Perfect competition is characterized by a large number of buyers and sellers, homogeneous products, and ease of entry and exit.

A monopoly exists when there is only one seller dominating the market with a unique product, leading to no close substitutes.

Oligopoly is a market structure where a small number of large firms dominate the market, often with differentiated products.

Monopolistic competition involves many sellers offering products that are similar but not identical, with some product differentiation.

Market power refers to a firm's ability to influence and set prices, which is more prevalent in markets with less competition.

Barriers to entry can lead to a monopoly, where a single firm dominates the market with no close substitutes.

The Herfindahl-Hirschman Index (HHI) is a measure of market concentration, indicating the extent of competition or monopoly in a market.

Cartels, where firms collude to control prices and production, are more likely to occur in oligopolistic market structures.

One potential disadvantage of a monopoly for consumers is the ability of the monopolist to set higher prices due to lack of competition.

Contestable markets have low exit costs, encouraging new firms to enter and compete.

Definition of Price Discrimination
Price discrimination is caused by differences in Demands, not Costs.

TYPES OF PRICE DISCRIMINATION
The classification of types of price discrimination was first proposed by Pigou.

Conditions of Price Discrimination
Conditions of Price Discrimination:

• Sellers should have market power
• The market should be divisible
• Different markets should have different price elasticities of demand
• There shoud be no resale (no arbitrage) principle
• There should be no crossovers between markets

Conditions of Price Discrimination
Arbitrage

Third-Degree Price Discrimination (Group Pricing)
The equation that determines the profit-maximizing price:
MR = MC

Second-Degree Price Discrimination (Non-Linear Pricing)
Assume that you can purchase one kilogram of bananas at a price of $1.75 per kg, and a five-kilogram bag of bananas at a price of $7.00. This is most likely an example of quantity discounts.

First-Degree (Perfect) Price Discrimination
MC = dTC/ dQ
= 0.25 Q
= Q /4
P = MC ⇒ 30 - Q/2 = Q/4
3 Q/4 = 30
Q/4 = 10
Q=40

Second-Degree Price Discrimination (Non-Linear Pricing)
Charging different prices to different supporters or groups of supporters in the markets for tickets of football is an example of third-degree price discrimination.

First-Degree (Perfect) Price Discrimination
First-degree aims to capture all consumer surplus, third-degree involves different pricing for different consumer groups.

The firm’s capacity to engage in price discrimination is contingent upon the level of information it possesses regarding the consumers’ willingness to pay for its product. Price discrimination aims to capture a greater surplus than what can be achieved under uniform pricing.
Classification of the types of price discrimination was first proposed by Pigou (1920). In first-degree or perfect price discrimination, a firm has perfect information about each consumer’s willingness to pay. In second-degree price discrimination, a firm cannot identify the consumers to discriminate on prices. However, the firm knows that there are different groups of consumers and can use selfselection mechanisms to induce consumers to rank themselves in a way that generates additional profit. Third-degree price discrimination, also known as market segmentation, occurs when a firm acknowledges variations in the willingness to pay among different consumer groups and knows which consumer belongs to which group. In recent times, these pricing strategies have been alternatively labeled as personalized pricing, menu pricing, and group pricing, respectively.

Conditions of Price Discrimination
Price discrimination can be applied under the following certain conditions: • Sellers should have market power: Price discrimination aims to raise profits by charging various prices to different buyers or different prices for different units purchased by the same buyer. In order to charge different prices to different individuals or businesses or different prices for different quantities of the same buyer, the seller must have market power, or the group of sellers must have an explicit or implicit agreement on price policies. When a firm discriminates prices, at least one price will be higher than the marginal cost, and only a firm with market power can do that. • The market should be divisible: The seller should be able to identify different groups of consumers. Examples of market segmentation are domestic and foreign markets, medical treatment for the rich and poor, and electricity supplied to homes and businesses. • Different markets should have different price elasticities of demand: The target of price discrimination is to increase total revenue by setting a relatively higher (lower) price in the market where demand is relatively inelastic around the current price in the market. Thus, if the price elasticity of demand in various markets is the same, there will be no scope for price discrimination. • No resale (no arbitrage) principle: If a firm sets different prices, consumers who buy at a lower price should not be able to resell the product to other consumers who pay a higher price. Otherwise, there will be no incentive for the firm to discriminate prices because nobody will buy the product at a higher price. Similarly, if a firm applies a quantity discount for its product, the discount should be such that it does not encourage high-volume purchasers to resell it to other consumers.

