Market

Structures

Market

Structures

The Degree of CompetitionThe Degree of Competition

• Classifying markets– number of firms

– freedom of entry to industry

– nature of product

– nature of demand curve

• The four market structures– perfect competition

– monopoly

– monopolistic competition

– oligopoly

• Classifying markets– number of firms

– freedom of entry to industry

– nature of product

– nature of demand curve

• The four market structures– perfect competition

– monopoly

– monopolistic competition

– oligopoly

Features of the four market structuresFeatures of the four market structures

Features of the four market structuresFeatures of the four market structures

Features of the four market structuresFeatures of the four market structures

Features of the four market structuresFeatures of the four market structures

Features of the four market structuresFeatures of the four market structures

Features of the four market structuresFeatures of the four market structures

The Degree of CompetitionThe Degree of Competition

• Classifying markets– number of firms– freedom of entry to industry– nature of product– nature of demand curve

• The four market structures– perfect competition– monopoly– monopolistic competition– oligopoly

• Structure conduct performance

• Classifying markets– number of firms– freedom of entry to industry– nature of product– nature of demand curve

• The four market structures– perfect competition– monopoly– monopolistic competition– oligopoly

• Structure conduct performance

Perfect CompetitionPerfect Competition

• Assumptions

– firms are price takers

– freedom of entry

– identical products

– perfect knowledge

• Short-run equilibrium of the firm

– price, output and profit

• Assumptions

– firms are price takers

– freedom of entry

– identical products

– perfect knowledge

• Short-run equilibrium of the firm

– price, output and profit

O

£

(b) Firm

Q (thousands)

O

(a) Industry

P

Q (millions)

S

D

Pe

MC

ARD = AR

= MR

Qe

AC

AC

Short-run equilibrium of industry and firm under perfect competition

Short-run equilibrium of industry and firm under perfect competition

Qe

P1

D1 = AR1

= MR1

AR1

O O

(a) Industry

P £

Q (millions)

S

D

(b) Firm

MC AC

AC

Q (thousands)

Loss minimising under perfect competitionLoss minimising under perfect competition

Perfect CompetitionPerfect Competition

• Assumptions– firms are price takers

– freedom of entry

– identical products

– perfect knowledge

• Short-run equilibrium of the firm– price, output and profit

• The short-run supply curve of the firm

• Assumptions– firms are price takers

– freedom of entry

– identical products

– perfect knowledge

• Short-run equilibrium of the firm– price, output and profit

• The short-run supply curve of the firm

O O

(a) Industry

P £

P1

Q (millions)

S

D1

(b) Firm

D1 = MR1

MC

P2

D2 = MR2

D2

P3

D3 = MR3

D3

Q (thousands)

Deriving the short-run supply curveDeriving the short-run supply curve

a

b

c

= S

Perfect CompetitionPerfect Competition

• Long-run equilibrium of the firm

– all supernormal profits competed away

– LRAC = AC = MC = MR = AR

• Long-run equilibrium of the firm

– all supernormal profits competed away

– LRAC = AC = MC = MR = AR

O O

(a) Industry

P £

Q (millions)

S1

D

(b) Firm

LRAC

PL

P1

QL

Se

AR1 D1

ARL DL

Q (thousands)

Long-run equilibrium under perfect competitionLong-run equilibrium under perfect competition

New firms enterSupernormal profitsProfits return

to normal

£

Q O

(SR)AC

(SR)MC

LRAC

AR = MR

DL

LRAC = (SR)AC = (SR)MC = MR = AR

Long-run equilibrium of the firm under perfect competitionLong-run equilibrium of the firm under perfect competition

Perfect CompetitionPerfect Competition

• Incompatibility of economies of scale with perfect competition

• Benefits of perfect competition

– price equals marginal cost

– prices kept low

– firms must be efficient to survive

• Incompatibility of economies of scale with perfect competition

• Benefits of perfect competition

– price equals marginal cost

– prices kept low

– firms must be efficient to survive

MonopolyMonopoly

• Defining monopoly• Barriers to entry

– economies of scale– economies of scope– product differentiation and brand loyalty– lower costs for an established firm– ownership/control of key factors– ownership/control over outlets– legal protection– mergers and takeovers– aggressive tactics– intimidation

