Direct network externality, 509 arc, 84
perfectly inelastic, 83 DirecTV, 577 aspects of, 79, 80
for public goods, 539–540 Discounts, 417, 419 based on regression analysis, 107
residual, 490–491 Discrete decisions, 20–22 cross-advertising elasticity, 94
short- vs. long-term, 86 Diseconomies of scale, 193, 289 cross-price elasticity of demand, 89–92
unitary elastic, 80 Dish Network, 577 demand functions for obtaining, 94–99
varying by industry, 253–255 Disney World Theme Parks, 409, 437–438 income elasticity, 92–93
Diversification and risk, 458–459 individual firms, 256
Dividends, 17–18 market level, 256

General Index free, 275–276 625
in monopolistic competition, 303, 307
Elasticity of demand—Cont. in perfect competition, 285–286 producer search, 460
in monopoly, 292 Expected value; see Mean profit maximization, 460–461
own price elasticity of demand, 79–89 Expenditure share, and own price elasticity of risk aversion, 456–459
and price discrimination, 420 upstream divisions, 431–433
and pricing decisions, 412–413 demand, 86–87 vertical integration, 213, 223–224
Rothschild index, 254–255 Explicit costs, 5–6 Firm size, 246–247
third-degree price discrimination, 419–420 Extensive-form game, 390, 396 and collusion, 382
and total revenue, 80–83 External incentives, 230 and monopoly, 288
unitary elastic demand, 80 Externalities, 534–538 Firm supply curve, 284–285
varying by industry, 253–255 First-degree price discrimination, 417–418
Clean Air Act, 535–537 First-mover advantage, 343
Electricity deregulation, 533 negative, 534 business environment, 506
Electric utilities, 222 network, 509–510 definition, 504
Eli Lilly Company, 291 ExxonMobil, 526 dominant strategy, 505
Emerson Electric, 247 due to consumer lock-in, 510–511
Employees; see Workers Factors of production and eBay, 511
End-of-period problem fixed, 164–165 learning curve effects, 494
variable, 165 payoff, 505–506
applications, 389–390 questionable validity, 506
contract enforcement, 546–547 Fairchild Publications, 572 rationale for, 504
nature of, 378–388 Fast-food industry, 303–304, 312 Stackelberg oligopoly, 504
Energy Policy Act, 533 Federal Communications Commission, 77–78 timing of decision, 505
English auction, 469 First-price, sealed-bid auction, 469–470
expected revenues, 477 auction of licenses, 111–112 expected revenues, 477
optimal bidding strategy, 473 media ownership restrictions, 564 optimal bidding strategy, 474
risk-averse bidders, 478 spectrum auction, 447, 479 risk-averse bidders, 478
Entry, 8–9 Federal Energy Regulatory Commission, 533 Fisher Body Company, 225
failure to deter, 491–492 Federal Reserve Board, Regulation Z, 544 Five forces framework
free, 275–276 Federal Trade Commission barriers to entry, 8–9
limit pricing to prevent, 489–498 merger approval, 552 buyer power, 9
in monopolistic competition, 303, 307 and mergers, 260, 267 feedback effects, 264
potential for, 255 and truth in advertising, 545 and industry profitability, 8–11
threat in perfect competition, 285–286 Feedback critique, 263–264 industry rivalry, 9–10
Entry game, 393–395 Finitely repeated games substitutes and complements, 10–11
Entry strategy, 394 end-of-period problem, 387–390 supplier power, 9
Equilibrium; see also Nash equilibrium known final period, 376–388 Fixed costs, 184
Cournot oligopoly, 330–335 uncertain final period, 384–387 average, 186
Stackelberg oligopoly, 343–345 Firm demand curve, 276 and raising rivals' costs, 501–502
subgame perfect, 392, 493 Firms relation to other costs, 185–186, 188–189
Equilibrium choice, 135 collusion and number of, 381 and sunk costs, 189–190
Equilibrium price contribution to public goods, 542 Fixed factors of production, 165
calculating, 65 downstream divisions, 431–433 Fixed-proportions production function, 172–173
and changes in supply, 64 forces for disciplining managers, 229–230 Fixed salary, 242
in contestable markets, 351 goals in global economy, 7 Follower, in Stackelberg oligopoly, 343
in Cournot oligopoly, 335 input procurement methods, 212–214 Ford Motor Company, 261
determination of, 54–56 largest, 247 Four-firm concentration ratio, 248
with price restrictions, 56–62 managerial compensation, 227–229 basis of, 250
with simultaneous supply and demand manager–worker principal–agent problem, limitations, 251
U.S. industry, 250
shifts, 64–67 231–234 France Telecom, 567
unpopular, 56 maximizing value of, 16 Free entry and exit
Equilibrium quantity, 55 multiproduct, 136, 195–197, 291 in contestable markets, 351
with simultaneous supply and demand number of, as supply shifter, 49 in monopolistic competition, 303
optimal input procurement, 218–227 in perfect competition, 275–276
shifts, 64–67 own-price elasticity of demand, 256 Free recall, 454
ESPN, 575 pricing decisions, 90 Free-rider problem, 539, 540–541, 548
European Commission, 528 principal–agent problem, 227–229 Fringe benefits, 184
European Union profit-maximization goal, 6–7 F-statistic, 106, 109
role of incentives, 11–12 Full economic price, 58
antitrust policy, 490, 528 separation of ownership and control, 228 Future value, 14–15
online shopping, 107 specialized investments, 215–218
Excise tariff, 550, 551 transaction costs, 214–218
Excise taxes, 50 and uncertainty
Ex-dividend date, 17–18
Exit

