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Traditional oligopoly models hold that firms compete in the same strategic variable, output (Cournot) or price (Bertrand). Alternatively, a hybrid model allows some firms to compete in output and other firms to compete in price, also known as the Cournot–Bertrand model. When the choice of strategic variable is endogenous, the established dominant strategy is output competition. A growing body of work demonstrates, however, that the Cournot–Bertrand outcome can be a subgame‐perfect Nash equilibrium in the presence of market asymmetries. Observations of real‐world markets consistent with Cournot–Bertrand behavior bolster justification for the model and have stimulated an impressive and evolving literature on advances and applications. We lay out the roots of the Cournot–Bertrand model and explore a number of model developments. We categorize 12 primary models in the literature based on alternative assumptions. In particular, some authors consider when the timing of play as well as the choice of strategic variable are endogenous. Altogether, this research identifies when Cournot–Bertrand behavior can emerge in a dynamic setting and under alternative market conditions. We also review the Cournot–Bertrand model applications in the fields of international economics, industrial organization, labor, and public economics. We expect the literature to continue to expand in the future.

Neuroeconomics makes use of new data and tools from neuroscience to enrich the study of economic decision-making. This chapter introduces neuroeconomic methods and surveys a number of contributions to the literature regarding brain responses to brands, advertisements, pricing and product characteristics. These contributions rely primarily on functional magnetic resonance imaging (fMRI) although electroencephalography (EEG) and other methods are also used. Industries represented in the survey include beverages (cola, wine, beer, coffee, and milkshakes); artwork; music; magazines; handbags; televisions; and sunscreen as well as anti-smoking advertisements. Some of these studies move beyond identification of brain regions associated with advertising, for example, to using brain activity to predict individual choices and even the behavior of the population at large.

The Handbook of Behavioral Industrial Organization integrates behavioral economics into industrial organization. Chapters cover concepts such as relative thinking, salience, shrouded attributes, cognitive dissonance, motivated reasoning, confirmation bias, overconfidence, status quo bias, social cooperation and identity. Additional chapters consider industry issues, such as sports and gambling industries, neuroeconomic studies of brands and advertising, and behavioral antitrust law. The Handbook features a wide array of methods (literature surveys, experimental and econometric research, and theoretical modelling), facilitating accessibility to a wide audience.

We provide a mini-history of the craft beer segment of the U.S. brewing industry with particular emphasis on producer-entrepreneurs but also other pioneers involved in the promotion and marketing of craft beer who made contributions to brewing it. In contrast to the more commodity-like lager beer produced by the macrobrewers in the United States, the output of the craft segment more closely resembles the product differentiation and fragmentation in the wine industry. We develop a database that tracks the rise of craft brewing using various statistical measures of output, number of producers, concentration within the segment, and compares output with that of the macro and import segment of the industry. Integrating our database into Geographic Information Systems software enables us to map the spread of the craft beer segment from its taproot in San Francisco across the United States. Finally, we use regression analysis to explore variables influencing the entrants and craft beer production at the state level from 1980 to 2012. We use Tobit estimation for production and negative binomial estimation for the number of brewers. We also analyze whether strategic effects (e.g., locating near competing beer producers) explain the location choices of craft beer producers. (JEL Classifications: L26, L66, N82, R12)

While most of the beer consumed around the world is produced by macrobrewers such as AB InBev, craft brewers (or microbreweries) currently receive most attention. In part, this is because craft beer represents the growing segment of the malt beverage industry and in part because the craft segment has had so many new entrants. In this paper, we describe the evolution of the craft beer component of the US beer industry, we explain the strategic interactions between US craft and macrobrewers, and we show how the US craft beer industry is having a revitalizing influence upon the brewing industry in Europe. While craft beer has its contemporary roots in the USA, for centuries Europeans have been brewing what could be considered “craft beer” in terms of its batch size and output heterogeneity.

We develop a model to explain why firm behavior differs in the market for small cars. Firms such as Honda compete in output (Cournot) and produce marketing campaigns with universal appeal, while firms such as Scion compete in price (Bertrand) and produce targeted marketing campaigns. We show that this mixture of Cournot and Bertrand behavior can occur when advertising rotates demand. When behaving as a Cournot-type firm such as Honda, it is more profitable to pursue a mass-market advertising campaign that rotates demand counterclockwise when it faces relatively low unit costs and a flat demand function. When behaving as a Bertrand-type firm such as Scion, it pays to pursue a niche-market advertising campaign that rotates demand clockwise when it faces relatively high unit costs and a steep demand.

