Abstract
In this chapter we use case studies to identify patterns of behavior that highlight what we have learned from studying industrial organization. We begin with an investigation of three US industries: brewing, cigarettes, and college sports. Rather than provide a comprehensive study of them, we focus on the most important forces that have shaped each industry and/or have influenced public policy. This will allow us to show how industrial organization theory is relevant and can help us understand reality.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
- 2.
We also ignore imports, which have gained market share since the 1970s as well. For further discussion of the import and microsectors, see V. Tremblay and C. Tremblay (2005) and C. Tremblay and V. Tremblay (2011b). For a discussion of the international beer market, see Adams (2006, 2011) and Swinner (2011).
- 3.
During this period, the national brewers were the Anheuser-Busch, Schlitz, Miller, and Pabst brewing companies.
- 4.
Domestic beer sales of the macro brewers were about one million barrels in 1950 and about 180 million barrels in 2009.
- 5.
This is the number of firms that are needed to produce total market demand when each firm produces at MES. That is, n * = Q/MES, as discussed in Chap. 8.
- 6.
There is continued speculation that MillerCoors will purchase Pabst.
- 7.
- 8.
These include magazine, point of sale, direct mail advertising, discount coupons, and promotional funding given to retailers.
- 9.
Note that this is a form of price discrimination where a low price is offered to potential consumers who have relatively elastic demand functions and a high price is offered to addicted consumers.
- 10.
According to the Centers for Disease Control and Prevention, smoking contributes to heart disease and strokes, as well as various types of cancers. This information is available at http://www.cdc.gov/tobacco/data_statistics/fact_sheets/health_effects/effects_cig_smoking/.
- 11.
It also included other marketing restrictions, such as a ban on outdoor advertising, ads that used cartoon characters, and the sponsorship of sporting events.
- 12.
See Chaloupka (2007) for a review of the evidence.
- 13.
- 14.
Robert Kennedy, “Proceedings of the First World Conference on Smoking and Health,” New York, American Cancer Society, 1967, 3–13, as quoted in Saloojee and Dagli (2000, 7).
- 15.
In addition, the Master Settlement Agreement of 1998 between the tobacco industry and most state governments prohibited most outdoor and transit advertising and the use of cartoon characters in cigarette ads (Chaloupka 2007). In 2009, Congress passed the Family Smoking Prevention and Tobacco Control Act, which required that warning labels cover the top 50% of the front and back panels of the package. See Curfman et al. (2009) for a discussion of the law. The complete transcript can be found at http://www.govtrack.us/congress/bill.xpd?bill=h111-1256.
- 16.
This is available at http://www.tobacco.neu.edu/box/BOEKENBox/Boeken%20Evidence%20PDF/0363.pdf, accessed August 24, 2011.
- 17.
United States et al. v. Philip Morris et al., United States District Court for the District of Columbia, 2006, p. 4, available at http://www.tobacco.neu.edu/litigation/cases/DOJ/20060817KESSLEROPINIONAMENDED.pdf, accessed August 25, 2011.
- 18.
For more comprehensive analysis of the economics of college sports, see Fort (2007), Kahn (2007), Lazaroff (2007), and Fizel and Bennett (2009). Data are available from the NCAA web site at http://www.ncaapublications.com/productdownloads/RE2008.pdf, accessed August 19, 2011.
- 19.
In the Football Bowl Subdivision, football and basketball generate approximately 60% of athletic department revenues.
- 20.
See USA Today, “Football Bowl Subdivision Coaches for 2010,” at http://www.usatoday.com/sports/college/football/2010-coaches-contracts-table.htm.
- 21.
Although NCAA figures indicate that the median athletic program ran a deficit in 2009, Kahn (2007) and Fizel and Bennett (2009) point out that these figures do not represent an economic loss. Accounting methods used by athletic departments overestimate costs and omit the marketing benefits of a successful sports program. NCAA data are available at http://www.ncaapublications.com/productdownloads/REV_EXP_2010.pdf.
- 22.
For example, Reggie Bush received illegal compensation while playing football at USC. After an NCAA investigation, Bush was forced to relinquish his 2005 Heisman Trophy, and USC was stripped of its 2004 national championship. Similarly, at Ohio State University five football players were suspended for rules violations in the first half of the 2011 football season. This scandal also caused head coach, Jim Tressel, to resign. Finally, in his survey of professional football players, Sack (1991) found that 31% admitted to receiving illegal side payments while playing college football. For further discussion, see ESPN reports at http://sports.espn.go.com/espn/commentary/news/story?page=bryant/100922 and http://sports.espn.go.com/ncf/columns/story?columnist=schlabach_mark&id=6195223, accessed August 26, 2011.