• Defining monopoly• Barriers to entry

– economies of scale– economies of scope– product differentiation and brand loyalty– lower costs for an established firm– ownership/control of key factors– ownership/control over outlets– legal protection– mergers and takeovers– aggressive tactics– intimidation

MonopolyMonopoly

• The monopolist’s demand curve

– downward sloping

– MR below AR

• Equilibrium price and output

– Equilibrium output, where MC = MR

• The monopolist’s demand curve

– downward sloping

– MR below AR

• Equilibrium price and output

– Equilibrium output, where MC = MR

Profit maximising under monopolyProfit maximising under monopoly

MR

£

Q O

MC

Qm

MonopolyMonopoly

• The monopolist’s demand curve

– downward sloping

– MR below AR

• Equilibrium price and output

– Equilibrium output, where MC = MR

– Equilibrium price, found from demand curve

• The monopolist’s demand curve

– downward sloping

– MR below AR

• Equilibrium price and output

– Equilibrium output, where MC = MR

– Equilibrium price, found from demand curve

£

Q O

MC

AC

Qm

MR

AR

AC

Profit maximising under monopolyProfit maximising under monopoly

AR

MonopolyMonopoly

• The monopolist’s demand curve

– downward sloping

– MR below AR

• Equilibrium price and output

– Equilibrium output, where MC = MR

– Equilibrium price, found from demand curve

• Profit

– Measuring profit

• The monopolist’s demand curve

– downward sloping

– MR below AR

• Equilibrium price and output

– Equilibrium output, where MC = MR

– Equilibrium price, found from demand curve

• Profit

– Measuring profit

£

Q O

MC

AC

Qm

MR

AR

AC

Profit maximising under monopolyProfit maximising under monopoly

AR

Total profit

MonopolyMonopoly

• The monopolist’s demand curve– downward sloping

– MR below AR

• Equilibrium price and output– Equilibrium output, where MC = MR

– Equilibrium price, found from demand curve

• Profit– Measuring profit

– Supernormal profit can persist in long run

• The monopolist’s demand curve– downward sloping

– MR below AR

• Equilibrium price and output– Equilibrium output, where MC = MR

– Equilibrium price, found from demand curve

• Profit– Measuring profit

– Supernormal profit can persist in long run

MonopolyMonopoly

• Disadvantages of monopoly– high prices / low output: short run

• Disadvantages of monopoly– high prices / low output: short run

AR = D

MC

MR

£

Q O Q1

P1

Monopoly

Equilibrium of industry under perfect competition and monopoly: with the same MC curve

Equilibrium of industry under perfect competition and monopoly: with the same MC curve

£

Q O

MC ( = supply under perfect competition)

Q1

MR

P1

P2

Q2

AR = D

Comparison withPerfect competition

Equilibrium of industry under perfect competition and monopoly: with the same MC curve

Equilibrium of industry under perfect competition and monopoly: with the same MC curve