Cournot establishes a Nash equilibrium to a duopoly game under output competition; Bertrand finds a different Nash equilibrium under price competition. Both treat the strategic choice variable (output versus price) and the timing of play as exogenous. We investigate Cournot-Bertrand models where one firm competes in output and the other competes in price in both static and dynamic settings. We also develop a general model where both the timing of play and the strategic choice variables are endogenous. Consistent with the conduct of Honda and Scion, we show that Cournot-Bertrand behaviour can be a Nash equilibrium outcome.

Objective This research seeks to identify job characteristics and workplace policies conducive to the job success of individuals with bipolar disorder, and to examine the interactions between employers and bipolar employees regarding requested workplace accommodations. Participants The study population consists of 39 adults who were in outpatient care and diagnosed with bipolar I or II disorder. Methods Each participant completed a mail-in questionnaire regarding workplace characteristics that would enhance job performance. Results Primary beneficial work characteristics reported are schedule flexibility, autonomy, and supervisor willingness to provide accommodations. Specific helpful characteristics noted by participants include allowances for working at home, leaves of absence, frequent breaks, barriers between work spaces, control over goal-setting, creativity, and avoidance of jobs with pace set by machinery. Twelve of the 26 workers requested workplace changes, and of the 12 requests, 10 were implemented. Incidents of employer bias were reported. Conclusion The experiences of the survey participants regarding beneficial workplace accommodations may help to improve the productivity and well-being of other individuals with bipolar disorder.

The relationship between advertising and price is important because the welfare effect of advertising depends upon the price effect of advertising. We attempt to provide a better understanding of the theoretical relationship between advertising and price. We establish theoretical conditions sufficient for advertising to raise prices. This will occur, for example, when firms play a supermodular game – a structure that considers the type of advertising (i.e., persuasive, image creating, or informative) and the effect that advertising has on a firm’s demand and costs. We also compare results from two simple duopoly models, one with horizontal and the other with vertical differentiation, and find that only the model with horizontal differentiation is supermodular for the forms of advertising that are thought to raise price (e.g., persuasive advertising). In consideration of these theoretical issues, we then develop an empirical model to determine whether advertising raises prices in the US brewing an...

I. INTRODUCTION As the leading cause of preventable mortality in the United States, cigarette smoking imposes a tremendous cost on society. Sloan et al. (2004) estimate that each year smoking causes approximately 400,000 deaths and $104 billion in social costs. Of this amount, $35 billion is external to individual cigarette smokers. In spite of these known private and external costs associated with cigarette smoking, approximately 17% of U.S. adults continue to smoke cigarettes (Centers for Disease Control and Prevention 2002). (1) To reduce cigarette smoking, many countries have imposed various advertising restrictions. For example, the United States enacted the Fairness Doctrine Act, effective 1968-70, which required that one antismoking advertisement be aired for every four prosmoking advertisements on television and radio. In 1971 the U.S. Broadcast Advertising Ban supplanted the Fairness Doctrine Act by abolishing all cigarette (pro- and antismoking) advertising from TV and radio. At the end of 1998, the U.S. tobacco industry and 46 states forged an agreement, the National Tobacco Settlement, that prohibits outdoor advertising, bans tobacco companies from using cartoon characters to market their products, and provides funding for antismoking advertising (Nader 1998; Shapiro 1998; Teinowitz 1998). A growing body of evidence has shown, however, that advertising bans have no significant effect on cigarette demand. (2) For example, in a study of 22 Organisation for Economic Co-operation and Development countries, Stewart (1993) finds that advertising bans may actually stimulate cigarette smoking. Schneider et al. (1981) find that the Broadcast Advertising Ban increased cigarette smoking in the United States, arguing that this was due to the elimination of both pro- and antismoking advertising. In a review article of international studies concerning the relationship between advertising and cigarette smoking, Duffy (1996, p. 20) concludes: "Taken as a whole, these studies, American and otherwise, provide very little support for those who believe that a broadcast advertising ban is a potent way of achieving significant changes in smoking behavior." Given the high cost and the subsequent social goal of deterring smoking, understanding the consequences of advertising restrictions is critical to establishing appropriate public policy. Tremblay and Tremblay (1999) argue that the counterintuitive conclusion of Duffy (1996) and others may be incorrect because it ignores the supply side effects of advertising. Their model shows that even when advertising has no effect on market demand, an advertising ban can still cause a dramatic fall in the equilibrium level of cigarette smoking if advertising has procompetitive supply effects. Farr et al. (2001) find empirical support for this hypothesis in the short run using a myopic addiction model. In contrast to previous work, the authors compare the short-run and long-run effects of advertising restrictions on cigarette smoking for both myopic and rational addiction models. In myopic addiction models consumers have no foresight, so previous consumption affects current consumption, but future consumption bears no influence. When consumers are rationally addicted (Becker and Murphy 1988), they also look forward so that current consumption may depend on expected future as well as past consumption. Although there has been empirical support for the rational addiction model (Chaloupka 1991; Becker et al. 1994; Olekalns and Bardsley 1996; Fenn et al. 2001; Sloan et al. 2002), it has not gone unchallenged. For example, Akerlof (1991) shows that procrastination can negate foresight. In Akerlof's model, consumers ignore the future because the present is unduly salient. A consumer who wants to quit smoking because of an increase in expected future prices, for example, may find it optimal to postpone quitting for a day, as the benefit of smoking now is high relative to the cost of waiting one day to quit. …

