Contestable Market

Standard international economic theory suggests that people should embrace economic integration because it promises large gains. But recent events such as Brexit indicate a desire for economic disintegration. Here we report results of an experiment, based on a strategic analytical framework, of how size and distribution of potential gains from integration influence outcomes and individuals' inclination to embrace integration. We find that cross-country inequality in potential gains acts as a friction to realize those gains. This suggests that to better understand recent phenomena, international economic theory should account for distributional considerations and behavioral aspects it currently ignores.

The history of China's accession to the WTO has been a rollercoaster of alacrity and acrimony. Hailed as another milestone in the WTO-era, it soon proved to be a thorn in the side of the multilateral edifice. Various complaints have arisen, and all have to do with the role of state involvement in the workings of the economy. The cause of concern is not state involvement per seit is state involvement in an economy of unprecedented size. State-owned enterprises and transfer of technology are the expressions of state involvement that have caught most of the attention. In this paper we argue in favor of multilateral solutions to address both matters. Staying idle is not an option as the trading community otherwise will continue to be confronted with unilateral responses that are largely ineffective while generating significant negative external effects.

In United States-Countervailing Measures Concerning Certain Products from the European Communities (WTO Doc. WT/DS212/QB/R, henceforth Certain Products), the Appellate Body (AB) of the World Trade Organization was called upon to revisit the issue of whether the United States can legally impose countervailing duties following the privatization of state-owned enterprises that had received non-recurring subsidies. In twelve cases, the United States Department of Commerce (USDOC) had applied either the ''gamma method'' or the ''same-person method'' in assessing the impact of a change of ownership on the continued existence of a benefit from a countervailable subsidy. The European Communities challenged the legality of these methods. Under the gamma method, the USDOC applied an ''irrebuttable presumption'' that the benefits from a non-recurring subsidy remain in existence for the entire useful life of the assets purchased with benefit of * We are grateful to Henrik Horn, Doug Irwin, Arun Venkataraman and Jasper-Martijn Wauters for helpful discussions on the issue treated in this report.

China's participation in the World Trade Organization (WTO) has been a rollercoaster of milestones and frictions. China has emerged as a leading trading nation, which has contributed to the expansion of world trade. Some of its trading partners, however, and most vocally the United States, complain that China has reached its new status by eluding its WTO commitments. Under President Trump, the United States reacted strongly against China, almost bringing the WTO (but not China!) to its knees. These actions have been criticized in different ways: Some underline their unilateral character (and the ensuing legal issues they raise), whereas others focus on the regime-neutrality of the WTO, which should, in principle, be able to accommodate Western liberal democracies, developing countries, and socialist countries like China equally. In this short Article, we argue that staying idle is no solution to the China issue and that addressing it through unilateral actions is no solution either. Both approaches would only deepen the current WTO crisis. In our view, the only viable solution for the WTO system requires adding new disciplines to the existing multilateral rules.

China’s participation in the World Trade Organization (WTO) has been a rollercoaster of milestones and frictions. China has emerged as a leading trading nation, which has contributed to the expansion of world trade. Some of its trading partners, however, and most vocally the United States, complain that China has reached its new status by eluding its WTO commitments. Under President Trump, the United States reacted strongly against China, almost bringing the WTO (but not China!) to its knees. These actions have been criticized in different ways: Some underline their unilateral character (and the ensuing legal issues they raise), whereas others focus on the regime-neutrality of the WTO, which should, in principle, be able to accommodate Western liberal democracies, developing countries, and socialist countries like China equally. In this short Article, we argue that staying idle is no solution to the China issue and that addressing it through unilateral actions is no solution either....

In United States-Countervailing Measures Concerning Certain Products from the European Communities (WTO Doc. WT/DS212/QB/R, henceforth Certain Products), the Appellate Body (AB) of the World Trade Organization was called upon to revisit the issue of whether the United States can legally impose countervailing duties following the privatization of state-owned enterprises that had received non-recurring subsidies. In twelve cases, the United States Department of Commerce (USDOC) had applied either the ''gamma method'' or the ''same-person method'' in assessing the impact of a change of ownership on the continued existence of a benefit from a countervailable subsidy. The European Communities challenged the legality of these methods. Under the gamma method, the USDOC applied an ''irrebuttable presumption'' that the benefits from a non-recurring subsidy remain in existence for the entire useful life of the assets purchased with benefit of * We are grateful to Henrik Horn, Doug Irwin, Arun Venkataraman and Jasper-Martijn Wauters for helpful discussions on the issue treated in this report.

