9780521645348

Topics in Microeconomics : Industrial Organization, Auctions, and Incentives

by
  • ISBN13:

    9780521645348

  • ISBN10:

    0521645344

  • Format: Paperback
  • Copyright: 1999-10-28
  • Publisher: Cambridge University Press
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Summary

This text in microeconomics focuses on the strategic analysis of markets under imperfect competition, incomplete information, and incentives. Part I of the book covers imperfect competition, from monopoly and regulation to the strategic analysis of oligopolistic markets. Part II explains the analytics of risk, stochastic dominance, and risk aversion, supplemented with a variety of applications from different areas in economics. Part III focuses on markets and incentives under incomplete information, including a comprehensive introduction to the theory of auctions, which plays an important role in modern economics. Each chapter introduces the core issues in an accessible yet rigorous fashion, and then investigates specialized themes. Each also offers self-contained explanations and proofs. The only prerequisites are a basic knowledge of calculus and probability, and familiarity with intermediate undergraduate microeconomics. The text can be used as a textbook in different courses for senior undergraduate or first-year graduate students.

Table of Contents

Preface xiii
Acknowledgments xvii
I Imperfect Competition 1(132)
Monopoly
3(49)
Introduction
3(2)
Cournot Monopoly -- Weak Monopoly
5(17)
Cournot Point
5(9)
Deadweight Loss of Monopoly
14(2)
Social Loss of Monopoly and Rent Seeking
16(1)
Monopoly and Innovation
17(4)
Monopoly and Product Quality
21(1)
Price-Discriminating or Strong Monopoly
22(4)
First-Degree Price Discrimination
23(1)
Second-Degree Price Discrimination
24(1)
Third-Degree Price Discrimination
24(2)
Limits of Price Discrimination
26(1)
Hidden Information and Price Discrimination
26(8)
Solution of the Restricted Program
29(1)
The Optimal Sales Plan
30(1)
Why it Pays to ``Distort'' Efficiency
31(1)
Sorting, Bunching, and Exclusion
32(2)
Price Discrimination and Public Goods*
34(2)
Intertemporal Price Discrimination
36(7)
Durable-Goods Monopoly
37(2)
Time-Inconsistency Problem
39(1)
Optimal Time-Consistent Price Discrimination
40(2)
Coase Conjecture
42(1)
An Example Where the Coase Conjecture Fails*
42(1)
Bilateral Monopoly and Bargaining*
43(6)
A Finite-Horizon Bargaining Game
44(1)
Infinite-Horizon Bargaining
45(4)
Digression: The Case Against Microsoft
49(1)
Concluding Remarks
50(1)
Bibliographic Notes
50(2)
Regulation of Monopoly
52(13)
Introduction
52(1)
Positive Theory: The Averch-Johnson Effect*
53(4)
Assumptions
53(1)
Effects of Regulation
54(1)
Relation to Cost Minimization
55(1)
Welfare Implication
56(1)
Normative Theory: Two Almost Perfect Regulations
57(6)
The Total Surplus Subsidy Mechanism
57(1)
The Incremental Surplus Subsidy (ISS) Mechanism
58(5)
Bibliographic Notes
63(2)
Oligopoly and Industrial Organization
65(68)
Introduction
65(2)
Game-Theoretic Foundations
65(2)
Historical Note
67(1)
Three Perspectives
67(12)
The Three Market Games
68(2)
Cournot Competition
70(2)
Bertrand Competition
72(2)
Stackelberg Competition
74(3)
Welfare Ranking
77(1)
The Dual of Cournot Duopoly
77(1)
Discussion
78(1)
More on Stackelberg Competition
79(10)
Criticism and Extensions
79(1)
Managerial Incentives as Commitment Mechanism
80(5)
Commitment and Observability
85(4)
More on Cournot Competition
89(27)
Existence and Uniqueness
89(6)
Digression: A Prescription for Leviathan*
95(2)
What Does a Cournot Equilibrium Maximize?*