TYPES OF PRICE DISCRIMINATION
Group pricing, within the context of thirddegree price discrimination, refers to the practice of setting different prices for distinct customer groups based on their varying levels of willingness to pay for a product. This allows the firm to maximize profit by capturing more surplus.

Third-Degree Price Discrimination (Group Pricing)
Three key features characterize third-degree price discrimination or group pricing. First, consumers have characteristics that are observable by the firm, such as age, income, geographical location, or educational attainment. A firm with market power can group consumers according to these characteristics in terms of their willingness to pay for its product. Second, the same firm can prevent arbitrage between different groups. Finally, a key feature of third-degree price discrimination is that all consumers in a given group are offered the same price, which differs between groups. Within each group, consumers make individual decisions regarding the quantity they wish to purchase at the given price. In the real world, for example, young people are likely to respond flexibly to air travel discounts, but businesspeople do not. This brings us to the third degree of price discrimination or market segmentation.

First-Degree (Perfect) Price
Discrimination
Perfect price discrimination, also known as first-degree price discrimination or personalized pricing.

Second-Degree Price Discrimination (Non-Linear Pricing)
Second-degree price discrimination is generally called non-linear price discrimination in the literature and application... Quantity discounts are commonly used to implement second-degree price discrimination among various consumer types.

First-degree price discrimination”
With perfect price discrimination, consumer surplus is reduced to zero because the monopolist captures all surplus.
Total surplus is the sum of producer and consumer surplus. In this case, since consumer surplus is zero, total surplus is equal to producer surplus.
With perfect price discrimination, there is no deadweight loss because the monopolist efficiently allocates resources, capturing the entire surplus.
Finally: π = 4000, CS = 0, PS = 4000, DWL = 0

Second-Degree Price Discrimination (Non-Linear Pricing)
Any attempt to implement differentiated two-part tariff and block pricing policies will not work in this case. Therefore, the firm has to use second-degree price discrimination (menu pricing).
In the case of menu pricing, the firm will sell two packages: a small package for low-demand consumers and a large package for high-demand consumers. The small package includes 5.5 units and is sold for $143, which is equal to the area under the demand function. High-demand consumers can buy either the small or the large package.
If a high-demand consumer buys a small package, she will pay $143, and her consumer surplus will be $121 (see Figure ). Therefore, a high-demand can buy the large package only if her consumer surplus is at least $121. The firm will offer the large package at $202 to allow highdemand consumers to realize a surplus of $121 when they buy this package, which is enough to make
them opt out of the small package (5.5 units for $143) package.
The firm will earn $168 profit from a high-demand consumer ($202 - (4 × 8.5) = $168) and $121 from a low-demand consumer ($143 - (4 × 5.5) = $121). Of course, low-demand customers will not buy the large package because their maximum willingness to pay for 8.5 products is only $144.
The firm designed the two menu options to solve identification and arbitrage problems by enabling consumers to reveal who they are through their purchases. The firm now offers a menu of 5.5 products for $143 and another menu of 8.5 products for $202. Menu pricing has a very important feature. The average price per product of the small package ($143 for 5.5 products) is $26, but the average price of the large package is $23.76 ($202 / 8.5). Therefore, the second package offers a volume discount compared to the first one

Analyze the effects of price discrimination on social welfare
Potential Negative Effects on Low-Income Consumers: Third-degree price discrimination, which involves segmenting consumers based on characteristics like age or income, can result in higher prices for certain groups, potentially burdening low-income consumers

MARKET STRUCTURE OVER TIME
Free entry and exit in the long run.

MARKET STRUCTURE OVER TIME
Gibrat’s Law

MARKET STRUCTURE OVER TIME
The equations refers to the Theory of Proportional Growth:
S_t = (1 + v_t) ꞏ S_{t -1}

PREDATORY CONDUCT
Predatory pricing

PREDATORY CONDUCT
Limit pricing

PREDATORY CONDUCT
First-mover advantage: Refers to the ability of the player being better than the competitors due to having the chance to choose its strategy before the competitors in sequential games.

PREDATORY CONDUCT
Predatory Pricing is a type of predatory conduct with the ultimate aim of driving the rivals out of the market, Limit pricing is a strategy to preempt potential rivals from entering the market, to begin with.

PREDATORY CONDUCT
While the Limit Pricing strategy generally takes place when an incumbent firm has the absolute cost advantage, Capacity investment is a strategy of the incumbent firms in industries requiring large-scale production and excessive capital expenditures.

Cartels and Instability of Cartels
Price-fixing: According to the Federal Trade Commission, the main regulatory authority in the USA to protect consumers via ensuring
competitive behavior in the markets, “Price fixing is an agreement (written, verbal, or inferred from conduct) among competitors to raise, lower, maintain, or stabilize prices or price levels.”