626 General Index

Gains to cheating, 384 price regulation, 529–534 pay for performance, 233
Game theory; see also First-mover advantage; provision of public goods, 536–542 piece rate system, 232
rent seeking, 547–548 for rent-seeking activities, 547–548
Limit pricing; Penetration pricing truth in advertising, 545 role in firms, 11–12
advertising game, 373 truth in lending, 544–545 understanding, 11–12
Bertrand duopoly game, 366 Government intervention Income
and cola wars, 372 benefits of, 524–525 decline in Japan, 41
coordination game, 374 to increase social welfare, 524 as demand shifter, 40, 41
dominant strategy, 367–368 in markets, 13–14 versus leisure, 145–147
finitely repeated games, 384–390 price ceilings, 57–60 Income changes
infinitely repeated games, 377–384 price floors, 61–62 and budget line, 131–133
mixed (randomized) strategy, 375 Government regulation and consumer behavior, 138–139
multistage games, 390–397 as supply shifter, 49 and income effect, 141
Nash bargaining game, 376–377 unintended consequences, 184 and substitution effect, 141
Nash equilibrium, 369, 370 Green marketing, 309 Income effect, 141
normal-form game, 366–367 and business cycles, 139
one-shot games, 365 Haas School of Business, 107, 457 Income elasticity of demand, 92
payoff, 365 Harper Collins, 573 examples, 93
product quality game, 383–384 Hart-Scott-Rodino Antitrust Improvement linear demand function, 95–96
repeated games, 365 nonlinear demand function, 96–99
secure strategy, 368–369 Act, 529 normal vs. inferior goods, 92–93
sequential-move games, 365 Health insurance, 64 Income–leisure choice, 145–147
simultaneous-move, one-shot games, HealthNet International, 149 Incomplete information, 495
Hearst Magazines, 572 and asymmetric information, 542–547
366–377 Herfindahl-Hirschman index, 249 certification policy, 543–544
simultaneous-move games, 365 enforcement of contracts, 545–547
strategy, 366–369 in antitrust policy, 528–529 limit pricing, 494
US Airways, 364, 399 horizontal integration, 259–260 rules against insider trading, 534
Gasoline prices, and new car sales, 91 limitations, 251 truth in advertising, 545
Gasoline retailers for software market, 267 Truth in Lending Act, 544–545
frequent-filler programs, 436 U.S. industry concentration, 249–251 Increase in demand, 40
marginal cost, 352–353 Hertz, 62 Increase in supply, 48
Gateway Computer, 266 Hewlett-Packard, 11, 107, 247 Increasing marginal returns, 168
General Electric, 564 Hidden action, 463 Incremental costs, 24
General Mills, 348 Hidden characteristics, 463 in advertising, 310
General Motors, 225 Hidden transaction costs, 214 Incremental decisions, 24–25
Gift certificates, 142–145 High-definition TV, 579–580 Incremental revenues, 24
Global economy, goals of firms in, 7 High-speed Internet service, 576 in advertising, 310
Globalization, and supply of "Hold-up problem," 217–218 Indefinitely lived assets, 16–19
Home Box Office, 563, 575 Independent movie distributors, 570
automobiles, 64 Home video distributors, 571 Independent private values, 471
Global markets, 251 Horizontal integration, 259–260 Independent private values auction
Horizontal Merger Guidelines (Department of bidding strategy, 473–474
competition in, 283 expected revenues, 477
entry strategy, 394 Justice), 259, 267, 528–529, 552 Independent research and development, 171
Goals Horizontal mergers, 259 India
in global economy, 7 Housing market, 84 automobile industry, 194
identifying, 4–5 Hubs, 508–509 cola wars, 372
Golf Digest Companies, 572 Human capital, 216 Indifference curve, 125–126
Goodyear Tire & Rubber, 261 Hynix Semiconductor, 37 applications of
Google Inc., 210, 234, 247
Government IBM, 11, 247, 506 choices by consumers, 141–145
antitrust policy, 525–529 iid normal random variables, 103 choices by workers and managers,
certification policy, 543–544 Illinois Tool Works, 247
contract enforcement, 545–547 Implicit costs, 5–6 145–147
dealing with externalities, 534–538 Incentive contracts, 228, 229–230 buy one, get one free, 141–142
deregulation of electricity, 533 Incentive plans, 12 cash gifts, 142–144
and incomplete information, 542–547 Incentives consumer equilibrium and, 134–135
insider trading rules, 432 convex from the origin, 127
and market failure, 524–547 external, 230 and demand curves, 149–151
merger approval, 523 indifference curve approach, 241–244 diminishing marginal rate of substitution,
policy manager–worker principal–agent problem,
126, 135
in international trade, 548–552 231–234
on telecommunications, 579 output-oriented, 149

General Index 627

Indifference curve—Cont. Industry definition, 251–253 spot exchange, 218–219
family of, 127 Industry performance; see also Structure– vertical integration, 223–224
gift certificates, 142–144 optimal substitution, 181–183
income–leisure choice, 145–147 conduct–performance paradigm procurement methods, 212–214
in-kind gifts, 142–144 and consumer surplus, 261–262 profit-maximizing usage, 170–172, 207–208
managerial decisions, 147–149 Dansby-Willig performance index, 262 right level of, 169–172
and managerial incentives, 241–244 indicators, 261–263 transaction costs for, 213–218
of managers, 148 and producer surplus, 261–262 variable factors of production, 165
marginal rate of substitution, 127 Industry profitability, 8–11 Input substitution and fringe benefits, 184
and risk preferences, 128 Industry rivalry, 9–10 Input suppliers, 9
shift of consumer preferences, 127 Industry supply curve, 284–285 Insider trading, 543
Inelastic demand, 80 Insurance, 453
Indirect network externality, 509 perfectly, 83 adverse selection, 463–464
Individual behavior; see also Consumer for prescription drugs, 88 and moral hazard, 465
short-term, 86 Integration, 258
behavior Inferior goods, 41–42, 44 horizontal, 259–260
applications of indifference curve analysis effect of income changes, 138–139 vertical, 259
and income elasticity of demand, 92–93 Interdependence in oligopolies, 326–328
choices by consumers, 141–145 Infinitely repeated game, 377 Interest rates, 14–15
choices by workers and managers, application to product quality, 383–384 and limit pricing, 495–497
factors affecting collusion, 381–383 and usury laws, 60
145–149 present value and, 378 International Association of Machinists, 198
calculus approach to, 161–162 theory, 377–381 International companies, economies of
comparative static analysis, 135–141 trigger strategy, 378–380 scale in, 194
constraints on, 128–134 Information; see also Incomplete information International trade, U.S. legislation, 49
income–leisure choice, 143–144 mean of random variables, 448–449 International trade restrictions
indifference curve analysis, 125–128 perfect, 471 quotas, 548–550
labor shortage problem, 152–153, 213 perfect information assumption, 448 tariffs, 550–552
relationship between indifference curves spectrum auctions, 447, 479 Internet service provider marketing, 565–566
standard deviation, 450 Intuit, 245, 267
and demand curves, 149–151 uncertainty Inventory management, 136
thought processes, 124 Inverse demand function, 45–46, 295
Individual demand, 150 auctions, 468–478 Inverse supply function, 53
Industry consumer behavior, 451–456 Investors, 128
changes over time, 246–247 and firms, 456–461 Isocost, 178–179
conduct across, 257–261 and markets, 462–468 Isocost line, 178
decision making, 246 and statistical concepts, 448–451 and optimal input substitution, 181–183
demand and market conditions, 253–255, 256 value in online markets, 457 slope of, 180
in five forces framework variance of random variables, 449–451 Isoprofit curve, 336–338, 343
Informative advertising, 42 Isoquant, 175–178
barriers to entry, 8–9 In-kind gifts, 142–145 convex shape, 176
buyer power, 9 deadweight loss, 146 slope of, 180, 208
rivalry, 9–10 Innovation game, 394–395
substitutes and complements, 10–11 Innovative firms, 171 Japan
supplier power, 9 Input prices as supply shifter, 49 decline in income, 41
largest firms, 247 Inputs Kobe earthquake, 64–65
market structure, 246–255 algebraic analysis, 172–175
media companies, 564 in auto industry, 227 Job mobility, 230
motion pictures, 567–571 capital, 164
network effects, 507–513 cost-minimizing mix of, 180–181 Kelkoo.com, 107, 347
North American Industry Classification cost of inefficient procurement, 218 Kelley School of Business, 107, 457
System, 252 and costs of production, 176 Kellogg's, 261, 348
own-price elasticity of demand, 256 fixed factors of production, 164–165 Kentucky Fried Chicken, 9
potential for entry, 255 and isocosts, 178–179 Kinked demand curve, 330
structure–conduct–performance paradigm, and isoquants, 175–178 Kirin Brewing Company, Ltd., 41
263–264 labor, 164 Known final period games, 387–388
technology differences, 253 nonstandard, 213
Industry classification system, 252 optimal mix, 209 Labor
Industry codes, 252 optimal mix of labor and capital, 179–181 average product of, 166, 173–174
Industry concentration optimal procurement optimal level of, 179–181
concentration ratios, 248–250 contracts, 220–223 production input, 164
horizontal integration, 259–260 economic trade-off, 224–227
and intensity of rivalry, 9–10
limitations of measures, 251–253
Microsoft–Intuit merger failure, 245, 267
United States, 249–251