We seek to unify the standard Bertrand duopoly outcome and the contestable outcome in a single model with price competition. We demonstrate that for small values of the fixed cost, the standard Bertrand duopoly outcome emerges as the equilibrium. For a large enough fixed cost, the unique equilibrium of this game yields the contestable outcome. Interestingly enough, for intermediate values of the fixed cost, duopoly outcomes may co-exist with the contestable one. Furthermore, we find that even under decreasing returns to scale a contestable outcome may exist.

We seek to unify the standard Bertrand duopoly outcome and the contestable outcome in a single model with price competition. We demonstrate that for small values of the fixed cost, the standard Bertrand duopoly outcome emerges as the equilibrium. For a large enough fixed cost, the unique equilibrium of this game yields the contestable outcome. Interestingly enough, for intermediate values of the fixed cost, duopoly outcomes may co-exist with the contestable one. Furthermore, we find that even under decreasing returns to scale a contestable

Despite the interest in measuring price sensitivity of online consumers, most academic work on Internet commerce is hindered by a lack of data on quantity. In this paper we use publicly available data on the sales ranks of about 20,000 books to derive quantity proxies at the two leading online booksellers. Matching this information to prices, we can directly estimate the elasticities of demand facing both merchants as well as create a price index for online books. The results show significant price sensitivity at both merchants but demand at Barnes and Noble is much more price-elastic than is demand at Amazon. The data also allow us to estimate the magnitude of bias in the CPI due to the rise of Internet sales.

The European Union (EU) developed a very ambitious supranational law dealing with state and private conducts. This is a unique and quite elaborate scheme of cooperation and integration at the regional level. In North America, by contrast, the regional integration model is decentralized and based on national laws (Fora 2014). The United States-Mexico-Canada Agreement (USMCA) does not fundamentally change this model, but it certainly integrates several new cooperation initiatives that emerged in the field of competition with the entry into force and the renegotiation of the North American Free Trade Agreement (NAFTA) (Bradford and Büthe 2015). North America adopted a decentralization model rather

Forced technology transfer has emerged from the US-China trade war as a new issue of systemic importance. The USA, the European Union, and Japan have jointly condemned forced technology transfer as a practice undermining the proper function of international trade and called for new WTO rules to discipline the practice. This article examines the issue in the broad context of international economic law. It seeks to address the following questions: What does 'forced technology transfer' mean? Where did this practice come from? Why is there insu cient international regulation on the issue? What exactly are the problems inherent in such practice? And what can be done to improve the relevant international regulation?

The article introduces a new dataset that seeks to comprehensively trace developments in the area of digital trade governance. The TAPED (Trade Agreements Provisions on Electronic-Commerce and Data) dataset includes a detailed mapping and coding of all preferential trade agreements that cover chapters, provisions, annexes, and side documents that directly or indirectly regulate digital trade. This article presents the methodology behind TAPED and provides an overview of the evolution of digital trade provisions in preferential trade agreements, highlighting also some emerging trends. It then takes a look at the substance of selected rules found particularly in electronic commerce chapters and maps the diversity of approaches in tackling issues meant to facilitate online trade, such as the customs duty moratorium on electronic transactions or paperless trading, and discusses the very recent rule-making with regard to cross-border data flows. This is of course merely a glimpse of the wealth of information that TAPED provides, and the goal of this article is simply to uncover the great variety and the complexity of the norms found in the preferential trade agreements on digital trade governance, which reveals the value of the dataset.