97(1)
What If Suppliers Form a Cartel?
98(2)
Selten's ``Four Are Few and Six Are Many''
100(2)
Are Mergers Profitable?
102(2)
The Welfare Loss of Cournot Oligopoly
104(1)
A Corrective Tax
105(1)
The Generalized ISS Regulatory Mechanism**
106(1)
Entry*
107(4)
Exit*
111(5)
More on Bertrand Competition
116(9)
Capacity-Constrained Price Competition: An Example
117(5)
An Alternative Rationing Rule
122(2)
Generalizations
124(1)
A Defense of Cournot Competition*
125(7)
Benchmark Cournot Equilibrium
125(1)
The Price-Competition Subgame
126(4)
Equilibrium of the Overall Game
130(1)
Excess Capacity and Collusion
131(1)
Discussion
131(1)
Bibliographic Notes
132(1)
II Risk, Stochastic Dominance, and Risk Aversion 133(40)
Stochastic Dominance: Theory
135(14)
Introduction
135(1)
Assumptions and Definitions
136(1)
First-Order Stochastic Dominance (FSD)
136(4)
Main Results
137(1)
FSD and the ``Stochastically Larger'' Relationship*
138(1)
Relationship to Other Stochastic Orderings
139(1)
Second-Order Stochastic Dominance
140(3)
Main Results
141(1)
SSD and the ``Stochastically More Risky'' Relationship*
142(1)
An Invariance Property*
143(1)
Ranking Transformations of Random Variables*
144(1)
Comparative Statics of Risk
145(3)
Framework
145(1)
Key Issue
145(3)
Summary Table
148(1)
Bibliographic Notes
148(1)
Stochastic Dominance: Applications
149(16)
Introduction
149(1)
Portfolio Selection I
149(1)
The Competitive Firm under Price Uncertainty
150(2)
Labor Supply
152(1)
Entry in Cournot Oligopoly
153(2)
Auctions
155(1)
Portfolio Selection II*
155(2)
Income Inequality*
157(2)
Supplement: Variance-Minimizing Portfolios*
159(4)
Portfolios
160(1)
Conjectures
160(1)
Outlook
160(1)
Assumptions
161(1)
A Lemma That Clears the Road
161(1)
Main Result
162(1)
Summary
163(1)
Discussion
163(1)
Bibliographic Notes
163(2)
Risk Aversion
165(8)
Introduction
165(1)
Absolute and Relative Risk Aversion
165(3)
Pratt's Theorem
166(1)
An Incomplete-Insurance Puzzle
167(1)
Strong Absolute Risk Aversion*
168(3)
Ross's Theorem
169(1)
A Portfolio Selection Puzzle
170(1)
Wealth-Dependent Risk Aversion*
171(1)
Bibliographic Notes
172(1)
III Incomplete Information and Incentives 173(136)
Matching: The Marriage Problem*
175(7)
Introduction
175(1)
Notation and Basic Assumptions
175(1)
Stable Two-Sided Matchings
176(2)
Who Benefits from Which Procedure?
178(1)
Strategic Issues
179(2)
Two Impossibility Results
179(1)
Stable Matchings?
180(1)
Bibliographic Notes
181(1)
Auctions
182(61)
Introduction
182(4)
Information Problem
182(1)
Basic Assumptions
182(1)
Cournot-Monopoly Approach
183(1)
Auctions--What, Where, and Why
184(1)
Popular Auctions
185(1)
Early History of Auctions
186(1)
The Basics of Private-Value Auctions
186(17)
Some Basic Results on Dutch and English Auctions
186(1)
Revenue Equivalence
187(1)
Solution of Some Auction Games--Assuming Uniformly Distributed Valuations
188(7)
An Alternative Solution Procedure*
195(1)
General Solution of Symmetric Auction Games
196(6)
Vickrey Auction as a Clarke-Groves Mechanism*
202(1)
Robustness*
203(6)
Introducing Numbers Uncertainty
204(1)
Discrete Valuations
204(1)
Removing Bidders' Risk Neutrality
205(1)
Removing Independence: Correlated Beliefs
205(1)
Removing Symmetry
206(1)
Multiunit Auctions
207(1)
Split-Award Auctions
208(1)
Repeated Auctions
208(1)
Auction Rings
209(2)
Optimal Auctions
211(14)
A Simplified Approach
212(2)
The Mechanism-Design Approach
214(7)
Secret Reservation Price?
221(1)
Optimal Auctions with Stochastic Entry*
222(3)
Common-Value Auctions and the Winner's Curse
225(4)
An Example: The Wallet Auction
