Abstract
In chapter 1 we provide a brief overview of oligopoly theory, auction theory and market quality theory. The genesis of ‘oligopoly theory’ can be traced to the nineteenth century with the publication of the seminal work by Augustin Cournot in 1838. The advent of game theory in the twentieth century made possible the formalization of important ideas about oligopoly. Modern ‘auction theory’ began with the remarkable contribution by William Vickrey in 1961. The full flowering of auction theory came later in the 1970s and 1980s. ‘Market quality’ is a relatively new concept that came up in the twenty-first century based on the research of Makoto Yano. We also provide a summary of the entire book in this chapter.
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Notes
- 1.
I rely on Shapiro (1989) for this reference on Moore.
- 2.
The anectode on Bertrand equilibrium is taken from Basu (1993). Daughety (1988) contains the English translations of the seminal contributions of both Cournot and Bertrand.
- 3.
See Tirole (1988) and Vives (1999) for discussion of the classic results in oligopoly theory. Also see Stigler (1964) for discussion of some of the original ideas in oligopoly.
- 4.
The first classic book on game theory is by von Neumann and Morgenstern (1944). Nash (1950a, b, 1951, 1953) laid the foundations of modern game theory. For dynamic games of complete information, the concept of subgame-perfect equilibrium proposed by Selten (1965), is central. For games of incomplete information, Harsanyi (1967-1968) introduced the concept of Bayesian Nash equilibrium . For dynamic games of incomplete information, the concept of perfect Bayesian equilibrium combines the ideas behind subgame-perfect equilibrium and Bayesian Nash equilibrium with the rules from Bayesian updating. Stronger refinements of Nash equilibrium in dynamic games of incomplete information have been proposed by Selten (1975) with perfect equilibrium and by Kreps and Wilson (1982) with sequential equilibrium. The papers by Dasgupta and Maskin (1986a, b) are seminal contributions on games with discontinuous payoffs. For a comprehensive analysis of all these concepts see Fudenberg and Tirole (1991).
- 5.
There is a huge literature on Cournot, Bertrand and Stackelberg equilibria. On existence of Cournot equilibrium see Novshek (1985). On stability and uniqueness of Cournot equilibrium see Hahn (1962), Kolstad and Mathiesen (1987), Seade (1980) and Dastidar (2000). Over the years the existence of Bertrand equilibrium in a homogenous product market has been a topic of extensive research. Some of the relevant contributions are Dastidar (1995, 2001, 2011a, b), Hoernig (2007), Baye and Kovenock (2008) and Saporiti and Coloma (2010). On Stackelberg games in prices see Dastidar (2004) and Dastidar and Furth (2005).
- 6.
I have closely followed Vives (1999) for this part.
- 7.
Borgers (2015) provides a comprehensive analysis of modern mechanism design theory.
- 8.
In this respect we must acknowledge the contributions of Nobel Laurete, Jean Tirole. As the Royal Swedish Academy of Sciences notes on its website: “Before Tirole, researchers and policymakers sought general principles for all industries. They advocated simple policy rules, such as capping prices for monopolists and prohibiting cooperation between competitors, while permitting cooperation between firms with different positions in the value chain. Tirole showed theoretically that such rules may work well in certain conditions, but do more harm than good in others. Price caps can provide dominant firms with strong motives to reduce costs—a good thing for society—but may also permit excessive profits—a bad thing for society. Cooperation on price setting within a market is usually harmful, but cooperation regarding patent pools can benefit everyone. The merger of a firm and its supplier may encourage innovation, but may also distort competition.”
- 9.
The edited book by Ockenfels and Sadrieh (2010) contains many behavioural and experimental aspects of oligopoly.
- 10.
In this section I have closely followed Chap. 8 in Wolfstetter (1999) which contains an excellent introduction to auctions.
- 11.
See Cassady (1967) for an historical account on auctions.
- 12.
Some of the classic papers on auction theory are Vickrey (1961), Myerson (1981), Maskin and Riley (1984), Milgrom and Weber (1982) and Bulow and Roberts (1989). Griesmer et al. (1967) analyze the equilibrium of a firstprice auction in which contestants’ valuations are drawn from uniform distributions with different supports. Wilson (1969) introduced the common-value model and developed the first closed-form equilibrium analysis of the winner’s curse. Ortega Reichert’s (1968) PhD thesis contains the seeds of much future work. Chapter 1 in Klemperer (2004) provides a succinct summary of these major contributions.