We thank the organizers and participants of CCP Summer Conference 2010 for providing sessions prompting the ideas expressed in this paper. Specific thanks to Rona Bar-Isaac, Simon Board, Joyee Deb, Robin Lee, Tom Overstreet, Larry White, and Ralph Winter for many helpful comments and to seminar participants at UCLA and the University of Rochester. The usual caveat applies. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Standard international economic theory suggests that people should embrace economic integration because it promises large gains. But recent events such as Brexit indicate a desire for economic disintegration. Here we report results of an experiment, based on a strategic analytical framework, of how size and distribution of potential gains from integration influence outcomes and individuals' inclination to embrace integration. We find that crosscountry inequality in potential gains acts as a friction to realize those gains. This suggests that to better understand recent phenomena, international economic theory should account for distributional considerations and behavioral aspects it currently ignores.

Despite the discovery of predatory intent in several widely cited antitrust cases, many industrial organization economists have argued that predatory pricing is irrational and rarely observed. For example, one of our colleagues, Kenneth Elzinga, in an address to the American Bar Association posed the question of whether predatory pricing is rare like an old stamp or "rare like a unicorn." The argument is that pricing below cost in order to drive competitors out of the market will be irrational for two reasons: 1) there are more profitable ways (e.g., acquisitions) to eliminate competitors, and 2) future price increases will result in new entry. Decisions in antitrust cases have often resulted from documented predatory intent, which is sometimes attributed to an "irrational" motive for management to eliminate rivals. In the absence of a "smoking gun," arguments turn on Areeda-Turner cost-based tests, which are difficult to apply given the multi-product nature of most business operations. For these reasons, the issue of predatory pricing is a natural topic for laboratory studies where costs are induced directly. II. SINGLE MARKET DESIGNS The first experiment designed to investigate the possibility of predation is reported by Isaac and Smith (1985). They conducted a series of posted offer markets with a large seller that has a cost advantage over a small seller. Besides having a larger cash endowment to cover initial losses, the incumbent was given a higher capacity and lower costs, as shown in Figure 1. In order to construct the market supply function, consider the average costs for the two sellers, shown on the left side of the figure, in red for the large seller and in green for the small seller. Since the large seller's minimum average cost is at $2.50, no units would be supplied at lower prices, and the (thick) market supply

Despite the discovery of predatory intent in several widely cited antitrust cases, many industrial organization economists have argued that predatory pricing is irrational and rarely observed. For example, one of our colleagues, Kenneth Elzinga, in an address to the American Bar Association posed the question of whether predatory pricing is rare like an old stamp or "rare like a unicorn." The argument is that pricing below cost in order to drive competitors out of the market will be irrational for two reasons: 1) there are more profitable ways (e.g., acquisitions) to eliminate competitors, and 2) future price increases will result in new entry. Decisions in antitrust cases have often resulted from documented predatory intent, which is sometimes attributed to an "irrational" motive for management to eliminate rivals. In the absence of a "smoking gun," arguments turn on Areeda-Turner cost-based tests, which are difficult to apply given the multi-product nature of most business operations. For these reasons, the issue of predatory pricing is a natural topic for laboratory studies where costs are induced directly. II. SINGLE MARKET DESIGNS The first experiment designed to investigate the possibility of predation is reported by Isaac and Smith (1985). They conducted a series of posted offer markets with a large seller that has a cost advantage over a small seller. Besides having a larger cash endowment to cover initial losses, the incumbent was given a higher capacity and lower costs, as shown in Figure 1. In order to construct the market supply function, consider the average costs for the two sellers, shown on the left side of the figure, in red for the large seller and in green for the small seller. Since the large seller's minimum average cost is at $2.50, no units would be supplied at lower prices, and the (thick) market supply