628 General Index

substituting capital for, 182 Long-run decisions, 164–165 shirking problem, 228–230
substituting computers for, 183 in perfect competition, 285–287 use of producer surplus, 54
value marginal product of, 169–172 Manager–worker principal–agent problem
Labor costs, 64, 182–183 Long-run equilibrium in monopolistic compensation, 231–233
Labor demand, 170–172 competition, 306–309 monitoring, 232–234
Labor–leisure choice, 145–147 one-shot games and, 374–376
Labor shortage, 123, 152–153 Loss minimization, 282–285 Mapquest, 566
Lanham Act, 545 Low-income workers, 184 Marginal analysis, 19
Law of demand, 39, 40 Low-price guarantees, 435 calculus alternative, 23
and demand function, 44 Lump-sum tariff, 550–551, 552 continuous decisions, 22–24
and price, 46 discrete decisions, 20–22
Law of diminishing marginal rate of technical Magazine publishing, 572–573 incremental decisions, 24–25
Magazines online, 573 marginal benefit, 21
substitution, 178 Management, effective marginal cost, 21
Law of supply, 48 Marginal benefit, 21
Leaders, in Stackelberg oligopoly, 343 five forces framework, 8–11 of contract length, 221
Learning curve effects, 493–494 identifying goals and constraints, 4–5 Marginal cost, 21, 187–188
Least squares regression, 101 nature and importance of profits, 5–11 changes in Cournot oligopoly, 338–340
Lenovo, 11 time value of money, 14–19 of contract length, 221
Leontief production function, 172 understanding incentives, 11–12 for cubic costs, 191
understanding markets, 12–14 derivation of, 188
isoquants, 178 using marginal analysis, 19–25 gasoline retailers, 252–253
Lerner index, 257 Managerial compensation Lerner index, 257
fixed salary, 228 in monopolistic competition, 304–305
for selected industries, 258 incentive contracts, 228 in monopoly, 297–299
Licensing incentive plans, 12 in perfect competition, 287
indifference curve approach, 241–244 and pollution emissions, 536–537
certification, 543–544 pay for performance, 233 and predatory pricing, 499
to raise rivals' costs, 501 and principal–agent problem, 227–230 and price discrimination, 419–420
of technology, 171 profit sharing, 228–229 price exceeding, 303
Limit pricing, 489 revenue sharing, 231 and raising rivals' costs, 500–501
dynamic considerations, 495–497 and shirking problem, 228–230 relation to average cost, 209
effective, 492 and takeover threat, 230 Sweezy oligopoly, 329
failure to deter entry, 491–492 Managerial economics, 3 and transfer pricing, 432–433
Microsoft, 490 for effective management Marginal cost function, 191
and monopoly price, 489–490 Marginal net benefits, 20–22
necessary conditions for, 496 identify goals and constraints, 4–5 Marginal principle, 22
preentry price to postentry profits learning, 25–26 Marginal product, 166–167
nature and importance of profits, 5–11 for Cobb-Douglas production function,
commitment mechanisms, 492–493 time value of money, 14–19
incomplete information, 494 understand incentives, 11–12 174–175
learning curve effects, 493–494 understand markets, 12–14 decreasing returns, 168
reputation effects, 494–495 using marginal analysis, 19–25 increasing returns, 168
residual demand, 490–491 and five forces framework, 8–11 for linear production function, 174
theoretical basis, 489–491 headlines involving, 2 negative returns, 168
and United States Steel, 497 for not-for-profit organizations, 2 Marginal rate of substitution, 126, 135
Linear demand function, 44–45, 80–81, reasons for studying, 2 calculus approach, 162
101, 413 Managerial preferences, 147–149 diminishing, 127
elasticities for, 95–96 Managers, 3, 26 Marginal rate of technical substitution, 176
inverse, 295 avoiding winner's curse, 476 and cost minimization, 180
Linear production function, 172, 178–179 brand myopic, 310 differing production functions, 176–178
marginal product for, 174 decision making, 3–4 Marginal revenue, 87, 277
Linear supply curve, 52 decisions and risk-averse consumers, in collusion, 250
Linear supply function, 52 451–453 in Cournot oligopoly, 332–333
Little, Brown & Company, 573 decisions by, 147–149 for firms with market power, 412–413
Local markets, 251 effect of asymmetric information, 462–463 in monopolistic competition, 304–305
Log-linear demand, 97 incentive contracts, 229–230 in monopoly, 292–296, 297–299
Log-linear demand function, 106–108 job loss, 1 and own price elasticity of demand, 87–89
definition, 97 job mobility, 230 and price discrimination, 419–420
elasticities for, 97–98 of not-for-profit organizations, 2 Sweezy oligopoly, 329
formula, 97 production decisions, 164 and transfer pricing, 432–433
Log-linear regression line, 107 risk averse, 456–459
Long-run average cost curve, 192–193 risk neutral, 63, 456
Long-run competitive equilibrium, 286–287 role in production, 168–172
Long-run costs, 191–193

