Minding Your Ps and Qs: Moving Beyond Conventional Theory to Capture the Non-Price
3 May 2007
By Dr. Mark Williams et al.
Economic models tend to focus on price or quantity competition, but in the real world, competition is usually more complex. For many consumer goods, firms compete more on marketing than on price. In other industries, such as high technology, pharmaceuticals, and music, firms devote substantial resources to research and development (R&D) to make sure they are the first to win a patent or bring a new product to market. Indeed, competition can take place in a number of ways and in a number of dimensions.
In this chapter from Economics of Antitrust: Complex Issues In a Dynamic Economy, the authors examine the economic theories and logic that can be applied to assess how a merger or acquisition may affect the rivalry that takes place among competitors in dimensions other than those of price and quantity. The authors warn us that while the tendency is to focus on price competition because such data may be readily available, antitrust analysis should focus on the real dimensions of competition. The examples that are given to illustrate the importance of non-price competition are relevant and familiar because they describe how many firms compete: by advertising and R&D, through marketing and branding, by expanding capacity, by innovating and bringing new products to market, and by racing to be the first to the patent office.
