Applied Competitive Analysis
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Transcript of Applied Competitive Analysis
7/21/2019 Applied Competitive Analysis
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APPLIED COMPETITIVE
ANALYSISManagerial Economics
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Economic Efciency and Wel areAnalysis
• T e area !e"#een " e demand and" e s$%%ly c$r&e re%resen"s " e s$mo cons$mer and %rod$cer s$r%l$s
• T is area is ma'imi(ed a" " ecom%e"i"i&e mar)e" e*$ili!ri$m
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Economic Efciency and Wel areAnalysis
Quantity
Price
P *
Q *
S
D
Cons$mer s$r%l$s is " earea a!o&e %rice and !elo#demand
Prod$cer s$r%l$s is " earea !elo# %rice anda!o&e s$%%ly
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A" o$"%$" Q +, "o"al s$r%l$s#ill !e smaller
Economic Efciency and Wel areAnalysis
Quantity
Price
P *
Q *
S
D
Q 1
A" o$"%$"s !e"#een Q + andQ -, demanders #o$ld &al$ean addi"ional $ni" more " ani" #o$ld cos" s$%%liers "o
%rod$ce
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Economic Efciency and Wel areAnalysis
• Ma" ema"ically, #e #is "oma'imi(e
cons$mer s$r%l$s . %rod$cer s$r%l$s / ∫ ∫ −=−+−Q Q
dQQP QU dQQP PQPQQU 0 0
)()(])([])([
•
0or " e e*$ili!ria along " e long1r$ns$%%ly c$r&e, P2Q 3/ AC / MC
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Economic Efciency and Wel areAnalysis
• Ma'imi(ing "o"al s$r%l$s #i"res%ec" "o Q yields
U42Q 3/ P2Q 3/ AC / MC• T is im%lies " a" ma'imi(a"ion
occ$rs # ere " e marginal &al$e o
Q "o " e re%resen"a"i&e cons$meris e*$al "o mar)e" %rice – " is occ$rs a" " e mar)e" e*$ili!ri$m
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Wel are Loss Com%$"a"ions
• 5se o cons$mer and %rod$cers$r%l$s no"ions ma)es %ossi!le " ee'%lici" calc$la"ion o #el are lossesca$sed !y res"ric"ions on &ol$n"ary"ransac"ions – in " e case o linear demand and s$%%ly
c$r&es, " e calc$la"ion is sim%le!eca$se " e areas o loss are o "en"riang$lar
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Wel are Loss Com%$"a"ions
• S$%%ose " a" " e demand is gi&en!y
Q D / +6 1 P
and s$%%ly is gi&en !yQ
S /P
1 7• Mar)e" e*$ili!ri$m occ$rs # ere
P -/8 and Q -/9
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Wel are Loss Com%$"a"ions
• :es"ric"ion o o$"%$" "o Q 6 /; #o$ldcrea"e a ga% !e"#een # a"
demanders are #illing "o %ay 2 P D3and # a" s$%%liers re*$ire 2 P S3
P D / +6 1 ; / <
P S / 7 . ; / =
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T e #el are loss rom res"ric"ing o$"%$""o ; is " e area o a "riangle
Wel are Loss Com%$"a"ions
Quantity
Price
S
D
6
4
7
5
3
T e loss / 26>=32732+3 / +
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Wel are Loss Com%$"a"ions
• T e #el are loss #ill !e s ared !y%rod$cers and cons$mers
• In general, i" #ill de%end on " e%rice elas"ici"y o demand and " e%rice elas"ici"y o s$%%ly "o
de"ermine # o !ears " e larger%or"ion o " e loss – " e side o " e mar)e" #i" " e
smalles" %rice elas"ici"y 2in a!sol$"e&al$e3
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Price Con"rols
• Some"imes " e go&ernmen" maysee) "o con"rol %rices a" !elo#
e*$ili!ri$m le&els – #ill lead "o a s or"age• We can loo) a" " e c anges in
%rod$cer and cons$mer s$r%l$srom " is %olicy "o analy(e i"sim%ac" on #el are
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Price Con"rols
Quantity
Price SS
D
LS
P 1
Q 1
Ini"ially, " e mar)e" isin long1r$n e*$ili!ri$ma" P +, Q +
Demand increases "o D 4
D ’
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Price Con"rols
Quantity
Price SS
D
LS
P 1
Q 1
D ’
0irms #o$ld !egin "oen"er " e ind$s"ry
In " e s or" r$n, %ricerises "o P 7
P 2
T e %rice #o$ld end$% a" P ;
P 3
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Price Con"rols
Quantity
Price SS
D
LS
P 1
Q 1
D ’
P 3
T ere #ill !e as or"age e*$al "oQ 7 1 Q +
Q 2
S$%%ose " a" " ego&ernmen" im%osesa %rice ceiling a" P +
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T is gain in cons$mers$r%l$s is " e s adedrec"angle
Price Con"rols
Quantity
Price SS
D
LS
P 1
Q 1
D ’
P 3
Q 2
