Counter PartsOligopoly

Deep, Johanne, Sami

Nature of Our Market

  

Between Free Competition and Monopoly 

  

Free Competition

Characteristics:  • Many firms competing

 • Demand is perfectly elastic 

 • Firms are competing at the same price

 

Free Competition

Free Competition

Free Competition

Free Competition

Free Competition

Free Competition

Free Competition

Free Competition

Free Competition

Monopoly

Characteristics:  • One firm that dominates the market

 • Demand is almost perfectly inelastic

 • Ability to change the price to anything

Monopoly

Monopoly

Monopoly

Monopoly

Monopoly

Monopoly

Monopoly

Monopoly

Monopoly

Nature of Our Market

  Characteristics: • Dominated by few producers

 • Demand is in between elastic and inelastic

 • High level market concentration

   

Oligopoly

Oligopoly

Oligpoly

Oligopoly

Oligopoly

Oligopoly

Oligopoly

Oligopoly

Oligopoly

Oligopoly

Types of Oligopolies

  • Perfect oligopoly: Few firms produce an identical

product• Imperfect oligopoly: Few firms differentiate in their

products • Duopoly: Only two firms in the industry

 •  Collusive & Non-Collusive: Joining or not joining with

rivals       

Nature of Our Market

 Characteristics: • Product Branding: Selling differentiated product, to

appear as if there are unique features • Entry Barriers: Prevents dilution of competition,

maintains supernormal profits  • Interdependent Decision Making: Know reactions of

rivals (the happenings of a rival affect your firm)•  • Non-price Competition: Competitive strategies other

than reducing prices       

Entry Barriers

• Barriers to Entry: Obstacles that keep a firm from entering the market

 • Very High

 •  Huge firms able to heighten it through advertising

and branding • Allows firms to make supernormal profits

 • Entering firms don't have scale benefits, High efficent

firms left with little competitiors•  

       

Non- Price Competition

• Quality and Innovation: Differentiating its product creating demand more inelastic for each product 

 • With more differentiation, there is more control over

prices  • Enchancing Perceived value: Improving how

consumers look at a product. Ex. packaging, design, brand image.

 

Kinked Demand Curve

Kinked Demand Curve

Kinked Demand Curve

Kinked Demand Curve

Kinked Demand Curve

Kinked Demand Curve

Kinked Demand Curve

Kinked Demand Curve

Kinked Demand Curve

Kinked Demand Curve

Kinked Demand Curve

Kinked Demand Curve

Kinked Demand Curve

Kinked Demand Curve

Kinked Demand Curve

 • Demand curve - elastic and inelastic

 • Firms do not move from price to price

 • Increase in price, no one follows - fall in revenue

 • Reduce in price, everyone follows - fall in revenue

 • Two MR curves are needed for two demand curves

 • MC Curves in inelastic demand - no price change

 • MC Curves in elastic demand - P & Q changes.

Determining Costs

• Find where MR=MC • Go straight to the y-axis (Price)

 • Cost of product determined

Determining Costs

Determining Revenue

• Revenue depends on price and elasticity of demand • Bigger market = more revenue

 • Quantity x Price at MR=MC

 • (Kinked Curve) Change in price decreases revenue

Determining Profit

• To maximize profit, go to point MR=MC • Price determined on demand curve

 • Unit cost on the total cost curve

 • Equate price and marginal cost

 • (Mutual interdependence) Firm's profit depends on price and

sales of rivals

Positives

• Price set by Markets • Firms are in competition with each other

 • Scale Benefits

 • Ability of Merging

Negatives

• High costs =  Lowering potential output  • Interdependant on each firm

 • Collusion - Usually setting Prices

    

Why Are We Succesful?

• Products highly demanded

• Ability to control output and price

• High Entry Barriers - Lower Competition

• Few Firms - Influential     

Summary

• Between free competition and monopoly • Few large firms

 • Large barriers for entry

 • More on non-price, interdependant on other firms

 • Theory - use of the kinked curve (once price is set)

 • An inefficent market structure