John C. Panzar

Contestable markets and the theory of industry structure

Objectives and Orientation. Industry Structure and Performance in Perfectly Contestable Markets: The Single Product Case. Ray Behavior and Multiproduct Returns to Scale. Cost Concepts Applicable to Multiproduct Cases. The Cost-Minimizing Industry Structure. Input-Price Changes, Cost Functions, And Efficient Industry Structure. Natural Monopoly: Sufficient Conditions for Subaddivity. Monopoly Equilibrium. Equilibrium in the Multiproduct Competitive Industry. Fixed Costs, Sunk Costs, Entry Barriers, Public Goods, And Sustainability of Monopoly. Sustainable Industry Configurations: General Industry Structures in Contestable Markets. Powers of the Market Mechanism. Intertemporal Sustainability. Intertemporal Unsustainability. Toward Empirical Analysis. Toward Application of the Theory. Developments Since the Book. Bibliography. Index.

Economies of Scale in Multi-Output Production

I. Introduction, 481.—II. Counterexamples, 482.—III. Economies of scale, 484.—IV. Technological regularity conditions, 487.—V. The profitability of marginal cost pricing, 488.—VI. Concluding remarks, 492.

Free Entry and the Sustainability of Natural Monopoly

Contrary to conventional wisdom, a regulated natural monopoly may be vulnerable to entry by uninnovative competitors even if it is producing and pricing efficiently and earning zero economic profits. The causes and consequences of this unsustainability are theoretically examined in an idealized regulatory environment. In particular, strong demand substitution effects and product-specific scale economies work against sustainability. If natural monopoly is unsustainable, no regulated market structure which provides the entire product set can be sustainable.

A neoclassical approach to peak load pricing

The well-known result that optimal peak load pricing requires only users who utilize plant to capacity to bear any fraction of the capacity costs is shown to result from the technological assumption of the traditional literature and not from the fundamental nature of the peak load problem. When a neoclassical technology is specified, optimal pricing requires that users in all periods contribute toward the cost of capacity.

On the Theory of Perfectly-Contestable Markets

The purpose of this chapter is to provide an overview of the theory of perfectly-contestable markets.2 The treatment here is deliberately schematic in order to focus on the logical structure of the theory.

On the Nonexistence of Pareto Superior Outlay Schedules

Willig demonstrated that in a model in which user demands are independent, a uniform price greater than marginal cost can be Pareto dominated by a nonlinear outlay schedule. However, when users are firms of different sizes which compete in final product markets, their demands must be interrelated. In such cases it may be impossible to achieve any such Pareto improvement.