Cartels and Instability of Cartels, Pareto-optimal equilibrium
In game theory, Pareto-optimality or Paretoefficiencyis an equilibrium outcome, from
which if any of the players deviate, it is impossible to make one player better off without making the other(s) worse off.

PREDATORY CONDUCT
We have seen in the first chapter that the structure-conduct-performance paradigm suggests that the market structure determines the behavior of firms. However, firms can behave in such a way that they can maintain their market power and remain monopolist even if they do not have a cost advantage over their competitors. In other words, the conduct may also determine the market structure. In this section, we will study strategies that firms may use to protect or improve their market shares. We will first analyze the difference between credible and non-credible threats because we assume that firms are rational actors, and they know that their competitors are also rational. A rational firm cares only about its own profit, and if a threat against a competitor reduces its profit, it will not be a credible threat. After studying credible and non-credible threats, we will analyze entry deterrence strategies.

MARKET STRUCTURE OVER TIME
Gibrat’s Law: The rule proposed by Robert Gibrat in 1931, stating that the distribution of firms’ size in a market is log-normal and that an individual firm’s market share over time is a random variable.

the stability of cartels and the factors affecting market collusion.
Another type of anti-competitive strategy in the markets is collusion. Price fixing agreements are the most commonly observed collusion strategy to drive some of the firms out of the marke

the predatory conduct behavior in the market.
Firms with a large market share are likely to adopt strategies that restrict entry by new firms, and force small firms to exist from the market. Predatory conduct strategies of incumbent firms are generally in the form of entry deterrence, namely, to avoid entry of a potential entrant firm to begin with. In this section, we have analyzed limit pricing and capacity expansion as entry-deterring strategies and shown under which conditions these strategies would be credible.

the stability of cartels and the factors affecting market collusion.
Another type of anti-competitive strategy in the markets is collusion. Price fixing agreements are the most commonly observed collusion strategy to drive some of the firms out of the market. We have seen that some factors, such as high market concentration, existing entry barriers, and low price elasticity of demand, foster collusion in the markets.

Cartels and Instability of Cartels
The Bertrand Paradox is defined as the situation in which two firms producing a homogenous product with a symmetrical cost structure do not act cooperatively and ultimately set their prices equal to their marginal costs at the Nash equilibrium

Credible/Non-Credible Threats
Bain (1956), in a seminal paper on the barriers
to market entry, identifies three barriers: the
absolute cost advantage of the incumbent firm,
the requirement of large capital expenditures, and
product differentiation. This section will focus on
two anticompetitive entry-deterring strategies: (1)
limit pricing and (2) capacity investments. While
the limit pricing strategy generally takes place when
an incumbent firm has the absolute cost advantage,
capacity investment is a strategy of the incumbent
firms in industries requiring large-scale production
and excessive capital expenditures.
Before moving to work on formal models
of limit pricing following Bain (1956) and
Sylos-Labini (1962) and of capacity investment
following Dixit (1980), we need to understand
the differences between credible and non-credible
threats within the context of the game theoretical
approach to entry deterrence.

Predatory Conduct and Collusion
ΠI* = 72.5 . 55 - 40 . 55 = 32.5 . 55 = 1787.5

Product diversification can take various forms, such as i) product extension, ii) market extension, and iii) pure conglomerate.

in the case of pure conglomerate diversification, a firm starts to
produce a completely different product, like an apparel company producing chocolates.

Vertical product differentiation refers tothe differentiation of products in terms of one characteristic, usually the quality of the
product, on which there is consensus among consumers.

Product differentiation by location is one
of the forms of horizontal differentiation in
which the market is not considered a point
but a spatial area where firms are located at
different points.

The practice of selling two or more goods jointly at a price to the advantage of sellers is
called bundling.

Mixed bundling is the practice of offering consumers to buy goods separately or
bundled together.

If you want to use the internet on your smartphone, you must also purchase a phone line. In short, we purchas and use two different services, both phone calls and internet use, on mobile phones. Printers and toners, cameras and memory cards, cars and spare
parts are other examples of tie-in sales.The practice of selling complementary goods
is called tie-in sales.

The concept of tie-in sales indicates situations where it is not possible to use one of
these products without the other. In other words, products are complementary. Companies make the sale of any good conditional on the purchase of another good. For example, mobile phone operators provide a service that allows us to make calls on the mobile phones we use. These operators also sell smartphones.

A firm advertises to promote its products to wider audiences and to ensure that they have full knowledge of their qualities.