Despite the discovery of predatory intent in several widely cited antitrust cases, many industrial organization economists have argued that predatory pricing is irrational and rarely observed. For example, one of our colleagues, Kenneth Elzinga, in an address to the American Bar Association posed the question of whether predatory pricing is rare like an old stamp or "rare like a unicorn." The argument is that pricing below cost in order to drive competitors out of the market will be irrational for two reasons: 1) there are more profitable ways (e.g., acquisitions) to eliminate competitors, and 2) future price increases will result in new entry. Decisions in antitrust cases have often resulted from documented predatory intent, which is sometimes attributed to an "irrational" motive for management to eliminate rivals. In the absence of a "smoking gun," arguments turn on Areeda-Turner cost-based tests, which are difficult to apply given the multi-product nature of most business operations. For these reasons, the issue of predatory pricing is a natural topic for laboratory studies where costs are induced directly. II. SINGLE MARKET DESIGNS The first experiment designed to investigate the possibility of predation is reported by Isaac and Smith (1985). They conducted a series of posted offer markets with a large seller that has a cost advantage over a small seller. Besides having a larger cash endowment to cover initial losses, the incumbent was given a higher capacity and lower costs, as shown in Figure 1. In order to construct the market supply function, consider the average costs for the two sellers, shown on the left side of the figure, in red for the large seller and in green for the small seller. Since the large seller's minimum average cost is at $2.50, no units would be supplied at lower prices, and the (thick) market supply

In a Bertrand competition experiment, we study the impact of two cognitive primes on strategic behaviour at first encounter and over time. With this aim, instructions are slightly modified to imprint one of the two incentive features present in a standard Bertrand duopoly: the winning rule (competition) and the winner's payoffs (cooperation). Therefore, under a between-subject design, we examine pricing behaviour in three treatments: a Competition Priming treatment, a Payoff Priming treatment and a non-priming Baseline. Taking the Baseline as benchmark, the results show that whereas priming for competition reduces significantly market prices from the beginning, priming for payoffs holds market prices at a significantly high level for a longer period. However, the effect of priming fades over time.

The Most Favoured Nation Treatment (MFN) is the founding principle of the General Agreement on Tariffs and Trade (GATT) and its successor The World Trade Organisation. Introduced in 1947 by the GAT, and reaffirmed in 1995 by the WTO, the MFN aimed to rid the world of discriminatory trade practices. This aspirational aim was to create a level playing field for all countries engaged in trade and create more opportunities for developing nations to trade with those already flourishing on the world trade stage. With normative research methodology, this article claims that MFN has never achieved this aim. It examines how the MFN has been eroded over time by exceptions to the MFN allowed by the GAT and the WTO. Preferential Trade Agreements and new trade initiatives such as The Regional Comprehensive Economic Partnership (RCEP) and The Belt and Road Initiative (BRI) are also evidence of more departures from the MFN as countries seek new vehicles for more effective trade. The article concludes that the MFN is becoming more and more irrelevant over time, and little can be done to revive it.

This Article contributes to the discussion about the development of international trade regulation of state interventionism by situating the tensions that exist about the future design of subsidies and state enter- prises treaty regulation in the broader context of current systemic challenges to the multilateral trading system. While recent studies have explored the issues of subsidies and state-owned enterprises (SOEs) as one of the most significant in impact among the contemporary challenges to the WTO, there is certainly scope to discuss further such a problem from the broader point of view of the crisis of the multilateral trading system, its systemic challenges and the concomitant increasing politicization of international trade relations. To this end, this Article analyzes the interactions between the lasting decline of the WTO, the growth of political interferences with international trade flows, and the prospects of reforming multilateral trade rules to address its systemic challenges and manage/mitigate newly central problems of the 21st century such as the Covid-19 Pandemic, climate change and the greening of economic production and international trade. The Article argues that existing WTO rules are inadequate to address these challenges and problems. It concludes that, like in the GATT era, it is only the spirit of pragmatism that may provide chances to find alternatives to growing frustration with negotiating inaction and, hence, to reform the system. However, the question remains whether it is possible to find an approach to imagine, remodel, and craft multilateral rules sensitive to different economic, political, and social choices and rebalance the position of all members, large and small, rich and poor.

We report on an experiment where subjects play an indefinitely repeated prisoner’s dilemma game against robot opponents known to play the Grim trigger strategy. The game’s continuation probability is varied affecting whether cooperation can be rationalized. We find that overall first round cooperation is higher than predicted and increases in the continuation probability. However, some subjects defect after cooperating, perhaps anticipating the end of a supergame and others cooperate after defecting, which is harder to rationalize. The latter type of error decreases in a measure of cognition, suggesting that cognition is important for the successful implementation of strategies.

