Competition, Collusion, and Game Theory

Lester G Telser

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9780202309255
• eBook ISBN: 9781351527163
• Topic: Business
• Subtopic: Business General
• Index: Business

This original, quantitatively oriented analysis applies the theory of the core to define competition in order to describe and deduce the consequences of competitive and non-competitive behavior. Written by one of the world's leading mathematical economists, the book is mathematically rigorous. No other book is currently available giving a game theoretic analysis of competition with basic mathematical tools.Economic theorists have been working on a new and fundamental approach to the theory of competition and market structure, an approach inspired by appreciation of the earlier work of Edgeworth and Bohm-Bawerk and making use of the new tools of the theory of games as developed by von Neumann and Morgenstern. This new approach bases itself on the analysis of competitive behavior and its implications for the characteristics of market equilibrium rather than on assumptions about the characteristics of competitive and monopolistic markets. Its central concept is ""the theory of the core of the market,"" and it is concerned, with the conditions under which markets will or will not achieve the characteristics of uniform prices and welfare optimality.Telser provides a number of insights into the symptoms of competition, when and how competition is bought into play, the mechanisms of competition and collusion, the results of competition and collusion, and the results of competition and collusion for the economy and for the general public. Many misconceptions about the nature of a competitive equilibrium are dispelled. The book is not only a mathematical analysis of core price theory but also contains extensive empirical research in private industry. These empirical findings, from research pursued over several years, enhance understanding of how competition works and of the determinants of the returns to manufacturing industries.

Appendix 1: Estimation of Payrolls, Annual Earnings, and Employment of Nonproduction Workers

According to the Census of Manufactures, a manufacturing company consists of establishments, central offices, and auxiliaries. Establishments are the sites of the manufacturing activities and are classified into four-digit SIC census manufacturing industries according to the primary products of the establishment. This means that establishments generally make several related products. The central offices and auxiliaries (CAO’s) include the company headquarters, and other facilities not located at establishments such as research laboratories, testing grounds, warehouses, and manufacturer’s sales branches. Simple companies combine at one location all of these activities while complex companies have one or more establishments and one or more CAO’s. In addition to the four-digit SIC industries which classify the establishments, there are enterprise industries which classify companies. An enterprise consists of one or more four-digit SIC industries. Companies are classified into enterprise industries according to the primary activities of their establishments. There are several types of companies as follows:

1. 1. Single-unit (one establishment) ;
2. 2. Multiple-unit,
   1. a. Single-enterprise industry,
   2. b. Multi-enterprise industry.

Most of the complications are due to the companies in 2.b. Fortunately, the 1963 census provides, for the first time, the means to relate certain statistics at the establishment and company levels. For our purposes the pertinent statistics are employment and payrolls. In this endeavor we are guided by tables 4B and 5A, 1963 Enterprise Statistics Part 1. Table 4B gives the total employment for every enterprise industry and its four-digit SIC components. For example, the enterprise industry 20B, prepared meats and dressed poultry, consists of two four-digit industries—2013, meat processing, and 2015, poultry dressing plants. The goal is to estimate the employment and payroll at the CAO’s corresponding to each of the four-digit establishments operated by the company. Thus, we wish to impute the employment and payrolls at the CAO’s to the establishments. Since the employment and the payrolls of the nonproduction workers at the establishments are already known, these figures can be added to the ones attributed from the CAO’s to give an estimate of total payrolls and employment of all nonproduction workers by four-digit class.

Let

1. e_ij = employment in enterprise industry i and four-digit class j.

The unknowns to be estimated are as follows :

= employment of single-enterprise-industry companies,

= employment of multi-enterprise-industry companies.

Let

1. e_i. = total employment of all establishments in enterprise industry i
2. ?_i = total employment in enterprise industry i.

It is important to realize that e_i. does not necessarily equal E_i. This is because some establishments in a given four-digit class belong to companies whose primary activities place them in an enterprise industry composed of other four-digit industries. For example, suppose that a cigarette company owns an establishment that makes soft drinks. This employment is included in the enterprise industry 21 A, tobacco products, and not in the enterprise industry 20P, bottled soft drinks and flavorings, because the soft drink activity is secondary to the cigarette company. However, the four-digit classification of establishments does include the employment in the establishment belonging to the cigarette company. Hence e_i. on an establishment basis for soft drinks is less than E_i for the enterprise industry while e_i. on an establishment basis for cigarettes is below E_i for the enterprise industry tobacco products. These considerations lead to the definition of the specialization ratio as follows :

An example and interpretation of this ratio is given in the text in section 3.

Table 5A of Enterprise Statistics gives us

= total employment in enterprise industry i of single-unit companies,

= total enterprise industry f s employment of multi-unit companies.

Since single-unit companies have one establishment, such companies correspond to 1.0 in the classification above while the multi-unit companies include both 2.a and 2.b. Single-unit companies are obviously specialized to a single four-digit SIC industry. It is assumed that the ratio

for the four-digit SIC industry is the same as for the enterprise industry i that contains this four-digit category.

(3)

therefore, is the estimate of the total employment of single-unit companies in the four-digit SIC industry (i, j). A similar assumption yields an estimate of

. Thus,

Notice, however, that this estimate is adjusted to take into account the enterprise industry specialization ratio.

The only payroll component that it is necessary to estimate is the payroll at the CAO’s corresponding to the four-digit SIC industries since the 1963 census already provides the employment and payrolls of nonproduction workers located at the establishment. ...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Table of Contents
• Foreword
• Acknowledgments
• Introduction
• I: Applications of Core Theory to Market Exchange
• II: Further Applications of Core Theory to Market Exchange
• III: Applications of the Core to Oligopoly
• IV: Theories of Expectations for N Competing Firms
• V: Competition or Collusion?
• VI: The Monopoly and Cournot-Nash Equilibria under Dynamic Conditions
• VII: Estimates of Demand, Price Policy, and the Ratio of Price to Marginal Cost by Brand for Selected Consumer Goods
• VIII: Some Determinants of the Returns to Manufacturing Industries
• Appendix 1: Estimation of Payrolls, Annual Earnings, and Employment of Nonproduction Workers
• Appendix 2: Description of the Samples
• Appendix 3: The Two-Digit Industry Effects
• Appendix 4: The Relative Size Distribution of Firms
• References
• Name Index
• Subject Index