The left side of the equation shows the marginal return on advertising, and the right side shows the marginal cost of advertising. The first term to the right of the equation shows that when advertising expenditure increases by one unit, marginal cost increases due to the increase in output while it will increase the cost by Tl 1 if ad expenditure increases by Tl 1 .

A merger between two or more firms operating
in the same market is called a “horizontal merger.”

The US antitrust convention is multiplying the index by 10000 so that the HHI takes a value between 0 (which implies perfect competition) and 10000 (which implies monopoly).

Merger paradox: In a symmetric Cournot game,
all the gains from a horizontal merger, if this
horizontal merger is not a merger to monopoly,
are captured by non-mergers so that the merger
harms the merging firms. Then we should not
observe many horizontal mergers, but the paradox
is that we do observe such mergers in real life.

Downstream firm: A downstream
firm is a retailer that buys from
manufacturers and sells products to
consumers.

An upstream firm is a manufacturer that deals primarily
with the exploration and initial
production stages of the product.

Vertical restraints refer to restrictions on competition in vertical
agreements between firms operating at different levels of production.

Resale price maintenance (RPM) constitutes the largest
number of antitrust actions of all vertical
restrictions. “RPM refers to any attempt by an
upstream manufacturer or distributor to control
the price at which the product is resold, after the
original sale contract”.

Tying occurs when a manufacturer
requests the buyer of one product to purchase all
the requirements of another product from the
same manufacturer. One of the best examples of
this situation was when motion picture projectors
were sold together with movies made by the same
company.

Non-drastic innovation does not alter the market price and the
quantity purchased by the consumer. In the non-drastic innovation case, the innovator sells to the entire
market and gains positive profit.

Given the demand function, P = 100 - 2Q, and the
condition P = MC, the consumer surplus is the area between the demand function and the price line, i.e.,
the area of a triangle with height 100 - P (that is equal to 40) and base 20 (that is the output produced).
So, the consumer surplus before the innovation equals 400TL, CS = (100-60)×20/2

After the innovation, the firms will equate the price to the new lower marginal cost of 28TL. Then the consumer surplus will be
equal to 1296TL (that is calculated as the area of a triangle with height 72 (100 − 28) and base 36 (output produced to be attained by 100 −2Q=28).

Let the incumbent conduct R&D. Then the marginal cost for the entrant firm will be 30T (as the cost of the incumbent is now 15T.L) Using the standard Cournot equations, the incumbent firm’s (q1) best response function is (60-15-q2/2) =q1.

Using the standard Cournot equations, the incumbent firm’s (q1) best response
function is 60-15-q2 /2 =q1 and the entrant firm’s (q2) best response function is 60-30-q1/2 =q2 .

Intellectual property (IP) is the
legal rights assigned to the creators of new ideas,
inventions, new processes, and methods of
production. T

The R&D activities encounter the appropriability problem that makes
investment in R&D different from investment in tangible assets such as machinery and equipment.

Dynamic efficiency requires the most extended possible protection to maximize
the incentives for creating new knowledge, and static efficiency requires the non-existence of protection to prevent deadweight loss generated through the monopolist’s right to knowledge.

Therefore, dynamic efficiency requires
the most extended possible protection to maximize
the incentives for creating new knowledge, and
static efficiency requires the non-existence of
protection to prevent deadweight loss generated
through the monopolist’s right to knowledge.

The term “network” is used to characterize the group of users that acquire benefits depending on each other due to the nature of the product they are utilizing

The Sherman Act was a reaction to the cartels and trusts formed among large companies to avoid price wars and market instability in the 1870s and 1880s. Final consumers, farmers, and small industrial firms were hurt by the higher prices of the final goods and inputs supplied by cartelized sectors. In addition, small firms were complaining of the unfair conduct of large competitors, allegedly aiming to drive the small firms out of the market. Section 2 does not prohibit having a monopoly position by itself but prohibits improper conduct from acquiring or maintaining monopoly power.
To prohibit contracts, combinations, and conspiracies that restrained trade and to prevent monopolization and attempts to monopolize.

Law No. 4054, and more importantly, the effective enforcement of the competition law and policy constitute important parts of the negotiations carried out for the accession of Türkiye to the EU. Similar to those in the EU, the substantive provisions of Turkish competition law are set on three pillars: (a) “Agreements, Concerted practices and Decisions Limiting Competition” (Article 4), (b) “Abuse of Dominant Position” (Article 6), and (c) “Mergers or Acquisitions” (Article 7).
Law No. 4054 in Türkiye is based on three pillars similar to the EU: agreements limiting competition, abuse of dominant position, and mergers or acquisitions.