This is the author manuscript accepted for publication and has undergone full peer review but has not been through the copyediting, typesetting, pagination and proofreading process, which may lead to differences between this version and the Version of Record. Please cite this article as

h i g h l i g h t s • We analyze a contestable market using a model with pricing and entry decisions. • Only one firm enters the market, and randomizes over multiple prices. • The other firm stays out of the market in equilibrium. • Undercutting is not profitable because of randomization. • The entrant is able to charge high prices and collect positive rent.

The rise of China as a genuine world power, economically and militarily, constitutes the gravest challenge faced by the liberal international order constructed in the aftermath of the Great Depression and the Second World War. A major source of strain in the trade relations between China and the other core members of the liberal world trading system is its extensive use of state-owned enterprises as an instrument of general (domestic) economic policy. This paper builds on Ruggie's theory of embedded liberalism and the theory of economic policy to characterize the political and economic difficulties and opportunities in moving toward a new regime for dealing with subsidies. The conclusion sketches some goals such a regime should seek to embody.

We analyze a setting typical of industries right after liberalization, or after structural demand and technology changes. An incumbent firm has an exogenous capacity, and a new entrant has to set its capacity level. We find that, in a dynamic context, higher capacity increases the severity of punishment after deviation, thereby favoring the emergence of cartels. The cartel in this case could hurt welfare, not only because of the standard deadweight loss motive, but also because of the cost inefficiency due to high and idle capacity. We conjecture that a competitive arrangement could be both welfare enhancing and profit-maximizing for the incumbent.

In this paper we study the behavior of rivals when there is a known probability of imminent entry. Experimental markets are used to collect data on pre-and post-entry production when there is an announced time of possible entry; some markets experience entry and other do not. In all pre-entry markets competition is more intense. Post-entry behavior in all markets is more competitive compared to a baseline that had no threat. There is evidence that post-entry multimarket contact raises outputs in those markets that did not experience entry, behavior we generally refer to as a conduit effect.

If it were simply to identify what changes the United States-Mexico-Canada Agreement (USMCA) brings to the North American Free Trade Agreement (NAFTA), this chapter would be much more concise. When it comes to electronic commerce (or digital trade to use the new terminology), it would be about explaining that everything is new! When NAFTA was concluded in 1992, there were a total of 10 websites on the World Wide Web. Digital trade then was not a concern for negotiators of trade agreements a year before the creation of MP3. Yahoo! Search became in 1994 the first web directory and the business development of Internet had really begun with the online websites eBay and Amazon in 1995. The objective of this chapter is thus to highlight the evolution

This research applies and extends the standard industrial organization models of repeated interaction between firms by incorporating group identity to evaluate the ability of group identity, thereby summarizing the theories of observed collusion. The model is used to outline circumstances under which collusion is easier to happen in a single market, and it will break down. A general overview of literature based on laboratory experiments is presented to study the effects of social identity and study oligopoly markets. We construct lab experiments to test the effects of a single factor on collusion, i.e. whether the two players share the same group identity. University students were enrolled as research subjects in the laboratory experiments to test the validity of behaviour predictions. All experiments serve to answers two questions: a) How far is the market outcome away from the Standard Nash equilibrium? b) How good is the Nash prediction? Study 1 investigates the effects of group ...

We investigate differences in book prices between the United States and other countries. We find that general audience books are similarly priced internationally, but textbooks are substantially more expensive in the United States (often more than double the price). This disparity is much more pronounced for commercial publishers than for university presses. We argue that supply-side factors like cost and market structure can not explain this phe-nomenon. We discuss several demand-side explanations; our preferred theory is that higher US textbook prices reflect the unique status of the textbook as a centerpiece of US college instruction.

The growing importance of competitive neutrality in the national and global market-place has given rise to concerns about how to ensure a level playing field – where state-owned enterprises and private entities compete. The paper aims to clarify the issue of competitive neutrality in general and current challenges faced by Vietnam policy makers committed to the level playing field between public and private business enterprises in particular. It is also to serve as an inspiration to governments that confront similar challenges and a contribution to establish the competition regime based on principles of competitive neutrality. This paper also aims at establishing a comprehensive overview of Vietnam’s Competition environment and Competition Law as well as presenting a representative picture of Vietnam’s state-owned enterprises and challenges for the application of competitive neutrality in Vietnam, from that recommendations will be made. It is carried out as a study in the field of c...