- 13.
I have closely followed Chap. 1 of Klemperer (2004) for this section and the next.
- 14.
In this case, the bidder would change the estimate of the value if he learnt another bidder’s signal, in contrast to the private-value case in which his value would be unaffected.
- 15.
Dastidar (2015b) assumes that all individuals have the same utility function but have different incomes. Incomes are private information. He analyzes first-price, second price and all-pay auctions and show that non-quasilinearity changes many basic results of the benchmark model. While Vickrey’s (1961) result on second-price auctions is very robust, revenue equivalence breaks down even with risk-neutral bidders, high enough incomes and identicall and independently distributed types. In most cases, Dastidar (2015b) finds that all-pay auctions fetch the highest expected revenue.
- 16.
- 17.
See Krishna (2010) and Milgrom (2004) for all the details on this topic.
- 18.
However, in Chap. 2, we demonstrate that in a multimarket set-up this need not always be true.
- 19.
We provide more analysis on this in Chap. 2.
- 20.
- 21.
In 1968, when he was still in junior high school, Bill Gates first encountered a time-sharing computer. In 1975, he created Microsoft, and in 1986 successfully listed it on the stock market. Bill Gates could easily raise the funds required from the capital market, and this contributed much to his success. The next factor was people. He could recruit the proper talent from a highly-liquid labor market, and indeed, hire anyone he thought he needed. Another factor was the relative ease of entry into a competitive market. Bill Gates would not have entered the market had it not been relatively easy to do so, and the business would never have been built (see Dastidar and Dei, (2014).
- 22.
See Harstad and Svensson (2011) for a related exrecise.
- 23.
The results of Dastidar and Yano (2017) appear to be compatible with anecdotal evidences from an emerging economy like India. We discuss this paper and other related papers in Chap. 5.
- 24.
In Chap. 3 we analyse the consequences of such corruption and incompetence in the quality monitoring process.
- 25.
See Yano (2016) for an elegant and short discussion on this.
- 26.
In this context it may be worthwhile to mention Nobel Prize winning economist, Ronald Coase, who argued that the market would not function properly in the absence of an institutional system for enforcing property rights. Prior to this, neoclassical economists defined the market as a mechanism for ensuring voluntary transactions. Yano, on the other hand postulates, that a market would not function ‘properly’ in the absence of rules that guarantee efficiency, fairness and non-discrimination.
- 27.
According to Klaus Schwab, founder and executive chairman, “World Economic Forum” a Fourth Industrial Revolution is building on the Third, the digital revolution that has been occurring since the middle of the last century. It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres. See \(\ll \) https://www.weforum.org/agenda/2016/01/the-fourth-industrial-revolution-what-it-means-and-how-to-respond/ \(\gg \)
- 28.
I rely on the following source: \(\ll \) http://statisticstimes.com/economy/gdp-capita-ranking-2017.php \(\gg \)
- 29.
Economists argue that in order for the Japanese economy to recover from the long stagnation period since the 1990s, it is very important to develop high quality capital and labour markets. Ikeo (2008) demonstrates the importance of building a high quality capital market. Higuchi (2005a, b, 2008), Higuchi and Yamakawa (2008) and Miyoshi (2008) analyse regulations (theoretically as well as empirically) and its impact on the quality of the Japanese labour market (including female labour market participation). Kurokawa (2008) relates capital market quality to the quality of the accounting system. Hosoda (2008) discusses the building of a market for bads from the viewpoint of market quality.
- 30.
Some of the results in Chap. 4 earlier appeared in Dastidar (2014b).
- 31.
The distributional aspects of income and wealth have become very important in contemporary debates. Piketty (2013) gives an overview of this phenomeon.
- 32.
Dastidar (2014a) provides a survey on scoring auctions.
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Dastidar, K.G. (2017). Introduction. In: Oligopoly, Auctions and Market Quality. Economics, Law, and Institutions in Asia Pacific. Springer, Tokyo. https://doi.org/10.1007/978-4-431-55396-0_1
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