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Teaching notes for chapter 15

This is the longest chapter of the book. In fact, a case might be made for the division of this chapter into three different chapters, corresponding to each of the three sections.

In strategy-oriented courses, the emphasis should be placed on Sections 15.1 and 15.2. In policy-oriented courses, by contrast, the emphasis should be on Section 15.3.

This chapter differs from standard IO presentations in several respects:

  1. In the treatment of entry deterrence, the emphasis is normally placed on capacity expansion as a means of entry deterrence. However, aside from titanium dioxide and a few other examples, this does not seem to be a very common form of entry deterrence. By contrast, product proliferation and contracts seem to be a far more prevalent strategy. Accordingly, Section 15.1 includes a treatment of the latter two forms of entry deterrence.
  2. In the treatment of predation, the emphasis is normally placed on asymmetric information as a justification for rational predatory pricing. But the deep purse or the market share explanations for predation seem empirically more relevant. Accordingly, more emphasis is placed on these alternative theories than in standard IO presentations of the material.
  3. Merger waves are empirically a very relevant phenomenon. Almost every week, one finds at least one instance of a merger that either follows or precedes other mergers / merger announcements in the same industry. This raises a number of important issues, both from a positive and from a normative point of view. Unfortunately, not much economics research has been done of these issues--and not much is said in standard IO textbook presentations. As in other parts of the book, Section 15.3 raises more questions that it answers.

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