In this update we document the changes in industry concentration of macro and micro brewers in the U.S. brewing industry since 1970. Technological change and the con- tinued success of Anheuser-Busch forced the macro brewers into a war-of-attrition game and contributed to rising concentration in the macro sector of the industry. Homogeni- zation of the beer produced by macro brewers, changes in local demand conditions, and a more favorable regulatory environment created profitable niches in many local markets for micro brewery beer, and entry into this sector occurred at a phenomenal rate from 1977 to 1998. Consistent with several models of industry dynamics, over-exuberance led to a shakeout as the number of micro breweries fell by over 16% from 1998 to 2002.

We consider a duopoly model with a Cournot-type firm and a Bertrand-type firm. Both survive and the equilibrium is stable when there is sufficient product differentiation. With no differentiation, only the Cournot-type firm survives, and the outcome is perfectly competitive.

We analyze a Cournot-Betrand model where one firm competes in output and the other competes in price. With general demand functions and perfectly homogeneous products, we show that the unique Nash equilibrium is the perfectly competitive equilibrium. Equilibrium price equals marginal cost, the Cournot-type firm produces the perfectly competitive level of market output, and the Bertrand-type firm exits the market. Even with just one firm in the market, the presence of a potential Bertrand-type competitor provides sufficient discipline to guarantee a competitive outcome.

The welfare effect of advertising restrictions in the U.S. cigarette industry depends upon the impact of advertising on consumer and producer surplus, the transfer to consumers for being exposed to utility-reducing advertising, and smoking externalities. We estimate a demand equation and a supply relation simultaneously and use the parameter estimates to generate predictions of the impact of advertising restrictions on social welfare. Our results show that advertising restrictions benefit producers by limiting competition and generating higher industry profits, and such restrictions lower social welfare if the external cost of cigarette smoking is sufficiently low.

Because of the high social cost of cigarette smoking, many countries have imposed advertising restrictions to reduce cigarette consumption. Yet previous research suggests that such advertising constraints have been ineffective in combating smoking. We show that this conclusion is incorrect because it ignores the fact that advertising restrictions affect the extent of competition as well as demand. An advertising ban reduces competition which raises price and decreases consumption.

This study demonstrates that the measurement of technological change and economic efficiency are tightly linked. Efficiency measures may depend on carefully controlling for technological change, while tests of technological change may be sensitive to empirical model specifications. Moreover, the study underlines Solow's (1994) and Romer's (1994) admonition that econometricians should pay attention to industry and institutional evidence in building models of technological change. The empirical results presented here suggest that there has been substantial technological change in the U.S. brewing industry from 1950 to 1992. This occurred in the form of a dramatic shift in technology beginning with the introduction of super breweries in about 1972. There has also been a substantial increase in scale economies, which undoubtedly caused many inefficiently small firms to exit the industry during the 1960s and 1970s. Further results suggest that a more complete specification of technological change and the stochastic nature of the frontier production function leads to higher and more tenable estimates of efficiency.

This study estimates the effect of U.S. cigarette advertising on social welfare. Because economists hold different beliefs about the nature of advertising, the analysis uses three different empirical models to test the welfare implication of cigarette advertising. Each model employs estimates of a demand equation and a supply relation to calculate a single point estimate of the impact of advertising on profit, consumer surplus, and total surplus. Bootstrapping generates confidence intervals for each welfare estimate. The results indicate that the cigarette industry is not competitive and that advertising significantly increases market power. Further, advertising significantly reduces consumer surplus if it is either purely persuasive or purely informative but has no significant effect on total surplus.