- 23.
- 24.
Goldfarb (2007) found support for the hypothesis that Schlitz actions to cut corners in production and marketing were a rational response to stiff competition from Anheuser-Busch and Miller.
- 25.
For more complete discussion, see Elzinga et al. (2001), Gilbert and Katz (2001), Baye (2002), Blaxill and Eckardt (2009), and “Microsoft and Yahoo Seal Web Deal,” BBC News at http://news.bbc.co.uk/2/hi/business/8174763.stm, accessed August 7, 2011.
- 26.
Paul Allen played a diminished role at Microsoft after his bout with cancer in 1982.
- 27.
Monthly browser market share data are available at http://www.justice.gov/atr/cases/exhibits/5.pdf, accessed August 7, 2011.
- 28.
According to government documents, Microsoft vice president Paul Maritz used this phrase in 1995 when discussing the company’s way of dealing with competitors. These documents are available at http://www.justice.gov/atr/cases/f2600/2613.htm, accessed August 7, 2011.
- 29.
Court documents in US v. Microsoft (1998–2007) are available at http://www.justice.gov/atr/cases/ms_index.htm.
- 30.
Another interesting feature of the case is that Richard Schmalensee served as expert witness for Microsoft, and his dissertation advisor, Franklin Fisher, was the expert witness for the Department of Justice.
- 31.
In 2004, the European Union also brought an antitrust suit against Microsoft. This resulted in a $613 million fine.
- 32.
This show aired June 7, 2010 and can be seen at http://www.colbertnation.com/the-colbert-report-videos/311926/June-07-2010/charity-begins-at-11-30.
- 33.
- 34.
This information is available at http://www.consumerreports.org.
- 35.
All of the least reliable Japanese cars are produced by Nissan, of which Renault of France owns a 44% share.
- 36.
White (1971) argued that the reason why the big three refrained from producing small cars was that the presence of scale economies in production and a belief that demand for small cars was limited made small car production unprofitable. This was not a problem for foreign producers, however, because they were already producing small cars at efficient scale for their home countries. All they needed to overcome was the cost of shipping their cars to the USA.
- 37.
These estimates are found in William P. Hoar, “Uncle Sam Grabs the Wheel,” The New American, available at http://www.highbeam.com/doc/1G1-193452520.html/.
- 38.
See Associated Press Online, “Earnings Preview: General Motors Co.,” at http://www.highbeam.com/doc/1A1-14035cfa9a814ef28fec7538f3b0e94a.html.
- 39.
Chrysler, the only other auto company given bailout money, received about $30 billion.
- 40.
In 2004, GM also shut down its Oldsmobile brand.
- 41.
It is estimated that GM’s bailout cost the taxpayer $27 billion. But, Ikenson (2011) points out that this estimate ignores many indirect costs. These include a $12–$14 billion in tax breaks, $25 billion from the Energy Department to underwrite research on green technologies, and the $7,500 tax credit that consumers receive on the purchase of each Volt.
References
Aaker DA (1991) Managing brand equity: capitalizing on the value of a name brand. Free Press, New York
Adams WJ (2006) Beer in Germany and the United States. J Econ Perspect 20(1):185–202
Adams WJ (2011) Determinants of the concentration in Beer markets in Germany and the United States: 1950–2005. In: Swinnen JFM (ed) The economics of Beer. Oxford University Press, New York, pp 227–246
Bittlingmayer G, Hazlett TW (2000) DOS Kapital: has antitrust action against microsoft created value in the computer industry? J Fin Econ 55:329–357
Blaxill M, Eckardt R (2009) The invisible edge: taking your strategy to the next level using intellectual property, Portfolio Press
Brock JW (2005) The automobile industry. In: Adams W, Brock J (eds) The structure of American industry. Person Prentice Hall, Upper Saddle River, NJ, pp 96–118
Brock JW (2009) The automobile industry. In: Brock J (ed) The structure of American industry. Person Prentice Hall, Upper Saddle River, NJ, pp 155–182
Chaloupka FJ (2007) Cigarettes: old firms facing new challenges. In: Tremblay VJ, Tremblay CH (eds) Industry and firm studies. M.E. Sharpe, Amonk, NY, pp 80–118
Cheng R (2011) 2nd update: Microsoft agrees to buy Skype for $8.5 Billion, Wall Street Journal, May 10, 2011
Curfman GD, Morrissey S, Drazen JM (2009) Tobacco, public health, and the FDA. New Engl J Med 23:402–403