MonopolyMonopoly

• Disadvantages of monopoly– high prices / low output: short run

– high prices / low output: long run

• Disadvantages of monopoly– high prices / low output: short run

– high prices / low output: long run

MonopolyMonopoly

• Disadvantages of monopoly– high prices / low output: short run

– high prices / low output: long run

– lack of incentive to innovate

• Disadvantages of monopoly– high prices / low output: short run

– high prices / low output: long run

– lack of incentive to innovate

MonopolyMonopoly

• Disadvantages of monopoly– high prices / low output: short run

– high prices / low output: long run

– lack of incentive to innovate

– X-inefficiency

• Disadvantages of monopoly– high prices / low output: short run

– high prices / low output: long run

– lack of incentive to innovate

– X-inefficiency

MonopolyMonopoly

• Disadvantages of monopoly– high prices / low output: short run

– high prices / low output: long run

– lack of incentive to innovate

– X-inefficiency

• Advantages of monopoly

• Disadvantages of monopoly– high prices / low output: short run

– high prices / low output: long run

– lack of incentive to innovate

– X-inefficiency

• Advantages of monopoly

MonopolyMonopoly

• Disadvantages of monopoly– high prices / low output: short run

– high prices / low output: long run

– lack of incentive to innovate

– X-inefficiency

• Advantages of monopoly– economies of scale

• Disadvantages of monopoly– high prices / low output: short run

– high prices / low output: long run

– lack of incentive to innovate

– X-inefficiency

• Advantages of monopoly– economies of scale

£

Q O Q1

MR

P1

MCmonopoly

AR = D

Equilibrium of industry under perfect competition and monopoly: with different MC curves

Equilibrium of industry under perfect competition and monopoly: with different MC curves

£

Q O

MC ( = supply)perfect competition

Q1

MR

P1

P2

Q2

MCmonopoly

AR = D

x

Q3

P3

Equilibrium of industry under perfect competition and monopoly: with different MC curves

Equilibrium of industry under perfect competition and monopoly: with different MC curves

MonopolyMonopoly

• Disadvantages of monopoly– high prices / low output: short run

– high prices / low output: long run

– lack of incentive to innovate

– X-inefficiency

• Advantages of monopoly– economies of scale

– profits can be used for investment

• Disadvantages of monopoly– high prices / low output: short run

– high prices / low output: long run

– lack of incentive to innovate

– X-inefficiency

• Advantages of monopoly– economies of scale

– profits can be used for investment

MonopolyMonopoly

• Disadvantages of monopoly– high prices / low output: short run

– high prices / low output: long run

– lack of incentive to innovate

– X-inefficiency

• Advantages of monopoly– economies of scale

– profits can be used for investment

– high profits encourage risk taking

• Disadvantages of monopoly– high prices / low output: short run

– high prices / low output: long run

– lack of incentive to innovate

– X-inefficiency

• Advantages of monopoly– economies of scale

– profits can be used for investment

– high profits encourage risk taking

MonopolyMonopoly

• Contestable markets

– importance of potential competition

– a perfectly contestable market

– contestable markets and natural monopolies

– importance of costless exit

• Contestable markets and the public interest

• Contestable markets

– importance of potential competition

– a perfectly contestable market

– contestable markets and natural monopolies

– importance of costless exit

• Contestable markets and the public interest

Monopolistic CompetitionMonopolistic Competition

• Assumptions of monopolistic competition

• Equilibrium of the firm

– short run

• Assumptions of monopolistic competition

• Equilibrium of the firm

– short run

£

Q O Qs

AR D

MC

AC

MR

Short-run equilibrium of the firmunder monopolistic competitionShort-run equilibrium of the firmunder monopolistic competition

Ps

ACs

Monopolistic CompetitionMonopolistic Competition

• Assumptions of monopolistic competition

• Equilibrium of the firm

– short run

– long run

• Assumptions of monopolistic competition

• Equilibrium of the firm

– short run

– long run

Long-run equilibrium of the firmunder monopolistic competitionLong-run equilibrium of the firmunder monopolistic competition

