Antitrust Economics and Marketing

Abstract

6' arketing is a social and managerial process by which individuals and groups obtain what they need and want through creating, offering, and exchanging products of value with others (Kotler 1997, p. 9). By that definition, economics is the study of marketing. A close relationship exists between some of the issues addressed in marketing, microeconomics, and industrial organization economics. However, the emphases and often the approaches are markedly different. Marketing is about creating, maintaining, and shifting the demand curve. Its focus is the determination of the price on the demand curve and, in recent years, on the analysis of strategies by which disadvantaging rivals can shift one competitor's demand curve (Salop and Scheffman 1983). In other words, marketing is fundamentally about market and wealth creation, whereas antitrust economics is fundamentally about profits and wealth extraction by producers. The analysis of competition in economics focuses primarily on the status quo, that is, competition among existing products. But a company is not its existing products. A well-known maxim in marketing is that products may have life cycles, but well managed brands (and companies) should not. Existing products change or are replaced by new products. Companies in most industries realize that survive they must successfully introduce new products and services. Many companies track the proportion of their sales accounted for by new products and services introduced in preceding years. In other words, competition is increasingly about new products and services, which suggests a need for economics shift more focus there rather than on profits and wealth extraction for existing products and services. Marketing, as well as other business disciplines, such as accounting, operations management, and organizational behavior, is grounded in the core application-oriented issues: How do it? How do better? As an academic discipline, the concerns of marketing are broader than this application focus, but much of marketing literature is in some way relevant these basic questions. Microeconomics provides knowledge and analyses that can be applied in a variety of settings, including marketing. Microeconomics is usually a core course requirement in an MBA program, and microeconomic concepts permeate most other business disciplines. Microeconomics provides powerful tools and analyses, but it does not provide much guidance on to other than simple rules mostly on not to (e.g., vertically integrating capture downstream margin generally will not make sense). In other words, the focus of marketing is how to, whereas the focus of microeconomics is basic analytical principles (constrained optimization and equilibrium) of why things are as they are and their implications. For example, Industrial Organization: A Strategic Approach by Church and Ware (2000) sets out the three basic questions of industrial organization: (1) Why are firms and markets organized or structured the way they are'? (2) How does the manner in which markets are organized affect the way firms behave and markets perform? and (3) How does the behavior of firms influence the structure or organization of markets and the performance of markets? These questions are related to issues for business disciplines, including marketing, but are mostly at the very basic level (e.g., the concepts of opportunity cost, transactions costs, and analyses such as constrained optimization and equilibrium) or the 30,000-foot level (e.g., implications of transactions costs analysis for the organization of firms and industries).