Monopoly pricing policy File: monopoly8... n Added slide 24&25 (Antitrust laws and enforcement, Germany) before “Equilibria and comparative statics”

Antitrust laws and enforcement, Germany n laws – Gesetz gegen unlauteren Wettbewerb (1896) – Gesetz gegen Wettbewerbsbeschränkungen (GWB), (1957) n enforcement – Bundeskartellamt

Preisdiskriminierung n Laut GWB liegt bei – marktbeherrschenden Unternehmen n 1 Unternehmen mit 1/3 Marktanteil, n 2 oder 3 Unternehmen mit 1/2 Marktanteil, n 4 oder 5 Unternehmen mit 2/3 Marktanteil – missbräuchliche Ausnutzung der marktbe- herrschenden Stellung vor, wenn ohne sachliche Rechtfertigung unterschiedliche Entgelte gefordert werden.

Price competition (Betrand) File: bertrand5... n Added slides (AMXCO versus Vebco) before “Homogeneous-good markets”

Antitrust laws and enforcement, the US n laws – Sherman Act (1890) – Clayton Act (1914) – Federal Trade Commission Act (1914) n enforcement – Department of Justice – Federal Trade Commission (FTC)

Excerpts from US Antitrust Statutes (1) n Sherman Act – Section 1. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal …. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony …. – Section 2. Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony ….

Excerpts from US Antitrust Statutes (2) n Clayton Act – Section 2. (a) That it shall be unlawful for any person engaged in commerce … to discriminate in the price between different purchasers … where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy or prevent competition … nothing herein contained shall prevent differentials which make only due allowance for differences in the cost of manufacture, sale, or delivery ….

Example: AMXCO versus Vebco n Cooler pads, used in air conditioning equipment, traditionally made by hand. n Around 1960 AMXCO developed a method of producing cooler pads by machine and became the leading firm in the market. n Vebco distributed pads for AMXCO. When Vebco began to distribute its own hand- made cooler pads a price war followed:

Vebco AMXCO began to distribute its own pads - terminated Vebco as a distributor - gradually gained market share Jan charged price 9,5 % below list - followed, not to lose market share - cut price to 14,5 % below list - cut price to 25 % below list - matched AMXCO price cut - cut price to 32,5 % below list March matched AMXCO price cut March 29, raised price to 25 % below list offered discounts of % below list Price war

Discussion (1) n AMXCO, a dominant firm with cost advantage over fringe firms, set its price so close to list that it was profitable for Vebco to expand its output, even though Vebco had higher costs. A price war followed until Vebco “sued for peace”. AMXCO remained a dominant firm, but competition forced it to set lower prices.

Discussion (2) n Vebco filed a private antitrust suit against AMXCO, alleging price discrimination in violation of the Clayton Act and attempted monopolization in violation of Sect. 2 of the Sherman Act. n A court found in favor of AMXCO. So long as a price is above the firm’s average variable cost that is not an injury to competition.

Quantity competition (C&S) File: cournot13... n Added slides 42&43 (The OPEC Cartel) before “The quantity cartel”

Example: The OPEC Cartel n The best known cartel is the OPEC, which was formed in 1960 by Saudi Arabia, Venezuela, Kuwait, Iraq and Iran in response to efforts by U.S. oil refiners, to reduce the price they were paying for imported oil. Each member nation must agree to an individual output quota, except for Saudi Arabia, which adjusted its production as necessary to maintained high prices. In 1982, OPEC set an overall output limit of 18 million barrels per day (before 31 million). Prices were to be maintained at $34 per barrel.

The cartel has proven difficult n Sometimes, such as during Iran-Iraq War, member nations sought to produce more than their allotment. This glutted the market with OPEC oil. Despite Saudi Arabia’s efforts to reduce output, prices plunged. Further pressure on prices came from companies that elected not to participate in OPEC. Accounting for less than 50 % of world oil production, OPEC appears to have a negligible effect on prices.

Monopoly output policy File: monopoly_qua4... n Added slide 14 (monopolistic price discrimination) after “price discrimination”

Monopolistic price discrimination p2p2 p1p1 x2x2 x1x1 p