Some !$yers #ill gain!eca$se " ey can%$rc ase " e good or alo#er %rice
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T e s aded rec"angle" ere ore re%resen"s a%$re "rans er rom%rod$cers "o cons$mers
Price Con"rols
Quantity
Price SS
D
LS
P 1
Q 1
D ’
P 3
Q 2
T e gain "o cons$mers isalso a loss "o %rod$cers# o no# recei&e a lo#er%rice
No #el are loss " ere
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T is s aded "rianglere%resen"s " e &al$e o
addi"ional cons$mers$r%l$s " a" #o$ld a&e!een a""ained #i" o$"" e %rice con"rol
Price Con"rols
Quantity
Price SS
D
LS
P 1
Q 1
D ’
P 3
Q 2
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T is s aded "rianglere%resen"s " e &al$e o
addi"ional %rod$cers$r%l$s " a" #o$ld a&e!een a""ained #i" o$"" e %rice con"rol
Price Con"rols
Quantity
Price SS
D
LS
P 1
Q 1
D ’
P 3
Q 2
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T is s aded areare%resen"s " e "o"al &al$eo m$"$ally !ene?cial"ransac"ions " a" are
%re&en"ed !y " ego&ernmen"
Price Con"rols
Quantity
Price SS
D
LS
P 1
Q 1
D ’
P 3
Q 2
T is is a meas$re o " e%$re #el are cos"s o " is%olicy
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Dise*$ili!ri$m @e a&ior
• Ass$ming " a" o!ser&ed mar)e"o$"comes are genera"ed !y
Q 2P +3 / min Q D2P +3,Q S2P +3B
s$%%liers #ill !e con"en" #i" " e
o$"come !$" demanders #ill no"• T is co$ld lead "o !lac) mar)e"s
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Ta' Incidence
• To disc$ss " e e ec"s o a %er1$ni""a' 2 t 3, #e need "o ma)e adis"inc"ion !e"#een " e %rice %aid!y !$yers 2 P D3 and " e %ricerecei&ed !y sellers 2 P S3
P D 1 P S / t • In "erms o small %rice c anges, #e
#is "o e'amine
dP D 1 dP S / dt
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Ta' Incidence
• Main"enance o e*$ili!ri$m in " emar)e" re*$ires
dQ D = dQ S
orD PdP D = S PdP S
• S$!s"i"$"ing, #e ge"D PdP D = S PdP S = S P2dP D 1 dt 3
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Ta' Incidence
• We can no# sol&e or " e e ec" o" e "a' on P D
DS
S
P P
P D
eee
DS S
dt dP −=−=
• Similarly,
DS
D
P P
P S
ee
e
DS
D
dt
dP
−=−=
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Ta' Incidence
• @eca$se e D ≤ 6 and e S ≥ 6, dP D dt ≥ 6 and dP S dt ≤ 6
• I demand is %er ec"ly inelas"ic2e D/63, " e %er1$ni" "a' iscom%le"ely %aid !y demanders
• I demand is %er ec"ly elas"ic2e D/ ∞ 3, " e %er1$ni" "a' iscom%le"ely %aid !y s$%%liers
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Ta' Incidence
• In general, " e ac"or #i" " e lesselas"ic res%onses 2in a!sol$"e &al$e3
#ill e'%erience mos" o " e %ricec ange ca$sed !y " e "a'
S
D
D
S
e
e
dt dP
dt dP
−=− /
/
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Ta' Incidence
Quantity
PriceS
D
P *
Q *
P D
P S
A %er1$ni" "a' crea"es a
#edge !e"#een " e %rice" a" !$yers %ay 2 P D3 and" e %rice " a" sellersrecei&e 2 P S3t
Q **
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@$yers inc$r a #el are losse*$al "o " e s aded area
Ta' Incidence
Quantity
PriceS
D
P *
Q *
P D
P S
Q **
@$" some o " is loss goes"o " e go&ernmen" in " e
orm o "a' re&en$e
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Sellers also inc$r a #el areloss e*$al "o " e s aded area
Ta' Incidence
Quantity
PriceS
D
P *
Q *
P D
P S
Q **
@$" some o " is loss goes"o " e go&ernmen" in " e
orm o "a' re&en$e
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T ere ore, " is is " e dead1#eig " loss rom " e "a'
Ta' Incidence
Quantity
PriceS
D
P *
Q *
P D
P S
Q **
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Dead#eig " Loss andElas"ici"y
• All nonl$m%1s$m "a'es in&ol&edead#eig " losses
– " e si(e o " e losses #ill de%end on" e elas"ici"ies o s$%%ly and demand• A linear a%%ro'ima"ion "o " e
dead#eig " loss accom%anying asmall "a', dt , is gi&en !y
DW / 16>=2 dt 32dQ 3
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Dead#eig " Loss andElas"ici"y
• 0rom " e de?ni"ion o elas"ici"y, #e)no# " a"
dQ / e DdP D ⋅Q 6 P 6
• T is im%lies " a"dQ / e D e S 2e S 1 e D3B dt Q 6 P 6
• S$!s"i"$"ing, #e ge"
00
2
0
50 QP eeeeP
dt DW DS S D )]/([. −
−=
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Dead#eig " Loss andElas"ici"y