General Index 629

Marginal value curves, 22 Market shares, movie industry, 570 Mitsui & Company, Ltd., 7
Market(s) Market structure, 246; see also Structure– Mixed strategy, 375
Money-back guarantees, 453
collusion and history of, 382–383 conduct–performance paradigm Monitoring costs, 382
consumer–consumer rivalry, 13 computer industry, 266 Monitoring employees, 374–376
consumer–producer rivalry, 13 demand, 253–255, 256 Monopolistically competitive market, 303
geographical range, 251 firm size, 246–247 Monopolistic competition, 265
government intervention in, 13–14 industry concentration, 247–253
producer–producer rivalry, 13 largest firms, 247 brand equity, 309
rivalry in transactions, 12–13 market conditions, 253–255, 256 brand myopic managers, 310
and uncertainty monopolistic competition, 265, 303–310 calculus of profit maximization, 322–323
monopoly, 265, 287–303 cannibalization, 306
adverse selection, 463–464 oligopoly, 265–267, 325–351 comparative advertising, 309
asymmetric information, 462–466 optimal advertising decisions, 310–312 compared to monopoly, 304
hidden actions, 463 perfect competition, 265, 275–287 compared to perfect competition, 303–304
hidden characteristics, 463 potential for entry, 255 conditions for, 303
moral hazard, 465–466 technology differences, 253 entry and exit, 303, 307
screening, 466–468 Market supply, 48 fast-food industry, 274, 312
self-selection device, 467–468 effect of lump-sum tariff, 551, 552 green marketing, 309
signaling, 466–468 Market supply curve, 48, 534 long-run equilibrium, 306–309
understanding by managers, 12–14 and equilibrium price, 54 market demand curve, 305
Market conditions, varying by industry, 253–255 in perfect competition, 276, 285 niche marketing, 309
Market demand, 151 Market trends, 38 optimal advertising decisions, 310–312
Market demand curve, 39–40 Markup price and average cost, 308–309
and equilibrium price, 54 Cournot oligopoly, 414–415 pricing rule, 411–414
in monopolistic competition, 305 monopolistic competition, 413 product differentiation, 306, 309–310
in perfect competition, 276 monopoly, 413 profit maximization, 304–306
and price discrimination, 417–418 rules of thumb, 412 profit-maximizing rule, 305
Market economies, 38 for selected industries, 258 Monopoly, 265, 287–303, 288
Market equilibrium Maruti Udyog Ltd., 195 and antitrust policy, 525–529
comparative static analysis, 62–67 Matsushita Plasma Display Panel Company calculus of profit maximization, 322–323
competitive, 54–55 compared to monopolistic competition, 304
effect of price ceilings, 57–60 Ltd., 194 costs, revenues, and profits, 296–297
effect of price floors, 61–62 McCaw, 447 deadweight loss of, 302–303, 525
Market failure McDonald's, 274, 304, 312 defining relevant market, 290
antitrust policy and, 525–529 MCI, 576 demand curve, 288–289
from asymmetric information, 543 Mean, 448 economies of scale, 289–290
benefits of government intervention, Mean-variance analysis, 456–458 economies of scope, 290–291
524–525 Media consolidation, 564 and government intervention, 524–525
externalities, 534–538 Media One Group, 563 irrelevance of rim size, 288
incomplete information, 542–547 Medical costs, and moral hazard, 465–466 and limit pricing, 489–490
versus market power, 524–547 Mergers multiplant output rule, 300
price regulation and, 529–534 optimal advertising decisions, 310–312
and property rights, 535 antitrust policy, 527–529 output rule, 296
public goods, 538–542 AOL Time Warner, 490 and price regulation, 523
Marketing AOL Time Warner failure, 563 pricing rule, 298, 411–414
Internet service providers, 565–566 conglomerate, 260 profit maximization
in monopolistic competition, 309–310 and economies of scope, 197–198
Market inverse demand curve, 349–350 friendly vs. hostile, 258 absence of supply curve, 299
Market power, 524 Google and Motorola Mobility, 210, 234 barriers to entry, 301–303
from horizontal integration, 259–260 horizontal, 259–260 marginal revenue, 292–296
lacking in perfect competition, 265 media consolidation, 564 multiplant decisions, 299–301
marginal revenue and, 412–413 Nestlé and Ralston, 523, 552 output decisions, 296–299
market failure due to, 524–547 takeovers, 259 and rent seeking, 547–548
in monopolistic competition, 265 vertical, 259 Monopoly network, 510–511
in monopoly, 265 MGM, 564, 569 Monopoly output rule, 296
in oligopoly, 265–267 Microsoft Corporation, 10, 89, 245, 247, 267, Monopoly power
and pricing strategies, 410 irrelevance of firm size, 288
Market price 500, 566–567 local monopolies, 288
in contestable markets, 351 Minimum retail price, 60 sources of
in perfect competition, 287 Minimum wage law, 60 copyrights, 293
Market rate of substitution, 130–131 Minority Media and Telecommunications cost complementarities, 291

Council, 579
Miramax, 570

630 General Index

economies of scale, 289–290 dilemma, 371 North American Industry Classification
economies of scope, 290–291 entry game, 393–395 System, 252
legal barriers, 291 film version, 370
patents, 291, 293 game without, 375 Not-for-profit organizations, 2
trademarks, 293 multistage game, 392
Monopoly price, and price matching, 434 Nash-equilibrium.com, 457 Observation costs, 344
Monopoly pricing rule, 298 National Association of Realtors, 84 Occupational Safety and Health Administration,
Monopoly profits, 301 National Bank of Poland, 60
Moral hazard, 465 National markets, 251 543
hidden actions, 463, 465 National Rent-A-Car, 62 Oligopoly, 265–267, 326; see also Bertrand
in insurance, 465 Natural gas contracts, 222
in medical costs, 465–466 Natural logarithm, 97n oligopoly; Cournot oligopoly; Game
principal–agent problem, 465 Natural monopoly, 533 theory; Stackelberg oligopoly; Sweezy
More is better, 125–126 NBC Universal, 564 oligopoly
Morton's steakhouse, 413, 487 Negative externalities, 534 advertising, 372–373
Motion Picture Association of America, 569 and Clean Air Act, 535–537 beliefs about rivals' actions, 326–328
Motorola Mobility, 210, 234 pollution, 534–535 comparison of models, 348–351
Movement along a demand curve, 40 Negative marginal returns, 168 conditions for, 326
Movement along a supply curve, 48 Nestlé, 523, 552 contestable markets, 351–352
Moviefone, 566 Net benefits, 20 demand in, 327–328
Movie industry calculus of minimizing, 34–36 differentiated-product Bertrand oligopoly,
antitrust ruling, 568 Net present value, 15–16
competition, 570–571 Netscape, 490, 500, 566 361–363
early Warner Brothers, 567 Network complementarities, 509 gasoline retailers, 325, 352–353
home video distribution, 571 Network effects, 507–513 management difficulties, 326
market shares, 570 Network externalities mutual interdependence, 267
production and distribution, 568–570 bottlenecks, 509–510 profit maximization
revenues, 568–569 consumer lock-in, 510–511
Time-Warner merger, 568 direct, 508 Bertrand model, 346–348
TV programming, 571 indirect, 508 Cournot model, 330–342
MRTS; see Marginal rate of technical substitution and penetration pricing, 511–513 Stackelberg model, 342–346
Multiplant decisions, 299–301 Networks, 508 Sweezy model, 328–330
Multiplant monopoly, 299–301 exclusive, 510–511 quality decisions, 372–373
Multiplant output rule, 300 first-mover advantage, 510–511 spreadsheet, 250
Multiple R, 105n hubs, 508–509 strategic interaction, 326–328
Multiple regressions, 108–111 one-way, 508 types of, 326
Multiproduct cost function, 195, 195–197 and penetration pricing, 512–513 Omnicon Group, 247
cost complementarities, 195–198, 391 star, 508–509 One-shot games, 365; see also Simultaneous-
economies of scope, 195 two-way, 508 move, one-shot games
quadratic, 196–197 New car sales, 91 price matching, 434–435
Multiproduct firms, 136, 291 New Line Cinema, 568, 570 One-way network, 508
Multistage games New products, 274, 312 Online auctions, 511
applications innovation decisions, 394–395 Online shopping
entry game, 393–394 and predatory pricing, 498 Bertrand oligopoly, 347
innovation, 394–395 News Corp., 564, 577 in European Union, 107
sequential bargaining, 395–397 New York Stock Exchange, 462 price frames, 428
decision nodes, 390–391 New York Times, 77 price matching, 435
extensive-form, 390–392 Nextag.com, 347 value of information, 457
Nash equilibrium, 392 Niche marketing, 309 Opie equilibrium, 370
payoff, 391 Nike, Inc., 247 Opportunism, 217–218
strategy, 390–391 Nonexclusionary consumption, 538–539 Opportunity cost, 5
subgame perfect equilibrium, 392 Nonlinear demand function, elasticities for, 95–99 of funds, 14
theory, 390–392 Nonlinear regression functions, 106–108 and price ceilings, 59–60
Mutual interdependence, 267 Nonpecuniary price, 58 of resource use, 5–6
Nonrival consumption, 538–539 of waiting, 15
NASDAQ, 462 Normal-form game, 366–367, 375 Optimal input substitution, 181–183
Nash bargaining game, 376–377 Normal goods, 41 Optimal mix of inputs, 209
Nash equilibrium, 369, 387, 434 effect of income changes, 138–139 Optimal plant size, 193
and income elasticity of demand, 92–93 Orbitz, 435
Bertrand pricing game, 378 North American Free Trade Agreement, 49, 252 Organization of Petroleum Exporting Countries
coordination decisions, 374 cheating in, 343
and U.S. laws, 526
Output
average product, 166
with collusion, 349–350