The immediate and most dramatic way for a company to expand its size and influence market structure is to purchase another company. Historical examples abound. In the late 1800s, Standard Oil Company gained a 90% share of the petroleum market by purchasing more than 120 competitors. In the 1960s, ITT (International Telephone and Telegraph) became a diversified corporation by acquiring 52 domestic and 55 foreign companies, including such well-known businesses as Avis Rent-a-Car, Continental Baking (Wonder Bread), Hartford Insurance, and Sheraton Hotels. By 1968, ITT had become the 11th largest corporation in the USA. The recent financial crisis has forced a number of very large acquisitions. The largest of these occurred in 2008, with Bank of America purchasing Merrill Lynch, a provider of insurance and financial services, for $50 billion and Wells Fargo Bank purchasing Wachovia Bank for $15.1 billion.

We saw in the previous chapter that there are two types of oligopoly models, those that assume cooperative behavior and those that assume noncooperative behavior. In Chaps. 10 and 11, we develop the classic models of oligopoly where firms behave noncooperatively. These models represent the most abstract material that is found in the book. Here you will see how some of the great figures in history have thought about the oligopoly problem.

In this chapter, we discuss the market structures of monopoly and monopolistic competition. Unlike perfect competition which has many sellers, a monopoly market has just one seller. In this sense, it is the polar opposite of perfect competition.

Laws and regulations touch nearly every aspect of our lives. Most states require children to wear a helmet when riding a bicycle. The US Department of Agriculture requires that your “cheese pizza” contain no more than 11% of a cheese substitute. Food containing more than one ingredient can be labeled “organic” only if at least 95% of its contents are organic. Your power company cannot raise its rates without regulatory approval.

In economics, we normally classify markets into four market structures: perfect competition, monopoly, monopolistic competition, and oligopoly. In this chapter, we are interested in understanding why real markets are structured so differently. For example, most agricultural commodities approximate competitive markets, as they have many producers of homogeneous or nearly homogeneous goods. In contrast, the market of computer operating systems is nearly monopolized by Microsoft. In 2009, Microsoft Windows had a market share of approximately 92%, while its nearest competitor, Mac, had a market share of just over 5%.

Competition is a fundamental concept in a market economy. We can think of competition as firm rivalry, where one firm battles to gain a strategic advantage over its competitors. For example, General Motors and Ford have been competing with one another for over a century to produce better cars at lower cost and to create more catchy marketing campaigns. We can also think of competition as a type of market structure. Both concepts are important in industrial organization. In later chapters, we analyze various forms of competitive behavior. In this chapter, we review the market structure of perfect competition.

Chapter 1 Introduction.- Chapter 2 Demand, Technology, and the Theory of the Firm.- Chapter 3 Introductory Game Theory and Economic Information.- Chapter 4 Behavioral Economics.- Chapter 5 Perfect Competition and Market Imperfections.- Chapter 6 Monopoly and Monopolistic Competition.- Chapter 7 Product Differentiation.- Chapter 8 Market Structure, Industry Concentration, and Barriers to Entry.- Chapter 9 Cartels.- Chapter 10 Quantity and Price Competition in Static Oligopoly Models.- Chapter 11 Dynamic Monopoly and Oligopoly Models.- Chapter 12 Market Power.- Chapter 13 Product Design, Multiproduct Production, and Brand Proliferation.- Chapter 14 Price Discrimination and Other Marketing Strategies.- Chapter 15 Advertising.- Chapter 16 Advertising and Welfare.- Chapter 17 Technological Change, Dynamic Efficiency, and Market Structure.- Chapter 18 Horizontal, Vertical, and Conglomerate Mergers.- Chapter 19 Efficiency, Equity, and Corporate Responsibility in Imperfect Competition.- Chapter 20 Antitrust Law and Regulation.- Chapter 21 Industry and Firm Studies

One of our goals is to understand the forces that influence firm behavior. The principal constraints derive from consumers (demand), nature (technology), and competitors. Demand derives from consumers who strive to maximize their utility or satisfaction within their budget and other constraints. When tastes are under the full control of consumers, firms take market demand as given. That is, demand is exogenously determined. This is the basis of consumer sovereignty—consumer preferences determine what firms produce.

A crucial objective in industrial organization is to evaluate whether or not imperfectly competitive markets perform well from society’s perspective. As we discussed in Chap. 1, we focus on three dimensions of market performance: static efficiency, dynamic efficiency, and equity. Up to this point, we have spent most of our time discussing efficiency issues. We now begin this chapter with a review and assessment of what we have learned regarding imperfect competition and different types of inefficiency—market power (i.e., allocative inefficiency), X-inefficiency, rent-seeking behavior, and technological change (i.e., dynamic efficiency).