In competition law, the concept of “relevant market” has a different meaning than the place where a certain product is sold and bought. The relevant market comprises the set of products and areas which exercise competitive constraint or pressure on each other. For example, in a merger or competition law case about the suppliers of “apple” affecting a certain geographic area,” the “relevant market” can be defined wider than “apple” and include other types of fresh fruits if it is understood that other fruits exercise competitive pressure against apple in this area and are substitutable enough to apple in the eyes of consumers.
To outline the set of products and areas which exercise competitive constraint or pressure on each other.

Market share is not the sole measure of a dominant position. Other characteristics of the market, such as the likelihood of entry and buyers’ bargaining power, are also taken into account in assessing the market power of a firm. In this respect, competition authorities assess whether there are barriers to entry or expansion in the market. Barriers to entry or expansion may originate from the characteristics of the relevant market or the characteristics or behavior of the undertaking examined. The likelihood of entry into the market by new undertakings or of expansion of undertakings operating in the market can exert competitive pressure on the behavior of the undertaking under investigation. In assessing whether expansion or entry is likely, competition authorities investigate whether it is sufficiently profitable for the relevant undertaking. Possible reactions of the undertaking examined and other competitors in the market can create risks for the success of the entry or expansion.
Because other market characteristics and factors such as barriers to entry and buyers' bargaining power also influence a firm's market power.

Since in some cases it may not be possible to prove the existence of an explicit agreement in practice, the act also prohibits “concerted practices,” which can be defined as the direct or indirect relations between undertakings that replace their own independent activities and ensure a coordination and practical cooperation provided that they lead to the same result as an agreement. Firms behaving in a concerted manner benefit from some factors facilitating collusion. For example, they can use direct or indirect means for communicating to reach a consensus about the strategies they will adopt. On the other hand, determining what kind of facilitating factor constitutes a sufficient piece of evidence for proving concerted practice is a legal matter, and is not always easy to distinguish whether a certain type of facilitating factor has the object or effect of restricting competition.
Agreements and concerted practices that facilitate or likely facilitate the prevention, distortion, or restriction of competition in a market.

In many markets, the goods and services bought by customers or consumers are distributed or sold by distributors and retailers instead of their producers. The agreements signed between undertakings operating at different levels of the production or distribution chain to purchase, sell, or resale particular goods or services are called “vertical agreements.” The main restraints seen in vertical agreements can be exemplified as follows: Sellers might assign an exclusive area to their distributors and prohibit them from selling outside this area (exclusive territory), sellers might determine the resale price of retailers (RPM), sellers might oblige buyers to purchase a certain minimum amount of goods from them and not to purchase the goods of seller’s competitors (exclusive dealing), sellers might require buyers to pay a fixed franchise fee.
Vertical agreements involving restrictions on sales regions or customers of distributors or retailers generally cannot benefit from block exemption.

Article 6 of Law No. 4054 prohibits “the abuse, by one or more undertakings, of their dominant position in a market for goods or services within the whole or a part of the country on their own or through agreements with others or through concerted practices.” The prohibitions set in Article 6 of Law No. 4054 apply only to undertakings with a dominant position; therefore, the Competition Authority must show whether the undertaking whose conduct is investigated has a dominant position in a specific relevant market.
The prohibition of the abuse of dominant position by one or more undertakings in a market for goods or services.

Predatory pricing is an exclusionary pricing strategy through which a dominant undertaking sets a below-cost sales price in the short term to maintain or strengthen its market power and foreclose its actual or potential competitors. With predatory prices dominant firm sacrifices profits in the short run; however, it can apply high prices, sell low-quality products, and decrease consumer choice in the mid- and long-term after excluding its competitors.
Predatory pricing, intended to deter entry or force the exit of competitors.

Article 7 of Law No. 4054 “Mergers and Acquisitions” Article 7- “It is illegal and prohibited for one or more undertakings to merge or for an undertaking or a person to acquire - except by inheritance - assets, or all or part of the partnership shares, or instruments conferring executive rights over another undertaking, where these would result in a significant lessening of effective competition within a market for goods or services in the entirety or a portion of the country, particularly in the form of creating or strengthening a dominant position”.
Assessing whether the proposed merger will create or strengthen a dominant position significantly impeding effective competition.

The fact that digital markets have some special features that are more or less different from those of traditional markets has been the starting point for assessing whether a change in the competition policy frameworks is needed. Intellectual property rights on the use of a particular technology can be a barrier to entry.
Overcoming established intellectual property rights on key technologies.