• Dead#eig " losses are (ero i ei" ere D or e S are (ero – " e "a' does no" al"er " e *$an"i"y o
" e good " a" is "raded• Dead#eig " losses are smaller in
si"$a"ions # ere e D or e S are small
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Transac"ions Cos"s
• Transac"ions cos"s can also crea"e a#edge !e"#een " e %rice " e !$yer%ays and " e %rice " e sellerrecei&es – real es"a"e agen" ees – !ro)er ees or " e sale o s"oc)s
• I " e "ransac"ions cos"s are on a%er1$ni" !asis, " ese cos"s #ill !es ared !y " e !$yer and seller – de%ends on " e s%eci?c elas"ici"ies
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ains rom In"erna"ional
Trade
Quantity
Price
S
D
Q *
P *
In " e a!sence o in"erna"ional "rade,
" e domes"ice*$ili!ri$m %rice#o$ld !e P - and" e domes"ice*$ili!ri$m *$an"i"y#o$ld !e Q -
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ains rom In"erna"ional
Trade
Quantity
Price
Q *
P *
S
D
F$an"i"y demanded #illrise "o Q + and *$an"i"ys$%%lied #ill all "o Q 7
Q 1Q 2
I " e #orld %rice 2 P W 3is less " an " e domes"ic%rice, " e %rice #ill all"o P W
P W
Im%or"s / Q + 1 Q 7
imports
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Cons$mer s$r%l$s rises
Prod$cer s$r%l$s alls
T ere is an $nam!ig$o$s#el are gain
ains rom In"erna"ional
Trade
Quantity
Price
Q *
P *
S
D
Q 2Q 1
P W
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E ec"s o a Tari
Quantity
Price
S
D
Q 1Q 2
P W
F$an"i"y demanded alls"o Q ; and *$an"i"y s$%%liedrises "o Q 9
Q 4 Q 3
S$%%ose " a" " e go&ernmen"crea"es a "ari " a" raises" e %rice "o P R
P R
Im%or"s are no# Q ; 1 Q 9
imports
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Cons$mer s$r%l$s alls
Prod$cer s$r%l$s rises
T ese "#o "rianglesre%resen" dead#eig " loss
T e go&ernmen" ge"s"ari re&en$e
E ec"s o a Tari
Quantity
Price
S
D
Q 1Q 2
P W
Q 4 Q 3
P R
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Es"ima"es o Dead#eig "Losses
• Es"ima"es o " e si(es o " e#el are loss "riangle can !e
calc$la"ed• @eca$se P R / 2+. t 3P W , " e
%ro%or"ional c ange in *$an"i"y
demanded is DDW
W R
teeP
P P
Q
=⋅
−=
−1
13
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T e areas o " ese "#o"riangles are
E ec"s o a Tari
Quantity
Price
S
D
Q 1Q 2
P W
Q 4 Q 3
P R
))((. 311 50 QQP P DW W R
−−=
1
2
1 50 QP et DW W D.−=
))((. 242 50 QQP P DW W R −−=
2
2
2 50 QP et DW W S .−=
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O" er Trade :es"ric"ions
• A *$o"a " a" limi"s im%or"s "o Q ; 1
Q 9 #o$ld a&e e ec"s " a" are
similar "o " ose or " e "ari – same decline in cons$mer s$r%l$s – same increase in %rod$cer s$r%l$s
• One !ig di erence is " a" " e*$o"a does no" gi&e " ego&ernmen" any "ari re&en$e – " e dead#eig " loss #ill !e larger
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Im%or"an" Poin"s "o No"eG• T e conce%"s o cons$mer and
%rod$cer s$r%l$s %ro&ide $se $l#ays o analy(ing " e e ec"s oeconomic c anges on " e #el are omar)e" %ar"ici%an"s – c anges in cons$mer s$r%l$s re%resen"
c anges in " e o&erall $"ili"y cons$mersrecei&e rom cons$ming a %ar"ic$largood
– c anges in long1r$n %rod$cer s$r%l$sre%resen" c anges in " e re"$rns
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Im%or"an" Poin"s "o No"eG
• Price con"rols in&ol&e !o""rans ers !e"#een %rod$cers and
cons$mers and losses o"ransac"ions " a" co$ld !ene?"!o" cons$mers and %rod$cers
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Im%or"an" Poin"s "o No"eG• Ta' incidence analysis concerns " e
de"ermina"ion o # ic economicac"or $l"ima"ely !ears " e !$rden o
" e "a' – " is incidence #ill all mainly on " e
ac"ors # o e' i!i" inelas"ic res%onses"o %rice c anges
– "a'es also in&ol&e dead#eig " losses" a" cons"i"$"e an e'cess !$rden inaddi"ion "o " e !$rden im%osed !y " e
ac"$al "a' re&en$es collec"ed
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Im%or"an" Poin"s "o No"eG
• Trade res"ric"ions s$c as "ari s or*$o"as crea"e "rans ers !e"#een
cons$mers and %rod$cers anddead#eig " losses o economic#el are – " e e ec"s o many "y%es o "rade
res"ric"ions can !e modeled as !einge*$i&alen" "o a %er1$ni" "ari