ARL DL

MRL

£

Q O QL

PL

LRAC

LRMC

Monopolistic CompetitionMonopolistic Competition

• Assumptions of monopolistic competition

• Equilibrium of the firm

– short run

– long run

– underutilisation of capacity in the long run

• Assumptions of monopolistic competition

• Equilibrium of the firm

– short run

– long run

– underutilisation of capacity in the long run

Q2

P2 DL under perfect

competition

Long run equilibrium of the firm under perfect andmonopolistic competition

Long run equilibrium of the firm under perfect andmonopolistic competition

£

QO

P1

LRAC

DL under monopolistic

competition

Q1

Monopolistic CompetitionMonopolistic Competition

• Assumptions of monopolistic competition

• Equilibrium of the firm– short run

– long run

– underutilisation of capacity in the long run

• Non-price competition

• Assumptions of monopolistic competition

• Equilibrium of the firm– short run

– long run

– underutilisation of capacity in the long run

• Non-price competition

Monopolistic CompetitionMonopolistic Competition

• Assumptions of monopolistic competition

• Equilibrium of the firm– short run

– long run

– underutilisation of capacity in the long run

• Non-price competition

• The public interest

• Assumptions of monopolistic competition

• Equilibrium of the firm– short run

– long run

– underutilisation of capacity in the long run

• Non-price competition

• The public interest

Monopolistic CompetitionMonopolistic Competition

• Assumptions of monopolistic competition

• Equilibrium of the firm– short run

– long run

– underutilisation of capacity in the long run

• Non-price competition

• The public interest– comparison with perfect competition

• Assumptions of monopolistic competition

• Equilibrium of the firm– short run

– long run

– underutilisation of capacity in the long run

• Non-price competition

• The public interest– comparison with perfect competition

Monopolistic CompetitionMonopolistic Competition

• Assumptions of monopolistic competition

• Equilibrium of the firm– short run

– long run

– underutilisation of capacity in the long run

• Non-price competition

• The public interest– comparison with perfect competition

– comparison with monopoly

• Assumptions of monopolistic competition

• Equilibrium of the firm– short run

– long run

– underutilisation of capacity in the long run

• Non-price competition

• The public interest– comparison with perfect competition

– comparison with monopoly

OligopolyOligopoly

• Key features of oligopoly

– barriers to entry

– interdependence of firms

• Competition versus collusion

• Collusive oligopoly: cartels

– equilibrium of the industry

• Key features of oligopoly

– barriers to entry

– interdependence of firms

• Competition versus collusion

• Collusive oligopoly: cartels

– equilibrium of the industry

£

Q O

Industry D AR

Profit-maximising cartelProfit-maximising cartel

Profit-maximising cartelProfit-maximising cartel£

Q O

Industry D AR

Industry MC

Industry MR

Q1

P1

OligopolyOligopoly

• Key features of oligopoly

– barriers to entry

– interdependence of firms

• Competition versus collusion

• Collusive oligopoly: cartels

– equilibrium of the industry

– allocating and enforcing quotas

• Key features of oligopoly

– barriers to entry

– interdependence of firms

• Competition versus collusion

• Collusive oligopoly: cartels

– equilibrium of the industry

– allocating and enforcing quotas

0

5

10

15

20

25

30

35

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02

$ per barrel Actual price

Yom KippurWar: Arab oil

embargo

First oil fromNorth Sea

Revolutionin Iran

Iraq invadesIran OPEC’s first

quotas

Cease-fire inIran-Iraq war Recession

in Far East

Iraq invadesKuwait

New OPECquotas

World-widerecovery

World-wideslowdown

Impendingwar

with Iraq

Oil pricesOil prices

0

5

10

15

20

25

30

35

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02

$ per barrel Actual priceCost in 1973 prices

Yom KippurWar: Arab oil

embargo

First oil fromNorth Sea

Revolutionin Iran

Iraq invadesIran OPEC’s first

quotas

Cease-fire inIran-Iraq war Recession

in Far East

Iraq invadesKuwait

New OPECquotas

World-widerecovery

World-wideslowdown

Impendingwar

with Iraq

Oil pricesOil prices

OligopolyOligopoly

• Tacit collusion

– price leadership: dominant firm

• Tacit collusion

– price leadership: dominant firm

£

Q O

MR leader

AR D leader

AR D market

Price leader aiming to maximise profits for a given market sharePrice leader aiming to maximise profits for a given market share

Assume constantmarket share

for leader

£

Q O

AR D market

MC

MR leader

PL

QT

AR D leader

QL

l t

Price leader aiming to maximise profits for a given market sharePrice leader aiming to maximise profits for a given market share

