A. Michael Spence

Monopoly, quality, and regulation

This paper deals with market problems that arise when a monopoly sets some aspect of product quality as well as price. It is argued that the market failure is associated with the inability of prices to convey information about the value attached to quality by inframarginal consumers. In the regulatory context, this market problem appears in the form of a difficult informational question for the regulator; what is the average valuation of quality over all the consumers in the market? The paper suggests that rate-of-return regulation may have attractive features when quality is a variable.

Entry, Capacity, Investment and Oligopolistic Pricing

The paper argues that entry is deterred in an industry when existing firms have enough capacity to make a new entrant unprofitable. This capacity need not be fully utilized in the absence of entry. This can result in larger costs than are necessary, given output levels. It also results in higher prices and lower levels of output than those implied by various forms of the limit price model. Capacity and other forms of investment are effective entry deterring variables, partly because they are irreversible and represent preemptive commitments to the industry.

Investment Strategy and Growth in a New Market

This paper studies the strategic interaction among firms in a growing market. It focuses upon the investment decisions of the firms. Central to the analysis is the idea that investment and growth for the firm are constrained by physical and financial factors. Firms that enter early and/or firms that can grow rapidly can make preemptive investments. The paper studies the optimal levels of preemptive investment and the implications for the long-run structure of the market. The analysis of optimal preemption is similar in spirit to the von Stackelberg equilibrium concept in oligopoly theory.

Multi-Product Quantity-Dependent Prices and Profitability Constraints

Focuses on a study which developed a formulae of optimal quantity-dependent pricing schemes for several products. Description of the single product model; Details on the Pareto optimality; Information on the multi-product pricing. (Из Ebsco)

Notes on Advertising, Economies of Scale, and Entry Barriers

The paper discusses how advertising and economies of scale in production interact to produce economies of scale. The latter are defined to occur when costs per dollar of revenues decline with revenues. It is argued that, in an industry with differentiated products and advertising, it is the declining costs per collar of revenues rather than declining production costs per unit of output that directly affects entry barriers and the profitability of established firms.