General Index 631

Output—Cont. Perfect competition, 275–287 legitimate, 498
marginal product, 166–168 in agriculture, 276–277 and marginal cost, 499
minimum cost of producing, 211–212 algebra of supply functions, 323–324 success with, 498
monopoly rule, 296 automobile industry, 283 Preentry price, 492–495
right level of inputs for, 169–172 calculus of profit maximization, 322 Prescription drugs, 88
and scale economies, 192 compared to monopolistic competition, Present value, 14
socially efficient level, 535 303–304 air club membership, 19
total cost of producing, 184 competitive output rule, 279–280 formula, 14–15
total product, 166 conditions for, 275 of indefinitely lived assets, 16–19
definition, 265 and infinitely repeated games, 378
Output decisions demand at market and firm levels, 276–277 net, 15
Cournot oligopoly, 337–338 demand curve, 276 of perpetuity, 16
monopolistic competition, 307–309 free entry and exit, 275–276 and profit maximization, 17–18
in monopoly, 296–299 limiting Cournot oligopoly, 416 of stream of future payments, 15
multiplant monopoly, 300 long-run competitive equilibrium, 286–287 value of the firm, 16–19
in perfect competition, 277–285 long-run decisions, 285–287 Price(s); see also Equilibrium price
Stackelberg oligopoly, 343–346 marginal revenue, 277 Bertrand trap, 347–348
optimal advertising decisions, 310–312 collusion on, 371–372
Overbuilders, 577–578 price determination, 276 consumer–consumer rivalry, 13
Overtime pay, 123, 152–153 pricing in, 275 consumer–producer rivalry, 13
Own price elasticity of demand, 79, 412–413 revenues, costs, and profits, 278 and consumer search, 453–456
short-run output decisions with consumer surplus, 46–48
arc elasticity of demand, 84 firm and industry supply curves, determination in perfect competition, 276
elastic demand, 80 284–285 effect of shortages on, 54
factors affecting, 84–87 loss minimization, 281–284 effect of surplus on, 54–55
formula, 82 operating losses, 281–282 effect on demand, 39–40
for industries and firms, 256 profit maximization, 277–281 exceeding marginal cost, 303
inelastic demand, 80 shut-down decision, 282–284 full economic, 58
and linear demand curve, 81–83 similar transactions costs, 275 haggling over, 13
linear demand function for, 95–96 Lerner index, 257
marginal revenue and, 87–89 Perfect information assumption, 448 and marginal revenue, 87–89
nonlinear demand function for, 96–99 Perfectly competitive market, 275 market equilibrium, 57–62
perfectly elastic demand, 83 Perfectly elastic demand, 83 minimum retail, 60
perfectly inelastic demand, 83 Perfectly inelastic demand, 83 nonpecuniary, 58
for prescription drugs, 88 Perpetuity, 16 preentry, 492–495
short- vs. long-term, 86 Persuasive advertising, 42 producer expectations, 51
and total revenue, 80–83 Per unit excise tax, 50 producer–producer rivalry, 13
unitary elastic demand, 80 Per-unit tariff, 550 and producer search, 460
Peugeot-Citroën, 283 with producer surplus, 53–54
Palm, 107 Pfizer, Inc., 291 relation to supply, 48
Panasonic, 194 Philip Morris International, 247 reservation price, 454–456
Parameter estimates, 101 Physical-asset specificity, 215, 222 Rothschild index, 265
Paramount Decree of 1938, 568 Physician certification, 544 and supply function, 51–53
Paramount Pictures Corporation, 569 Piece rate system, 232 tariffs and, 550–552
Patent disclosures, 171 Plant patent, 293 and usury laws, 60
Patent protection, 293 Plants Price ceilings, 57
Patents, 171 on bank fees, 60
electric utilities, 222 deadweight loss of, 59
barrier to entry, 291 optimal size, 193 as government intervention, 57
as barrier to entry, 255 site specificity, 215 graphing, 58
types of, 293 Point-of-sale disclosure rules, 545 means of rationing under, 57–58
Pay for performance, 233 Policing costs, 382 national comparisons, 60
Payment-based cable networks, 578 Pollution, 534–535 reason for imposing, 59–60
Payoff Pollution permits, 536–537 and scarcity, 57
first-mover advantage, 504–506 Population composition, as demand shortages created by, 60
in game theory, 365 Price changes
PC Solutions, 37 shifter, 43 constraint on consumers, 133–134
Peak-load pricing, 429–430 Posted-price market, 383 and consumer behavior, 135–137
Penetration pricing, 512 Postentry profits, 492–495 and income effect, 141
to “change the game,” 510–513 Potential for entry, 255 and inventory management, 136
first-mover advantage, 510–511 Predatory pricing, 497–498
to overcome network effects, 507–513
Yahoo! auctions, 511 and antitrust policy, 498
PepsiCo, 42, 252 counterstrategies, 498

