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Home , Austrian School, Industrial organization, Perfect competition

Basics of and Policy

• What is Industrial Organization? • S-C-P Paradigm • Alternative Thoughts and Theories • Why competition is regarded as important in our

What is Industrial Organization?

• Applied • The subject of research is real industries. • It has developed in connection with Antitrust policies.

- the study of firms and markets - the study of their interaction

Microeconomics

• The subject of microeconomics is to describe resource allocation mechanism.

• Basic Theories - - Perfect

Perfect Competition

≪Assumptions≫ - There are so many buyers and sellers. - Each buyer and seller takes the as given. - All Firms produce a homogeneous . - Buyers and sellers have all relevant information about the . - Entry and exit is free.

Monopoly Theory P

Pm MC

Pc

MR D 0 Q

Qm Qc

S-C-P Paradigm

Basic Condition

Elasticity of of Scale

Market Growth of input

Network etc.

Market Structure

Concentration

Product Differentiation Antitrust Policy

Entry Barriers Regulation

Trade Barriers

etc. Market Conducts

Collusion with Rivals

Strategies against rivals

Advertising Activity

Market Performance

Prices and Profits Innovation

Efficiency Equity in

The Harvard School

- base on the S-C-P Paradigm.

⇒ Monopolistic would cause monopolistic behavior, and result in bad performance. ⇒ Market structure should be competitive.

Arguments on Antitrust Policy

. Different thoughts from Harvard School - the Chicago School - the Neo- - Contestable Market Theory - Approach

They have come under spotlight since the last half of 1970s,and effected on the actual Antitrust policy, especially in the 1980s.

The Chicago School

- The Analysis bases on the methodology of positive economics.

- Market in real economy is regarded as the process of natural selection ⇒ Only efficient firms could survive. Any types of market structure, resulted in market competition, would be efficient.

The Chicago School

- A monopolist is the most efficient firm. If he gained excess , potential competitors would entry into the market. ⇒ Competition would lead to competitive level of price. - Government intervention, including Antitrust policies, would have adverse effects on the market performance.

The Neo-Austrian School

- It argues laissez faire as well as the Chicago School. - However, the neo-Austrian make a critical attack on the neo-classical price theory. That is why price theory, assumed , would mislead in the way to understand the important nature of .

The Neo-Austrian School

- F.A.v. Hayek regards market as the process of discovery. In order to achieve efficient resource allocation, we must use all knowledge in society, dispersed among . ⇒ Market economy could resolve this problem through competitive process. - I. Kirzner explains market process by use the concept of .

Transaction Cost Approach

- R.H.Coase explains the reason why firms exist in real economy. ⇒ The marketplace in the economy involves transaction costs. So firms are organized to cut down transaction costs. ⇒ Markets and firms are alternative mechanism to allocate resources.

Arguments on Antitrust Policy

Does Laissez faire seem to be rational direction to maintain competitive market? - Competition is like natural vegetation? Or cultivated plant?

What kinds of policies are necessary to promote competition in market?

Functions of Competition

• Allocating resources efficiently

• Promoting innovation

• Process of discovery - information carrying function

Goals of Competition Policy

• Securing • Achieving good economic performance

prohibition of ⇒ prohibition of prohibition of unfair practices