Table 10.1 in the previous chapter identifies 12 classic models of oligopoly. In Chap. 10 we analyzed the static Cournot, Bertrand, and Cournot–Bertrand models. We also investigated the case where firms could choose whether to compete in output (as in Cournot) or price (as in Bertrand). These are labeled models M1–M4 in Table 10.1.

In the previous chapter, we saw that approximately 2% of GDP is spent on advertising each year. For most of us, it is impossible to escape advertising, as it is found on television and radio, in movie theaters, and on the Internet. Advertising spending is especially prominent in consumer goods industries. The advertising-to-sales ratio exceeds 10% in many consumer goods industries, including liquor, perfume, and cosmetics, but is less than 1% in most producer goods industries, such as cement and industrial materials.

One of the most important decisions a firm must make is the style and qualities that its product will possess. Up to this point, we have taken product or brand characteristics as given. The main reason for this is that it can take a considerable amount of time to come up with something innovative, such as a new style of automobile or a more powerful laundry detergent. Nevertheless, when developing a new car a firm must answer a number of design questions—should the company produce an economy or a sports car, should the body style be traditional or cutting-edge, should it have a front-wheel, rear-wheel, or all-wheel drive train.

Strategic decisions are an integral part of our daily lives. Game theory provides a foundation for analyzing strategy, and as such, is a vitally important subject. At work, you may need to decide whether it is worth it to put in extra hours to earn a bigger bonus than your colleagues. Strategic decisions are especially common in competitive games, such as chess, tennis, football, and the TV show Survivor. These are considered games because strategic interaction is important to success. That is, to decide your best course of action, you must consider how others are likely to behave. Two examples make this point clear.

This chapter explores recent economic trends in the import and craft sectors of the U.S. beer market. In 1970, beer sales of imports and crafts (microbrewers, brewpubs, and regional craft brewers) made up only 1% of U.S. beer sales, compared to 17% today. The reasons for this impressive gain are investigated. The data documented in this study include trends in market share; profit-to-sales ratios for the largest craft brewers; imports, exports, and import share by leading brands; advertising for leading brands; and demographic characteristics of beer consumers. Income and the demand for variety, novelty, and prestige appear to be important drivers of the increasing popularity of import and craft beers in the U.S.

The union threat effect is the propensity of non-union employers to resist union organization by raising wages. This study introduces an empirical model of the non-union employer's optimal wage in the presence of threat effects. Estimates of an equation of a firm's unionization probability provide key variables. Unlike previous models, this specification dervies directly from a theoritical model, separstes threat effects from the influence of other union-non-union spillovers and efficiency wages and includes many factors affecting the probability of unionization. Wage equation estimates reveal that the predicted threat of unionization did not significantly raise non-union wages in the United States in 1980.

Despite equivalent success rates, the probability of obtaining an NSF grant is substantially higher for chemists than for economists. The evidence indicates that NSF funds are more scarce for economists and that the quality of funded proposals as measured by institutional affiliation is greater for economists than for chemists. Administrators should be aware that when the supply of funds varies among disciplines, the probability of being funded and the expected value of an award will also vary among departments.

Although economists have analyzed earnings, unemployment, and labor force participation for those with bipolar illness, occupational choice has yet to be explored. Psychological and medical studies often suggest an association between bipolar illness and creative achievement, but they tend to focus on eminent figures, case studies, or small samples. We seek to examine occupational creativity of non-eminent individuals with bipolar disorder. We use Epidemiologic Catchment Area data to estimate a multinomial logit model matched to an index of occupational creativity. Those with bipolar illness appear to be disproportionately concentrated in the most creative occupational category. Nonparametric kernel density estimates reveal that the densities of the occupational creativity variable for the bipolar and non-bipolar individuals significantly differ in the ECA data, and suggest that the probability of engaging in creative activities on the job is higher for bipolar than non-bipolar workers.

Monotone methods enable comparative static analysis without the restrictive assumptions of the implicit function theorem. Ease of use and flexibility in solving comparative static and game theory problems have made monotone methods popular in the economics literature and in graduate courses, but they are still absent from undergraduate mathematical economics courses and textbooks. We illustrate the generality of monotone comparative statics relative to the implicit function approach. For example, to sign the effect of a discrete policy shift on an optimal control or choice variable, one need only check that marginal returns increase with the policy parameter. We also apply monotone methods in game theory settings. As mathematical economics courses and majors gain popularity, incorporating monotone methods into curriculum and textbooks would provide a modern treatment of comparative static analysis.