632 General Index

substitution effect, 140–141 to induce brand loyalty, 435–436 Production function, 164
total revenue test, 81–83, 90–92 intense price competition, 433–437 algebraic forms, 172, 173
Price competition, intense Lerner index, 257–258 Cobb-Douglas, 178
and Bertrand oligopoly, 433 low-price guarantees, 435 collective bargaining, 163, 198
inducing brand loyalty, 435–436 markup factor, 257–258 cost minimization, 179–181
price matching, 434–435 markup rules of thumb, 412 estimating, 192
randomized pricing, 436–437 monopolistic competition, 411–414 fixed factors of production, 164–165
Price controls monopoly pricing rule, 298 fixed-proportions, 172
on natural gas, 222 in oligopolies, 326–328 isocosts, 178–179
price ceilings, 57–60 one-shot games, 369–372 isoquants, 175–178
price floors, 61–62 peak-load pricing, 429–430 law of diminishing rate of technical
Price–cost squeeze, 503, 504 penetration pricing, 507–513 substitution, 178
Price discrimination, 46, 416–422, 417 in perfect competition, 275 Leontief, 177
antitrust policy, 527 predatory pricing, 497–500 linear, 176–177
discounts, 417, 419 price discrimination, 46, 416–422, 503–504 long-run decisions, 164–165
elasticity of demand, 420 price matching, 434–435 managerial role, 168–172
and European Commission, 528 punishment mechanisms, 383 marginal rate of technical substitution,
fairness to customers, 417 randomized pricing, 436–437 176–177, 180
first-degree, 417–418 Sweezy oligopoly, 328–330 operating to right point of, 169
second-degree, 418–419 transfer pricing, 431–433 optimal input substitution, 181
as strategic tool, 503–504 two-part pricing, 422–424 productivity measures
third-degree, 419–421 upstream divisions, 431–432 algebraic, 173–175
Price elasticity of demand; see Own price value pricing, 46 average product, 166
yielding greater profits marginal product, 166–168
elasticity of demand total product, 166
Price floors, 61 extracting surplus from consumers, profit-maximizing input usage, 170
416–429 right input levels, 169–172
minimum retail price, 60 short-run decisions, 164–165
minimum wage law, 60 with intense competition, 433–437 value marginal product, 169
national comparisons, 60 special cost and demand structures, 429 variable factors of production, 165
surplus from, 61–62 Principal–agent problem, 212
Price frames, 428 managerial compensation, 228–230 Productivity measures
Price matching, 434–435 manager–worker, 231–234 algebraic, 174–175
Price regulation, 529–532 and moral hazard, 465 average product, 166
and deregulation, 533 Private values, 471–472 marginal product, 166–168
Price rigidity, 353 Procter & Gamble, 247, 261, 306, 506 total product, 166
Prices of related goods, as demand shifter, Prodigy Services, 506, 565
Producer expectations as supply shifter, 51 Product quality, 451–453
40, 42 Producer–producer rivalry, 13 Product quality game, 383–384
Price takers, 283 Producer search, 460 Products
Price war, 348 Producer surplus, 53–54
and industry performance, 261–262 cross-subsidies, 430–431
over colas in India, 372 Product classes, 251–253 identical in Bertrand oligopoly, 346–348
Pricing game, 387–388 Product differentiation Profit maximization, 17
Pricing strategies, 409–439; see also Limit Bertrand oligopoly, 348, 361–363 advertising-to-sales ratio, 310–311
implications, 309–310 basic rule of, 410–411
pricing; Profit maximization entries monopolistic competition, 305 Bertrand oligopoly, 346–348
basic and profitability, 10 calculus of, 322–323
toothpaste market, 306 Cournot oligopoly, 330–332
Cournot oligopoly, 414–416 Production goal of firms, 6–7
monopolistic competition rule, calculus of, 207–209 input usage, 170–172
capital input, 164 in monopolistic competition, 304–306
411–414 cost minimization in, 211–212 in monopoly
monopoly price, 411–414 fixed factors, 164–165
profit maximization rule, 410–411 of inputs internally, 213 absence of supply curve, 299
Bertrand oligopoly, 347 labor input, 164 marginal revenue, 292–296
block pricing, 424–426 learning curve effects, 493–494 multiplant decisions, 299–301
in business cycles, 139 managerial decisions, 164 output decisions, 296–299
commodity bundling, 426–429 managerial role, 168–172 perfect competition, 277–281
in contestable markets, 351 substitutes as supply shifter, 49–50 Stackelberg oligopoly, 342–346
and cross-price elasticity of demand, 90 technology in, 164 Sweezy oligopoly, 328–330
cross-subsidies, 430–431 variable factors, 165 third-degree price discrimination, 419
Disney World Theme Parks, 409, 437–438 from transfer pricing, 431–433
double marginalization problem, 423 and uncertainty, 460–461
downstream divisions, 431
factors affecting collusion, 381–383
finitely repeated games, 384–388

General Index 633

Profit maximization rule, 410–411 Punishment mechanisms adjusted R-square, 105–106
Profit-maximizing advertising-to-sales ratio, in collusion, 383 coefficient of determination, 104–106
"snake-oil" salesmen and, 389–390 confidence intervals, 103
310–311 and econometrics, 100–101
Profit-maximizing input usage, 170–172 P-values, 104 elasticities of demand based on, 107
Profit-maximizing level of output, 412–413 F-statistic, 106
Quadratic multiproduct cost function, 196–197 iid normal random variables, 103
Cournot oligopoly, 331–335 Quality decisions, one-shot games, 372–373 least-squares regression, 101
for monopoly, 296–299 Quantitative demand analysis log-linear regression line, 107
in perfect competition, 277–281 multiple regressions, 108–111
raising rivals' costs, 500–501 elasticity concept, 78–99 nonlinear functions, 106–108
Stackelberg oligopoly, 343 advertising elasticity, 84 overall fit of regression line, 104–106
Sweezy oligopoly, 329 cross-advertising elasticity, 84 parameter estimates, 101
Profit-maximizing markup cross-price elasticity of demand, 89–92 P-values, 104
Cournot oligopoly, 414 demand functions for, 94–99 regression line, 101
monopolistic competition, 413 income elasticity, 92–93 residual degrees of freedom, 105–106
monopoly, 413 own price elasticity of demand, 79–89 R-square, 104–106
Profit-maximizing usage of inputs, spreadsheets, 101–102
questions answered by, 78 standard error, 102–103
207–208 regression analysis, 99–111 statistical significance of coefficients,
Profits Quantity demanded
change in, 40 102–104
accounting, 5–6 and demand function, 44–46 sum of squared errors, 101
in Bertrand duopoly, 370–372 and price ceilings, 57 t-statistic, 103–104
from block pricing, 424–426 and price floors, 61–63 warning on, 111
from commodity bundling, 426–429 shift factors, 40–41 Regression line, 97
in computer industry, 11 Quantity supplied graphing, 96
determination in Cournot oligopoly, change in, 48 log-linear, 107
and price ceilings, 57 overall fit of, 104–106
336–338 and price floors, 61–63 Regulation Z, Federal Reserve Board, 544
determined by revenues, 296 shift factors, 48–51 Relationship-specific exchange, 215
economic, 5–6 and supply function, 51–53 Relevant market, 290
from first-degree price discrimination, Quits, 389 Rent seeking, 547
Quotas, 548 incentives for, 547–548
417–418 impact on domestic market, 549–550 Repeated games, 365; see also Finitely repeated
in five forces framework, 8–11 Qwest Communications, 577
and incentives, 11–12 games; Infinitely repeated games
indicator of performance, 261 Raising rivals' costs, 500 Replacement, 454
interrelated forces influencing, 8 fixed cost strategies, 501–502 Reputation, 230
nature and importance of, 5–8 marginal cost strategies, 500–501 Reputation effects, 495–496
from peak-load pricing, 439–430 price–cost squeeze, 503
perfectly competitive firms, 278–280 vertical foreclosure, 503 and predatory pricing, 498
postentry, 492–495 vertical integration, 502–503 Research and development, 171
from price matching, 434–435
and resource allocation, 6–7 Ralston, 523, 552 varying by industry, 260–261
role of, 6–7 Random House, 573 Reservation price, 454–456
from second-degree price discrimination, Randomized pricing, 436 Residual degrees of freedom, 105–106
Residual demand, 490–491
419 in airline industry, 437 Resignations, 389
as signal, 6–7, 8 consumer problem with, 436 Resource allocation, 3
from third-degree price discrimination, problem for rivals, 436
Randomized strategy, 375 and profits, 6–7
419–421 Random variables Resources, 3
from two-part pricing, 424 mean, 448–449
and value of the firm, 17–19 variance, 449–451 opportunity cost of using, 5–6
Profit sharing, 231, 243 Rate-of-return regulation, 533 Restaurant News, 2
Property rights, 535 Reaction functions Returns to scale
Public goods, 538 Cournot oligopoly, 330–335, 349
contribution by firms, 542 differentiated-product Bertrand oligopoly, constant, 193
demand for, 539–540 estimating, 192
free-rider problem, 539, 540–541 362–363 Revenue equivalence, 477
nonexclusionary, 538–539 Stackelberg oligopoly, 343–345 Revenues
nonrival, 538–539 Real income, 140 determining profits, 296
socially efficient level of, 538–541 Recession, in Asia, 41 incremental, 24
too much provision of, 541 Regional markets, 251 movie industry, 568–569
Public health centers, 149 Regression analysis, 99–111 Revenue sharing, 231
Public Utility Regulatory Policies Act, 533 Reverse engineering, 171
Publishers, 572–573