If it were simply to identify what changes the United States-Mexico-Canada Agreement (USMCA) brings to the North American Free Trade Agreement (NAFTA), this chapter would be much more concise. When it comes to electronic commerce (or digital trade to use the new terminology), it would be about explaining that everything is new! When NAFTA was concluded in 1992, there were a total of 10 websites on the World Wide Web. Digital trade then was not a concern for negotiators of trade agreements a year before the creation of MP3. Yahoo! Search became in 1994 the first web directory and the business development of Internet had really begun with the online websites eBay and Amazon in 1995. The objective of this chapter is thus to highlight the evolution

The European Union (EU) developed a very ambitious supranational law dealing with state and private conducts. This is a unique and quite elaborate scheme of cooperation and integration at the regional level. In North America, by contrast, the regional integration model is decentralized and based on national laws (Fora 2014). The United States-Mexico-Canada Agreement (USMCA) does not fundamentally change this model, but it certainly integrates several new cooperation initiatives that emerged in the field of competition with the entry into force and the renegotiation of the North American Free Trade Agreement (NAFTA) (Bradford and Büthe 2015). North America adopted a decentralization model rather

Chain-stores now dominate most areas of retailing. While retailers may operate nationally or even internationally, the markets they compete in are largely local. How should they best operate pricing policy in respect of the different markets served - price uniformly across the local markets or on a local basis according to market conditions? We model this by allowing local market differences, with entry being inevitable in certain markets while being naturally or institutionally blockaded in others. We show that practising price discrimination is not always best for the chain-store. Competitive conditions exist under which uniform pricing can raise profits.

In this appendix, we begin by providing formal treatments of three instances in which the state-space/MPNE assumption is relaxed: first, when the entrant can play the same exclusionary tactic as the incumbent post-entry; second, when the manufacturer can collude post-entry; and, third, we consider an example of a retailer cartel being present. Following these extensions of our analysis, we review several historical accounts of RPM being used to induce an exclusionary effect. An NBER working paper, Asker and Bar-Isaac (2010), also works through these (and other) extensions, including downstream retailer differentiation, albeit in a model specifically directed at the RPM case. That paper also has the feature of considering a model in which the entrant can undercut the incumbent for a period before inviting a competitive response. This makes exclusion harder as the entrant’s profits are increased. That said, all results are qualitatively the same.

In discussing market entry decisions and the strategic interaction between an incumbent firm and an entrant, the focus in the literature has been on the different asymmetries that exist between the two. In this paper, we claim that great importance should also be given to the fact that the incumbent firm is in the industry while the entrant is outside the industry. Therefore, even without any other asymmetries, we should expect different behavior from the two types of firms. Making use of the existing literature on decision making under uncertainty, the paper focuses on reference-dependent preferences and on loss aversion. The paper demonstrates that the firms' reference points and loss aversion affect a firm's entry/exit decision, the self-selection of entrants, and the market structure that emerges.

We provide a collusive framework with heterogeneity among jirms, investment, entry, and exit. It is a symmetric-information model in which it is hard to sustain collusion when there is an activeJim that is likely to exit in the near future. Numerical analysis is used to compare a collusive to a noncollusive environment. Only the collusive industry generates price wars. Also, the collusive industry offers both more and higherquality products to consumers, albeit often at a higher price. The positive effect of collusion on variety and quality more than compensates consumers for the negative effect of collusive prices, so that consumer surplus is larger with collusion.

This article surveys theoretical and empirical studies that relate to potential competition and outlines the role of potential competition in competition law enforcement. According to the contestable-market hypothesis, potential competition is very effective. According to the limit-pricing theory, potential competition is moderately effective, while other theories suggest that potential competition is not effective at all. Most empirical evidence suggest that potential competition is a competitive constraint, but a weaker such than actual competition. Theory and empirical studies underline the importance of entry barriers. Potential competition increases the likelihood of entry and entry, in turn, often has positive competitive effects. In addition, potential competition can be effective without actual entry. On the other hand, the incumbent's actions in response to potential entry can be viewed as predatory actions. Potential competition and barriers to entry are important in competition law enforcement. The extent of potential competition and the height of the entry barriers can be critical in merger cases and has been of major relevance for exemptions from Article 81 of the EU Treaty. The legal practice concerning potential competition is analysed against the surveyed literature. A number of cases under European competition law are also analysed.

