Market Structure

1
Market Structure

• Horizontal and Vertical Mergers

2
Horizontal Merger
P
P1
P2
MC1
P1
MC2
D
MR
Q
Q1
Q2
Q1
3
Horizontal Merger
P
P1
MC1
P2
D
MC2
MR
Q1
Q2
Q
4
Vertical IntegrationDells Buys Hard Drives from
Seagate
Phd
MC (Seagate)
Pm
Pc
D (dells demand)
MR
Qm
Qc
Hard Drives
5

• If Dell acquires Seagate it will earn consumers
  and producers surpluses. Maximizing the sum of
  the two surpluses Dell will produce more hard
  drives and more computers. Therefore, the price
  of computers will go down.

6
Predatory Pricing

• -Low price.
• -The argument is that prices will increase when
  competitors exit the market.
  
• -In some industries with low entry cost firms
  will re-enter when prices increase (contestable
  markets).
  
• -Generate reputation to prevent entry.

7

• Barnes and Nobles Vs Amazon
• Online Purchases and the Decline of Stores

8
Resale Price MaintenanceA Monopoly Selling to
Retailers
Retailers compete offering services for P1-P0
generating a value of V for consumers. Q1Q0
since resale price maintenance (P1) is chosen by
the monopoly seller. Then VP1-P0 and consumers
are better off.
Retail P
V
P1
MC1
P0
MC0
D
D1
Q
Q0
Q1