634 General Index

Risk averse/aversion, 451 Sequential-move game, 365 Spreadsheet
in auctions, 478 first-mover advantage, 505 to calculate equilibrium, 65
in consumer behavior, 451–453 collusive outcomes of oligopoly, 350
firms and, 456–459 Sherman Antitrust Act, 490, 527 multiple regression, 110
managerial decisions, 451–453 and predatory pricing, 498 for regression analysis, 101–102, 112
St. Petersburg paradox, 452 provisions, 525–526
Sprinkler strategy, 394
Risk loving, 451 Shirking problem, 228–230 Sprint, 576
Risk neutral, 451, 454, 460–461, 463 Shopper.com, 347 Stackelberg duopoly, 350
Risk-neutral auction bidding, 472–476 Shortages Stackelberg oligopoly, 342
Risk preferences, 128
Risky projects, 456, 459 effect on price, 54 collusive outcomes, 350–351
Rivalry from price ceilings, 60 commitment in, 344
Short-run cost function, 185 compared to Cournot oligopoly, 339–340
in industry, 9–10 Short-run costs, 184–186 compared to other models, 348–351
in markets, 12–13 Short-run decisions, 164–165 conditions for, 342–343
in transactions, 12–13 Short-run operating losses, 281–282 decision making, 342
Robinson-Patman Act, 527 Shut-down decision, 282–284 equilibrium, 343
Rothschild index, 254 Signaling, 466–467 equilibrium outputs, 344–345
and monopolistic competition, 265 Simultaneous-move, one-shot games first-mover advantage, 504
and monopoly, 265 applications isoprofit curves, 343
for selected industries, 255 leader vs. follower, 343
R-square, 104–105, 109 advertising decisions, 372–374 observation costs, 344
adjusted, 105–106 coordination decisions, 373–374 profit-maximizing level of output, 343
Rule of reason, 526–527 mixed/randomized strategy, 375–376 reaction functions, 344–346
Rwandan Ministry of Health, 149 monitoring employees, 374–376 spreadsheet, 350
Nash bargaining, 376–377 Standard deviation, 450
St. Petersburg paradox, 452 pricing decisions, 369–372 Standard error, 102–103
Salary-plus-bonus compensation, 243–244 quality decisions, 372–374 Standard Oil of New Jersey, 526
Sales, of largest firms, 247 dominant strategy, 367–369 Standard Oil of Ohio, 526
Samsung Electronic Company, 37 Nash equilibrium, 369, 370 Standard Oil Trust, 526
Sapporo Breweries Ltd., 41 normal-form game, 366–367 Staples, 11
Sarbanes-Oxley Act, 543 secure strategy, 368–369 Starbucks, 312
Satellite Glass Corporation, 233 strategies, 366–369 Star network, 508–509
Scarcity theory, 366–369 Stock market
Simultaneous-move game, 365 and asymmetric information, 462
and competition among consumers, 13 first-mover advantage, 504–505 insider trading, 543
and consumer behavior, 134–135 Site specificity, 215, 222 Stockpiling, 43
pervasive nature of, 3 "Snake-oil" salesman, 389–390 Strategic equivalence of Dutch and first-price
School certification, 544 Socially efficient level of output, 535
Screening, 467 Socially efficient level of public goods, 538–541 auctions, 471
Sealed-bid auctions Socially inefficient, 370 Strategy, 366
bidding strategy, 478 Social welfare
on eBay, 470 effect of price ceilings, 57–62 in game theory, 365
expected revenues, 477 government intervention to increase, 524 dominant, 367–369
first-price, 469–470 indicator of performance, 261–263 mixed/randomized, 373–374
second-price, 470 and market power, 524–525 multistage games, 390–392
Search costs, 455 Sony Corporation, 107, 506, 564 secure, 367–369
Second-degree price discrimination, 418–419 Sony Pictures Entertainment, 569 trigger, 378
Second-mover advantage Specialization
benefits, 507 benefit of contracts, 213 for international markets, 394
examples of success, 506 lost in vertical integration, 213 for risk-neutral auction bidding, 472–476
Second-price, sealed-bid auction, 470 Specialized investment, 215 Strike, 198
expected revenues, 477 and contract length, 222 Structure–conduct–performance paradigm
optimal bidding strategy, 473 contracts, 220 causal view, 263
Secure strategy, 368–369 implications, 216–218 feedback critique, 263–264
Securities and Exchange Commission, 545 for optimal input procurement, 219 five forces framework, 264
investigation of AOL, 563 and relationship specific exchange, 215 Structure of an industry, 263
Securities Exchange Act of 1934, 543 versus spot exchange, 225–226 Subcontracting, 218
Self-interest, 6–7 types, 215–216 Subgame perfect equilibrium, 392, 396
Self-selection device, 467 Spot checks, 232–234 Subgame perfect Nash equilibrium, 493
Separation of ownership and control, 228 Spot exchange, 212 Subsidiaries, and economies of scope, 197–198
Sequential bargaining game, 395–397 for optimal input procurement, 218–219 Substitutes, 42, 44
versus specialized investments, 225–226 and own price elasticity of demand, 85–86
and price changes, 137