OligopolyOligopoly

• Tacit collusion

– price leadership: dominant firm

– price leadership: barometric

• Tacit collusion

– price leadership: dominant firm

– price leadership: barometric

OligopolyOligopoly

• Tacit collusion

– price leadership: dominant firm

– price leadership: barometric

– rules of thumb

• Tacit collusion

– price leadership: dominant firm

– price leadership: barometric

– rules of thumb

OligopolyOligopoly

• Factors favouring collusion– Few firms

– Open with each other

– Similar production methods and average costs

– Similar products

– Dominant firm

– Significant entry barriers

– Stable market

– No government measures to curb collusion

• Factors favouring collusion– Few firms

– Open with each other

– Similar production methods and average costs

– Similar products

– Dominant firm

– Significant entry barriers

– Stable market

– No government measures to curb collusion

OligopolyOligopoly

• The breakdown of collusion• Non-collusive oligopoly: game theory

– alternative strategies• maximax and maximin

– simple dominant strategy games

• The breakdown of collusion• Non-collusive oligopoly: game theory

– alternative strategies• maximax and maximin

– simple dominant strategy games

Profits for firms A and B at different pricesProfits for firms A and B at different prices

£2.00 £1.80

£2.00

£1.80

X’s price

Y’s price

A B

C D

£10m each

£8m each£12m for Y£5m for X

£5m for Y£12m for X

OligopolyOligopoly

• The breakdown of collusion• Non-collusive oligopoly: game theory

– alternative strategies• maximax and maximin

– simple dominant strategy games• Nash equilibrium

• The breakdown of collusion• Non-collusive oligopoly: game theory

– alternative strategies• maximax and maximin

– simple dominant strategy games• Nash equilibrium

Profits for firms A and B at different pricesProfits for firms A and B at different prices

