III Market Structure 1 Market Definition III Market
- Slides: 23
(III). Market Structure: 1. Market Definition
(III). Market Structure: 1. Market Definition 1 -(1). Basic Concepts 1 -(2). Defining Markets 1 -(2)-i. Cross-Elasticity of Demand 1 -(2)-ii. The New Antitrust Division Method 1 -(2)-iii. Traditional Practical Evidence 1 -(2)-iv. Supply Conditions 1 -(2)-v. Census Industry-SIC
(III). Market Structure: 1. Market Definition -(1). Basic Concepts (Product ) (62) “Defining the market” means drawing the market’s edges so that it contains all of the closely substitutable goods. The Zone of Consumer Choice. Market = { Supply, Demand }. ← Product
(III). Market Structure: 1. Market Definition -(1). Basic Concepts (Product ) The Zone of Consumer Choice. Market = { Supply, Demand }. ← Product
(III). Market Structure: 1. Market Definition -(1). Basic Concepts Substitutability by buyers is the key condition for defining markets. ↓ Market exists in two main dimensions: i. product type and ii. geographic area. ( regional market, international market )
(III). Market Structure: 1. Market Definition -(2). Defining Markets -i. Cross-Elasticity of Demand : (63)
(III). Market Structure: 1. Market Definition -(2). Defining Markets -i. Cross-Elasticity of Demand Cross-Elasticities Are Impractical: the critical variables exist along the following continuums: ◎ i. Gradation of Product Characteristics, ii. Time Periods. & iii. Markets are not laboratories. iv. Geographic Market Areas (63)
(III). Market Structure: 1. Market Definition -(2). Defining Markets -ii. The New Antitrust Division Method: It was adopted by Regan administration officials at the antitrust division of the Justice Department in 1982 (66) -(i). To use the method, one begins by selecting the narrowest plausible version of the market in question. -(ii). Then one hypothesizes: -a. a significant price rise ( e. g. 5% ) for this good and asks whether within -b. a reasonable time period ( e. g. one year ) there will occur -c. a significant shift of buyers ( e. g. 5% ) to specific substitute goods, so that the price rise would not be profitable.
(III). Market Structure: 1. Market Definition -(2). Defining Markets -iii. Traditional Practical Evidence for Defining Markets -(a). Product Types The Practical Nature of the Goods: features , uses and substitutability. Informed Judgments of Market Participants: the judgment of the officials of companies that produces and sells. Distinct Seller and Buyer Groups. Prices: 1. Similar Prices. 2. Price Movements: the goods’ prices move independently?
(III). Market Structure: 1. Market Definition -(2). Defining Markets -iii. Traditional Practical Evidence for Defining Markets (b). Geographic Extents Transport Costs Relative to Value: e. g. bricks. Shipping Distance: cement is rarely shipped over 150 miles. Pattern of Shipping: 10% is a common rule of thumb.
(III). Market Structure: 1. Market Definition -(2). Defining Markets -iv. Supply Conditions: (68) Cross-elasticity of supply reflects the ability of outside producers to switch their productive capacity from other goods and get into a market. It is confusing to treat potential entrants as if they are in the market already. Transferability is slower and more costly than is claimed.
(III). Market Structure: 1. Market Definition -(2). Defining Markets (68)
(III). Market Structure: 1. Market Definition -(2). Defining Markets - v. S. I. C ( Standard Industrial Classification ) UK – 1948, 1980, 1992 the class level the group level the activity level (2 -digit) (3 -digit) (4 -digit)
-(2). Defining Markets
-(2). Defining Markets
-(2). Defining Markets
-(2). Defining Markets
-(2). Defining Markets
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