This thesis examines the exercise of market power by oligopolistic firms. The first part deals with a phenomenon that has important implications for market power: horizontal mergers. I seek to uncover why the pattern of equilibria in sequential merger games of a certain type is similar across a fairly wide class of models studied in the literature. By developing general conditions characterising each element of the set of possible equilibria, I show that the solution to models that satisfy a certain sufficient condition will be restricted to the same subset of equilibria. This result is of empirical relevance in that the pattern of equilibria obtained for this class of models is associated with mergers happening, not in isolation, but rather in bunches. I extend the results to the analysis of cross-border mergers, studying two standard models that satisfy my sufficient condition: Sutton's (1991) vertically-differentiated oligopoly and Perry and Porter's (1985) fixed-supply-of-capital model. The second part is concerned with the structural inference of market power, a central theme in empirical Industrial Organisation. I demonstrate that when an industry faces potential entry and this threat of entry constrains pre-entry prices, cost and conduct cannot be identified from the comparative statics of equilibrium. In such a setting, the identifying assumption behind the well-established technique of relying on exogenous demand perturbations to distinguish empirically between alternative hypotheses of conduct is shown to fail. The Brazilian cement industry, where the threat of imports restrains market outcomes, provides an empirical illustration. In particular, price-cost margins estimated using this established technique are biased heavily downwards, underestimating the degree of market power. I propose a test of conduct, adapted to this constrained setting, which suggests that outcomes in the industry are collusive and characterised by market division. Robustness of this result is verified along several dimensions: by considering simple dynamic multimarket games which in equilibrium give rise to market division; by reviewing the spatial competition literature; and by resorting to a gravity model to statistically analyse shipments.

The thesis aims to contribute to the literature on two fronts. Firstly, it aims to contribute to the literature by developing a conjectural variations model of price transmission in vertically related markets where the final product sector exercises both oligopoly power and oligopsony power. It finds that oligopoly and oligopsony power do not necessarily weaken the degree of price transmission relative to that under perfectly competitive markets although they can. The key to these outcomes is to be found in the functional forms for retail demand and farm supply. Secondly, it attempts to draw inferences about the conditions under which the prices of the farm and retail prices cointegrate by themselves based on the predictions of the existing theoretical models of vertical price transmission. It then evaluates whether these conditions are borne out empirically. To this end, it tests for the existence of a co-integrating relation between the raw input and retail prices for a sample of 11 food and energy markets in the UK using the Johansen Full-information Maximum Likelihood Procedure. It finds that a co-integrating relation is identified for only 4 out of 11 price pairs; i.e., for potato, fresh fruits, milk and oil. For all other price pairs, it is not identified unless the cointegration regression allows for sector shocks. This result seems to support our theoretical prediction that, given information provided by a price pair alone, co-integration can be observed only for products for which the cost share of the farm input is unity; i.e., for products with a constant margin. And obviously, potatoes, fresh fruits and milk are products which are sold in supermarkets as they appear in their raw form with minimum processing involved suggesting that the share of processing cost for these products is minimal.

In this thesis, our aim is to study a Cournot tatonnement system which exhibits destabilisation of the Cournot equilibrium as the number of firms increase. Our approach is to first consider the special case of firms behaving identically in a market share attraction model in two different adjustment process: Cournot tatonnement and bounded rationality adjustment. Results from the Cournot tatonnement system shows a superstable equilibrium in two firms model and an unstable equilibrium in a five firms model. In the five firms model, we show that introducing heterogeneity stabilises the Cournot equilibrium. For both two and five firms model, the differences of costs between firms are critical for the convergence of the system to the Cournot equilibrium. Lastly, we study the effect of entries and exits of firms on the number of active firms in the market. We discover that the market can sustain between two to four firms, and the factors are differences of costs and initial outputs between firms, and barriers to entries.