This article surveys theoretical and empirical studies that relate to potential competition and outlines the role of potential competition in competition law enforcement. According to the contestable-market hypothesis, potential competition is very effective. According to the limit-pricing theory, potential competition is moderately effective, while other theories suggest that potential competition is not effective at all. Most empirical evidence suggest that potential competition is a competitive constraint, but a weaker such than actual competition. Theory and empirical studies underline the importance of entry barriers. Potential competition increases the likelihood of entry and entry, in turn, often has positive competitive effects. In addition, potential competition can be effective without actual entry. On the other hand, the incumbent's actions in response to potential entry can be viewed as predatory actions. Potential competition and barriers to entry are important in competition law enforcement. The extent of potential competition and the height of the entry barriers can be critical in merger cases and has been of major relevance for exemptions from Article 81 of the EU Treaty. The legal practice concerning potential competition is analysed against the surveyed literature. A number of cases under European competition law are also analysed.

Following this tradition, we document the existence of very large differences in the prices of textbooks across countries. The average hardcover textbook price is roughly 50% higher in the United States than in the United Kingdom, and in some cases, the US price is as much as double the UK price. This is counter to the conventional wisdom that consumer goods are cheaper in the US than in Europe. We argue that cost factors cannot explain differentials of this magnitude; hence, price differences are almost exclusively demand-driven.

In recent years, the increasing awarding of patents has captured the attention of scholars operating in different fields. Economic literature has studied the causes of this proliferation; we propose an entry game focusing on one of the consequences, showing how an incumbent may create a patent portfolio in order to control market entry and to collude. The incumbent fixes the level of patent protection and the threat of denunciation reduces the entrant's expected profits; moreover, if the entrant deviates from collusion, the incumbent can strengthen punishment suing the competitor for patent infringement, reducing her incentive to deviate. Our analysis suggests that antitrust authorities should pay attention to the level of patent protection implemented by the incumbent and note whether the holder of a patent reacts to entry by either suing or not suing the competitor. In the model, we use completely general functional forms in analyzing the issues, and this allows us to obtain general results not depending on the assumptions about the kind of oligopolistic competition.

Communication and Coordination in a Two-Stage Game * We study the impact of communication on behavior in a two-stage coordination game with asymmetric payoffs. We test experimentally whether individuals can avoid a head-to-head confrontation by means of coordinated strategies. In particular we analyze whether and how quickly a conflict-avoidance take-turn strategy can emerge. First, our results show that players learn to solve the conflict by choosing opposite options at both stages of the game. Second, many adopt a take-turn strategy to sustain coordination over time and alleviate the inequality induced by the asymmetry of payoffs. Third, communication increases the likelihood of conflict resolution even when a single pair member has the right to communicate.

Chain-stores now dominate most areas of retailing. While retailers may operate nationally or even internationally, the markets they compete in are largely local. How should they best operate pricing policy in respect of the different markets served-price uniformly across the local markets or on a local basis according to market conditions? We model this by allowing local market differences, with entry being inevitable in certain markets while being naturally or institutionally blockaded in others. We show that practising price discrimination is not always best for the chain-store. Competitive conditions exist under which uniform pricing can raise profits.

In this paper, contestability theory is examined under conditions of asymmetric information. Signals of economic profitability to potential entrants are the incumbent's list price and accounting rate of return. A disequilibrium analysis indicates that, while potential entry imposes a price discipline, incumbents can earn profits, although not indefinitely under stable conditions. Also, there may be wasteful entry even into industries where prices approximate the optimum.

Basing point pricing is a delivered price system in which the price quoted for delivery of a commodity is the sum of the price quoted at a predetermined basing point plus the cost of transportation from the basing point to the point of delivery, whether or not the commodity ...