General Index 635

Substitutes—Cont. demand curve, 328–329 high-speed Internet service, 576
and profitability, 10–11 kinked demand curve, 330 memos, 581–589
as supply shifter, 49–50 marginal cost and price, 329 operations, 564
marginal revenue, 329 production costs and revenues, 596
Substitution price rigidity, 353 programming networks, 574–575
diminishing marginal rate of, 127 pricing strategies, 329–330 publishing ventures, 571–573
marginal rate of, 126, 127, 135, 162 profit-maximizing level of output, 329 regulatory considerations, 579
marginal rate of technical, 176–180 satellite-delivered networks, 596
market rate of, 130–131 Tacit collusion, 382–383 technological considerations, 579–580
optimal input, 181–183 Takeover threat, 230 telephone services, 576–577
Tariff Tips, 231
Substitution effect, 140 Toothpaste market, 306
Subway, 309 excise, 550–551 Toray Industries, 194
Sum of squared errors, 101, 105 lump-sum, 550–551, 552 Total benefits, 20–22
Sunk costs, 189 Taxes Total cost, 184
ad valorem, 50, 51 average, 187
absence of, in contestable markets, 351–352 excise, 50, 51 relation to other costs, 185–186, 188–189
as fixed costs, 189–190 low-income workers, 184 Total product, 166
irrelevance of, 190 for public goods, 541 Total revenue
Supermarket Business News, 2 as supply shifter, 50–51 and elasticities, 80–83
Supplier power, 9 Technical meetings, 171 in monopoly, 292
Supply Technology Total revenue test, 81–83, 90–92
changes in, 48, 62–64 digital video recorders, 580–581 Total value curves, 22
comparative static analysis, 64 HDTV, 579–580 Toyota Motor Corporation, 9, 195, 431
decrease in, 48 information sources, 171 Trade Act of 2002, 49
increase in, 48 and market structures, 253 Trademarks, 293
law of, 48 in production, 164 Trade publications, 171
in market economies, 38 reverse engineering, 171 Transaction costs, 214
producer surplus, 53–54 as supply shifter, 49 in acquiring inputs, 214–218
spreadsheet for, 65 varying by industry, 253 hidden, 214
Supply and demand, simultaneous shifts, 64–67 Telecom India, 567 in perfect competition, 275
Supply and demand analysis Telecommunication Act of 1996, 579 reduced by horizontal integration, 259
equilibrium price, 54–55 Telefonica, 567 for specialized investments, 215–218
price ceilings, 57–60 Television programming, 571 Transactions, two sides to, 12–13
price floors, 61–62 Third-degree price discrimination, 419–422 Transfer pricing, 431
as qualitative tool, 38 Thought processes, 124 and divisions of firms, 431–432
Supply curve Time, and own price elasticity of demand, 86 double marginalization problem, 432
absent in monopoly, 299 Time clocks, 232–234 optimal, 433
graphing, 52–53 Time Inc., 563 and value of the firm, 432
market, 48 Time value of money Transitivity, 127
movement along, 48 present value analysis, 14–16 Trigger strategy, 378, 434
with producer surplus, 53–54 present value of indefinitely lived assets, finitely repeated games, 385
shift factors, 48–51 and reputation effects, 495–496
short-run, 284–285 16–19 to support collusion, 378–381
and trade agreements, 49 Time Warner, 490 sustaining cooperative outcomes with, 380
Supply function, 51, 51–53 Time Warner Books, 573 in waste industry, 382
inverse, 53 Time Warner Cable, 563, 575 Truth in advertising, 545
linear, 52 Time Warner case study Truth in Lending Act, 544–545
perfect competition, 322–323 Truth in Lending Simplification Act, 544–545
Supply shifters, 48 AOL merger failure, 563 t-statistic, 103–104, 109
government regulation, 49 balance sheet, 593 Turner Broadcasting System, 568, 575
input prices, 49 basic areas for sales, 565 Twentieth Century Fox, 569
number of firms, 49 broadband Internet subscriptions, 597 Two-part pricing, 422–424
producer expectations, 51 bundling, 578–579 compared to monopoly pricing, 423
substitutes in production, 49–50 cable industry growth, 597 Two-way network, 508–509
taxes, 50–51 cable systems, 575–581
technology, 49 challenges, 580 Uncertain final period games, 384–387
Surplus company background, 563 Uncertainty
effect on price, 54–55 competing technologies, 597
result of price floor, 61 competition, 577–578, 594 and consumer behavior
Sweezy oligopoly, 328 consolidated statement of operations, 592 consumer search, 453–456
compared to Cournot oligopoly, 339–340 filmed entertainment, 567–572
conditions for, 328 highest grossing movies, 595

636 General Index

reservation price, 454–456 Universal City Studios, 569 Wage rate, 182
risk aversion, 451–453 Upstream divisions, 431–433 Wages, 123
risk loving, 451 US Airways, 19
risk neutral, 451 Usury laws, 60 overtime pay, 152–153
and firms Utility function, 161 Wall Street Journal, 2, 37, 62, 63
producer search, 460 Utility maximization, 161–162 Walmart, 246, 247
profit maximization, 460–461 Utility patent, 293 Walmart Connect Internet Service, 566
risk aversion, 456–459 Walt Disney Company, 247, 564, 569
and markets Value Warner Brothers, 563, 569
adverse selection, 463–466 ascertaining, 46–48 Warner Communications, 563
asymmetric information, 462–466 common, 472 Warner Manufacturing, 563
hidden actions, 463 Warner Music Group, 563
hidden characteristics, 463 Value marginal product, 169 Waste industry, 382
moral hazard, 465–466 Value of the firm Waterfall strategy, 394
screening, 466–468 WB Network, 575
self-selection device, 467–468 maximizing, 7 Wealth of Nations (Smith), 6
signaling, 466–468 present value analysis, 16–19 Wendy's, 9, 304, 312
Underinvestment, 216–217 and profits, 17–19 Wholesale electricity market, 533
Unitary elastic demand, 80 St. Petersburg paradox, 452 Winner's curse, 475–476
United Continental Holdings, 247 Value pricing, 46 Wireless auction, 77–78, 111–112
UnitedOnline, 565–566 Variable costs, 184 Workers
United States all costs as, 191–192
industry concentration, 249–251 average, 186–187 choices by, 145–147
own price elasticities, 85 relation to other costs, 185–186, 188–189 compensation, 231–233
United States Copyright Office, 293 Variable factors of production, 165 interest in working hard, 389
United States Patent and Trademark Office, 293 Variance, 449 investment in learning, 216–217
United States Steel, 497 Verizon Communications, 247, 577 low-income, 184
United States Supreme Court Vertical foreclosure, 503, 504 monitoring, 374–376
and antitrust policy, 526–527 Vertical integration, 213, 213, 259
major cases, 526 advantages, 224 spot checks, 232–234
rule of reason, 527 at General Motors, 225 time clocks, 232–234
United States v. Joint Traffic Association, 526 for optimal input procurement, 223–224 resignations, 389
United States v. Standard Oil of New Jersey, 526 and raising rivals' costs, 502–503
United States vs. Trans-Missouri Freight Vertical merger, 259 Yahoo!, 107
Association, 526 Viacom, 564 Yahoo! auctions, 511
Vivendi, 564
Voice over Internet Protocol, 576 Zero economic profits, 276, 286–287,

301–302

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