Eckard EW Jr (1991) Competition and the cigarette TV advertising ban. Econ Inq 29:119–133
Elzinga KG (1990) The beer industry. In: Adams W (ed) The structure of American industry. MacMillan Publishing Co., New York
Elzinga KG (2009) The beer industry. In: Brock J (ed) The structure of American industry. Person Prentice Hall, Upper Saddle River, NJ
Farr S, Tremblay Carol Horton, Tremblay Victor J (2001) The welfare effect of advertising restrictions in the U.S. Cigarette industry. Rev Ind Organ 18(2):147–160
Fizel JL, Bennett RW (2009) The college sports industry. In: Brock J (ed) The structure of American industry. Person Prentice Hall, Upper Saddle River, NJ
Fort R (2007) The sports industry and antitrust. In: Tremblay VJ, Tremblay CH (eds) Industry and firm studies. Armonk, NY, M.E. Sharpe, pp 245–266
George LM (2009) National television and the market for local products: the case of beer. J Ind Econ 57(1):85–111
George LM (2011) The growth of television and the decline of local beer. In: Swinnen JFM (ed) The economics of beer. Oxford University Press, New York, pp 213–226
Goldfarb A (2007) Schlitz: why the Schlitz hit the fan. In: Tremblay VJ, Tremblay CH (eds) Industry and firm studies. Armonk, NY, M.E. Sharpe, pp 293–320
Hay GA (2009) The cigarette industry. In: Brock J (ed) The structure of American industry. Person Prentice Hall, Upper Saddle River, NJ
Horton BJ (2010) The TARP Bailout of GM: A legal, historical, and literary critique. Texas Rev Law Polit 14:216–275
Ikenson DJ (2011) Lasting implications of the general motors bailout. June 22, 2011, Available at http://www.Cato.org
Iwasaki N, Tremblay VJ (2009) The effect of marketing regulations on efficiency: LeChatelier versus coordination effects. J Prod Anal 32(1):41–54
Kahn LM (2007) Cartel behavior and amateurism in college sports. J Econ Perspect 21(1):209–226, Winter
Kennedy R (1967) Proceedings of the first world conference on smoking and health. American Cancer Society, New York, pp 4–13
Kleessen A (2009) Microsoft aims big guns at Google, Ask consumers to rethink search. Advertising Age, May 25, 2009
Lazaroff DE (2007) The NCAA in its second century: defender of amateurism or antitrust recidivist. Oregon Law Rev 86(2):329–371
Norton SW (2007) General motors: lost dominance. In: Tremblay VJ, Tremblay CH (eds) Industry and firm studies. Amonk, NY, M.E. Sharpe, pp 269–292
Pitofsky R (1977) Beyond Nader: consumer protection and the regulation of advertising. Harv Law Rev 90(4):661–701
Pollay RW (1994) Promises, promises: self-regulation of US cigarette broadcast advertising in the 1960s. Tob Control 3:134–144
Sack AL (1991) The underground economy of college football. Sociol Sport J 8(1):1–15
Saloojee Y, Dagli E (2000) Tobacco industry tactics for resisting public policy on health. Bull World Health Organ 78(7):1–12
Sloan FA, Ostermann J, Picone G, Conover C, Taylor DH (2004) The price of smoking. MIT Press, Cambridge MA
Steinberg CS (1980) TV facts. Facts on File, Inc., New York
Tremblay CH, Tremblay VJ (2011b) Recent economic developments in the import and craft segments of the U.S. brewing industry. In: Swinnen JFM (ed) The economics of beer. Oxford University Press, New York, pp 141–160
Tremblay VJ, Iwasaki N, Tremblay CH (2005) The dynamics of industry concentration for U.S. micro and macro brewers. Rev Ind Organ 26(3):307–324
Tremblay VJ, Tremblay CH (2005) The U.S. brewing industry: data and economic analysis. MIT Press, Cambridge
Tremblay VJ, Tremblay CH (2007) Brewing: games firms play. In: Tremblay CH, Tremblay VJ (eds) Industry and firm studies. ME Sharpe, Armonk, NY
White LJ (1971) The US automobile industry since 1945. Harvard University Press, Cambridge, MA
Author information
Authors and Affiliations
Rights and permissions
Copyright information
© 2012 Springer Science+Business Media, LLC
About this chapter
Cite this chapter
Tremblay, V.J., Tremblay, C.H. (2012). Industry and Firm Studies. In: New Perspectives on Industrial Organization. Springer Texts in Business and Economics. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-3241-8_21
Download citation
DOI: https://doi.org/10.1007/978-1-4614-3241-8_21
Published:
Publisher Name: Springer, New York, NY
Print ISBN: 978-1-4614-3240-1
Online ISBN: 978-1-4614-3241-8
eBook Packages: Business and EconomicsEconomics and Finance (R0)