£2.00 £1.80

£2.00

£1.80

X’s price

Y’s price

A B

C D

£10m each

£8m each£12m for Y£5m for X

£5m for Y£12m for X

OligopolyOligopoly

• The breakdown of collusion• Non-collusive oligopoly: game theory

– alternative strategies• maximax and maximin

– simple dominant strategy games• Nash equilibrium• the prisoners’ dilemma

• The breakdown of collusion• Non-collusive oligopoly: game theory

– alternative strategies• maximax and maximin

– simple dominant strategy games• Nash equilibrium• the prisoners’ dilemma

The prisoners' dilemmaThe prisoners' dilemma

Not confess Confess

Notconfess

Confess

Amanda's alternatives

Nigel'salternatives

A B

C D

Each gets1 year

Each gets3 years

Nigel gets3 months

Amanda gets10 years

Nigel gets10 years

Amanda gets3 months

OligopolyOligopoly

• The breakdown of collusion• Non-collusive oligopoly: game theory

– alternative strategies• maximax and maximin

– simple dominant strategy games• the prisoners’ dilemma• Nash equilibrium

– more complex non-dominant strategy games

• The breakdown of collusion• Non-collusive oligopoly: game theory

– alternative strategies• maximax and maximin

– simple dominant strategy games• the prisoners’ dilemma• Nash equilibrium

– more complex non-dominant strategy games

OligopolyOligopoly

• The breakdown of collusion• Non-collusive oligopoly: game theory

– alternative strategies• maximax and maximin

– simple dominant strategy games• the prisoners’ dilemma• Nash equilibrium

– more complex non-dominant strategy games

– the importance of threats and promises

• The breakdown of collusion• Non-collusive oligopoly: game theory

– alternative strategies• maximax and maximin

– simple dominant strategy games• the prisoners’ dilemma• Nash equilibrium

– more complex non-dominant strategy games

– the importance of threats and promises

OligopolyOligopoly

• The breakdown of collusion• Non-collusive oligopoly: game theory

– alternative strategies• maximax and maximin

– simple dominant strategy games• the prisoners’ dilemma• Nash equilibrium

– more complex non-dominant strategy games

– the importance of threats and promises– the importance of timing of decisions

• The breakdown of collusion• Non-collusive oligopoly: game theory

– alternative strategies• maximax and maximin

– simple dominant strategy games• the prisoners’ dilemma• Nash equilibrium

– more complex non-dominant strategy games

– the importance of threats and promises– the importance of timing of decisions

OligopolyOligopoly

• The breakdown of collusion• Non-collusive oligopoly: game theory

– alternative strategies• maximax and maximin

– simple dominant strategy games• the prisoners’ dilemma• Nash equilibrium

– more complex non-dominant strategy games

– the importance of threats and promises– the importance of timing of decisions

• decision trees

• The breakdown of collusion• Non-collusive oligopoly: game theory

– alternative strategies• maximax and maximin

– simple dominant strategy games• the prisoners’ dilemma• Nash equilibrium

– more complex non-dominant strategy games

– the importance of threats and promises– the importance of timing of decisions

• decision trees

Boeingdecides

500

seat

er

500 seater

500 seater

400 seater

400 seater

400 seater

A decision treeA decision tree

Boeing –£10mAirbus –£10m

(1)

Boeing +£30mAirbus +£50m

(2)

Boeing +£50mAirbus +£30m

(3)

Boeing –£10mAirbus –£10m (4)

Airbusdecides

B2

Airbusdecides

B1

A

OligopolyOligopoly

• Non-collusive oligopoly: the kinked demand curve theory

– assumptions of the model

• Non-collusive oligopoly: the kinked demand curve theory

– assumptions of the model

Kinked demand for a firm under oligopolyKinked demand for a firm under oligopoly£

QO

P1

Q1

Current priceand quantity

give one pointon demand curve

£

QO

P1

Q1

D

D

Kinked demand for a firm under oligopolyKinked demand for a firm under oligopoly

OligopolyOligopoly

• Non-collusive oligopoly: the kinked demand curve theory

– assumptions of the model

– stable prices

• Non-collusive oligopoly: the kinked demand curve theory

– assumptions of the model

– stable prices

£

QO

P1

Q1

MC2

MC1

MR

a

bD AR

Stable price under conditions of a kinked demand curveStable price under conditions of a kinked demand curve

OligopolyOligopoly

• Non-collusive oligopoly: the kinked demand curve theory

– assumptions of the model

– stable prices

– limitations of the model

• Non-collusive oligopoly: the kinked demand curve theory

– assumptions of the model

– stable prices

– limitations of the model

OligopolyOligopoly

• Non-collusive oligopoly: the kinked demand curve theory

– assumptions of the model

– stable prices

– limitations of the model

• Oligopoly and the public interest

• Non-collusive oligopoly: the kinked demand curve theory

– assumptions of the model

– stable prices

– limitations of the model

• Oligopoly and the public interest

OligopolyOligopoly

• Non-collusive oligopoly: the kinked demand curve theory

– assumptions of the model

– stable prices

– limitations of the model

• Oligopoly and the public interest

– advantages

• Non-collusive oligopoly: the kinked demand curve theory

– assumptions of the model

– stable prices

– limitations of the model

• Oligopoly and the public interest

– advantages

OligopolyOligopoly

• Non-collusive oligopoly: the kinked demand curve theory

– assumptions of the model

– stable prices

– limitations of the model

• Oligopoly and the public interest

– advantages

– disadvantages

• Non-collusive oligopoly: the kinked demand curve theory

– assumptions of the model

– stable prices

– limitations of the model

• Oligopoly and the public interest

– advantages

– disadvantages

OligopolyOligopoly

• Non-collusive oligopoly: the kinked demand curve theory

– assumptions of the model

– stable prices

– limitations of the model

• Oligopoly and the public interest

– advantages

– disadvantages

– difficulties in drawing general conclusions

• Non-collusive oligopoly: the kinked demand curve theory

– assumptions of the model

– stable prices

– limitations of the model

• Oligopoly and the public interest

– advantages

– disadvantages

– difficulties in drawing general conclusions

Price DiscriminationPrice Discrimination

• Meaning of price discrimination

– First degree

– Second degree

– Third degree (the most common form)