225(1)
Some General Results
226(3)
Affiliated Values*
229(6)
Private and Common Value Generalized
229(1)
Stochastic Similarity: Affiliation
230(1)
Generalized Solution of the Vickrey Auction
230(2)
Linkage Principle
232(1)
Why the English Auction Benefits the Seller
233(1)
Limits of the Linkage Principle
234(1)
Further Applications*
235(6)
Auctions and Oligopoly
235(3)
Natural-Gas and Electric Power Auctions
238(1)
Treasury-Bill Auctions
239(2)
Bibliographic Notes
241(1)
Appendix: Second-Order Conditions (Pseudoconcavity)
241(2)
Hidden Information and Adverse Selection
243(24)
Introduction
243(1)
Adverse Selection
243(5)
The Market for Lemons
244(1)
Adverse Selection in Labor Markets
245(3)
Positive Selection: Too Many Professors?
248(3)
Assumptions
248(1)
Occupational Choice
249(1)
Positive vs. Adverse Selection
249(1)
Subgame-Perfect Equilibrium
250(1)
A Corrective Tax
250(1)
Adverse Selection and Rationing
251(1)
Adverse Selection and Screening
252(7)
Screening in Insurance Markets
253(5)
Screening in Labor and Credit Markets
258(1)
Alternative Equilibrium Concepts
258(1)
Limits of Screening
259(1)
Screening without Competition*
259(7)
Price Discrimination with a Continuum of Types
259(6)
Implementation by Nonlinear Pricing
265(1)
Bibliographic Notes
266(1)
Hidden Information and Signaling
267(11)
Introduction
267(1)
The Education Game
268(2)
Rules of the Game
268(1)
Payoff Functions
269(1)
Subgame
269(1)
Sequential Equilibrium
269(1)
Equilibrium -- Embarrassment of Riches
270(2)
Equilibrium Selection: Intuitive Criterion*
272(3)
The Criterion When Type 2 Is Rare
273(1)
The Criterion When Type 1 Is Rare
274(1)
Screening vs. Signaling
275(1)
Bibliographic Notes
276(2)
Hidden Action and Moral Hazard
278(24)
Introduction
278(1)
Risk Aversion and Incentives
279(9)
A Simple Model
279(6)
Generalization
285(3)
Limited Liability and Incentives
288(9)
A Simple Model
289(2)
Generalization
291(3)
Monitoring and Incentives*
294(3)
Renegotiation Problem
297(2)
Bibliographic Notes
299(1)
Appendix
300(2)
Rank-Order Tournaments
302(7)
Introduction
302(1)
A Simple Model
302(2)
First Best Effort and Wage
303(1)
Tournament Game
304(1)
Tournaments under Risk Neutrality
304(3)
Tournament Subgame
304(1)
Equilibrium Prizes
305(1)
Two Illustrations
306(1)
Discussion
307(1)
Tournaments under Common Shocks
307(1)
Bibliographic Notes
308(1)
IV Technical Supplements 309(42)
A Nonlinear Optimization: The Classical Approach
311(9)
A.1 Introduction
311(1)
A.2 Unconstrained Optimization
311(3)
A.3 Equality-Constrained Optimization
314(3)
A.4 Digression: Quadratic Forms
317(3)
B Inequality-Constrained Optimization
320(4)
B.1 Introduction
320(1)
B.2 The Problem
320(1)
B.3 First-Order Necessary Conditions
321(2)
B.4 Second-Order Conditions
323(1)
C Convexity and Generalizations
324(15)
C.1 Introduction
324(1)
C.2 Convex Sets
324(1)
C.3 Convex Functions
325(2)
C.4 Strongly Convex Functions
327(1)
C.5 Convexity and Global Extreme Values
328(1)
C.6 Generalized Convexity: Quasiconvexity
329(4)
C.7 Convexity Properties of Composite Functions
333(3)
C.8 Convexifiable Quasiconvex Programs
336(3)
D From Expected Values to Order Statistics
339(12)
D.1 Introduction
339(1)
D.2 Expected Value
339(1)
D.3 Variance, Covariance, and Correlation
340(1)
D.4 Rules to Remember
340(1)
D.4.1 Expected Value
340(1)
D.4.2 Variance, Covariance, Correlation
341(1)
D.4.3 Expected Utility
342(1)
D.4.4 Transformations of Random Variables
343(1)
D.4.5 Order Statistics
344(1)
D.5 Proofs
345(6)
Bibliography 351(14)
Index 365

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