• Meaning of price discrimination

– First degree

– Second degree

– Third degree (the most common form)

Third-degree price discriminationThird-degree price discrimination

P

QO

P1

D

200

Revenue froma single price

O

P1

D

200

P2

150

P

Q

Increased revenuefrom price

discriminationA higher discriminatoryprice is now introduced

Third-degree price discriminationThird-degree price discrimination

Price DiscriminationPrice Discrimination

• Meaning of price discrimination

– First degree

– Second degree

– Third degree (the most common form)

• Conditions necessary for price discrimination

• Meaning of price discrimination

– First degree

– Second degree

– Third degree (the most common form)

• Conditions necessary for price discrimination

Price DiscriminationPrice Discrimination

• Meaning of price discrimination

– First degree

– Second degree

– Third degree (the most common form)

• Conditions necessary for price discrimination

• Advantages to the firm

• Meaning of price discrimination

– First degree

– Second degree

– Third degree (the most common form)

• Conditions necessary for price discrimination

• Advantages to the firm

Price DiscriminationPrice Discrimination

• Profit maximising prices and output under price discrimination

• Profit maximising prices and output under price discrimination

O O OMRX

(a) Market X

DX

Profit-maximising output underthird degree price discriminationProfit-maximising output under

third degree price discrimination

O O O

DY

MRX

MRY

(a) Market X (b) Market Y

DX

Profit-maximising output underthird degree price discriminationProfit-maximising output under

third degree price discrimination

O O OMRX

MRY MRT

(a) Market X (b) Market Y (c) Total

(markets X + Y)

DX

Profit-maximising output underthird degree price discriminationProfit-maximising output under

third degree price discrimination

DY

Profit-maximising output underthird degree price discriminationProfit-maximising output under

third degree price discrimination

O O OMRX

MRY MRT

MC

(a) Market X (b) Market Y (c) Total

(markets X + Y)

DX

DY

O O OMRX

MRY MRT

MC

(a) Market X (b) Market Y (c) Total

(markets X + Y)

DX

3000

Profit-maximising output underthird degree price discriminationProfit-maximising output under

third degree price discrimination

DY

O O O

DX

MRX

MRY MRT

MC

5

(a) Market X (b) Market Y (c) Total

(markets X + Y)

3000

Profit-maximising output underthird degree price discriminationProfit-maximising output under

third degree price discrimination

DY

O O OMRX

MRY MRT

MC

5

1000

(a) Market X (b) Market Y (c) Total

(markets X + Y)

DX

3000

Profit-maximising output underthird degree price discriminationProfit-maximising output under

third degree price discrimination

DY

O O OMRX

MRY MRT

MC

5

1000 2000

(a) Market X (b) Market Y (c) Total

(markets X + Y)

DX

3000

Profit-maximising output underthird degree price discriminationProfit-maximising output under

third degree price discrimination

DY

O O OMRX

MRY MRT

MC

5

9

1000 2000

(a) Market X (b) Market Y (c) Total

(markets X + Y)

DX

3000

Profit-maximising output underthird degree price discriminationProfit-maximising output under

third degree price discrimination

DY

O O OMRX

MRY MRT

MC

DY

5

7

1000 2000 3000

(a) Market X (b) Market Y (c) Total

(markets X + Y)

9

DX

Profit-maximising output underthird degree price discriminationProfit-maximising output under

third degree price discrimination

Price DiscriminationPrice Discrimination

• Profit maximising prices and output under price discrimination

• Price discrimination and the public interest

– competition

• Profit maximising prices and output under price discrimination

• Price discrimination and the public interest

– competition

Price DiscriminationPrice Discrimination

• Profit maximising prices and output under price discrimination

• Price discrimination and the public interest

– competition

– profits

• Profit maximising prices and output under price discrimination

• Price discrimination and the public interest

– competition

– profits