{ Market Structures SSEMI4c- Identify the basic characteristics of the four market structures.
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Transcript of Market Structures
![Page 1: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/1.jpg)
MarketStructures
![Page 2: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/2.jpg)
The 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
![Page 3: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/3.jpg)
Features of the four market structures
![Page 4: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/4.jpg)
Features of the four market structures
![Page 5: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/5.jpg)
Features of the four market structures
![Page 6: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/6.jpg)
Features of the four market structures
![Page 7: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/7.jpg)
Features of the four market structures
![Page 8: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/8.jpg)
Features of the four market structures
![Page 9: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/9.jpg)
The 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
![Page 10: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/10.jpg)
Perfect Competition
• Assumptions– firms are price takers– freedom of entry– identical products– perfect knowledge
• Short-run equilibrium of the firm– price, output and profit
![Page 11: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/11.jpg)
O
£
(b) Firm
Q (thousands)
O
(a) Industry
P
Q (millions)
S
D
Pe
MC
AR D = AR= MR
Qe
AC
AC
Short-run equilibrium of industry and firm under perfect competition
![Page 12: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/12.jpg)
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 competition
![Page 13: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/13.jpg)
Perfect 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
![Page 14: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/14.jpg)
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 curve
ab
c
= S
![Page 15: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/15.jpg)
Perfect Competition
• Long-run equilibrium of the firm
– all supernormal profits competed away
– LRAC = AC = MC = MR = AR
![Page 16: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/16.jpg)
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 competition
New firms enterSupernormal profitsProfits returnto normal
![Page 17: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/17.jpg)
£
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 competition
![Page 18: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/18.jpg)
Perfect 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
![Page 19: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/19.jpg)
Monopoly
• 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
![Page 20: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/20.jpg)
Monopoly
• The monopolist’s demand curve– downward sloping– MR below AR
• Equilibrium price and output– Equilibrium output, where MC = MR
![Page 21: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/21.jpg)
Profit maximising under monopoly
MR
£
Q O
MC
Qm
![Page 22: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/22.jpg)
Monopoly
• 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
![Page 23: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/23.jpg)
£
Q O
MC
AC
Qm
MR
AR
AC
Profit maximising under monopoly
AR
![Page 24: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/24.jpg)
Monopoly
• 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
![Page 25: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/25.jpg)
£
Q O
MC
AC
Qm
MR
AR
AC
Profit maximising under monopoly
AR
Total profit
![Page 26: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/26.jpg)
Monopoly
• 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
![Page 27: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/27.jpg)
Monopoly
• Disadvantages of monopoly– high prices / low output: short run
![Page 28: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/28.jpg)
AR = D
MC
MR
£
Q O Q1
P1
Monopoly
Equilibrium of industry under perfect competition and monopoly: with the same MC curve
![Page 29: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/29.jpg)
£
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
![Page 30: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/30.jpg)
Monopoly
• Disadvantages of monopoly– high prices / low output: short run– high prices / low output: long run
![Page 31: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/31.jpg)
Monopoly
• Disadvantages of monopoly– high prices / low output: short run– high prices / low output: long run– lack of incentive to innovate
![Page 32: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/32.jpg)
Monopoly
• Disadvantages of monopoly– high prices / low output: short run– high prices / low output: long run– lack of incentive to innovate– X-inefficiency
![Page 33: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/33.jpg)
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
![Page 34: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/34.jpg)
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– economies of scale
![Page 35: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/35.jpg)
£
Q O Q1
MR
P1
MCmonopoly
AR = D
Equilibrium of industry under perfect competition and monopoly: with different MC curves
![Page 36: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/36.jpg)
£
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
![Page 37: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/37.jpg)
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– economies of scale– profits can be used for investment
![Page 38: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/38.jpg)
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– economies of scale– profits can be used for investment– high profits encourage risk taking
![Page 39: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/39.jpg)
Monopoly
• 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
![Page 40: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/40.jpg)
Monopolistic Competition
• Assumptions of monopolistic competition
• Equilibrium of the firm– short run
![Page 41: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/41.jpg)
£
Q O Qs
AR D
MC
AC
MR
Short-run equilibrium of the firmunder monopolistic competition
Ps
ACs
![Page 42: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/42.jpg)
Monopolistic Competition
• Assumptions of monopolistic competition
• Equilibrium of the firm– short run– long run
![Page 43: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/43.jpg)
Long-run equilibrium of the firmunder monopolistic competition
ARL DL
MRL
£
Q O QL
PL
LRAC
LRMC
![Page 44: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/44.jpg)
Monopolistic Competition
• Assumptions of monopolistic competition
• Equilibrium of the firm– short run– long run– underutilisation of capacity in the long run
![Page 45: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/45.jpg)
Q2
P2 DL under perfectcompetition
Long run equilibrium of the firm under perfect andmonopolistic competition
£
QO
P1
LRAC
DL under monopolistic competition
Q1
![Page 46: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/46.jpg)
Monopolistic Competition
• Assumptions of monopolistic competition
• Equilibrium of the firm– short run– long run– underutilisation of capacity in the long run
• Non-price competition
![Page 47: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/47.jpg)
Monopolistic 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
![Page 48: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/48.jpg)
Monopolistic 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
![Page 49: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/49.jpg)
Monopolistic 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
![Page 50: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/50.jpg)
Oligopoly
• Key features of oligopoly
– barriers to entry
– interdependence of firms
• Competition versus collusion
• Collusive oligopoly: cartels
– equilibrium of the industry
![Page 51: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/51.jpg)
£
Q O
Industry D AR
Profit-maximising cartel
![Page 52: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/52.jpg)
Profit-maximising cartel£
Q O
Industry D AR
Industry MC
Industry MR
Q1
P1
![Page 53: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/53.jpg)
Oligopoly
• Key features of oligopoly
– barriers to entry
– interdependence of firms
• Competition versus collusion
• Collusive oligopoly: cartels
– equilibrium of the industry
– allocating and enforcing quotas
![Page 54: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/54.jpg)
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 prices
![Page 55: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/55.jpg)
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 prices
![Page 56: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/56.jpg)
Oligopoly
• Tacit collusion
– price leadership: dominant firm
![Page 57: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/57.jpg)
£
Q O
MR leader
AR D leader
AR D market
Price leader aiming to maximise profits for a given market share
Assume constantmarket share
for leader
![Page 58: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/58.jpg)
£
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 share
![Page 59: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/59.jpg)
Oligopoly
• Tacit collusion
– price leadership: dominant firm
– price leadership: barometric
![Page 60: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/60.jpg)
Oligopoly
• Tacit collusion
– price leadership: dominant firm
– price leadership: barometric
– rules of thumb
![Page 61: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/61.jpg)
Oligopoly
• 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
![Page 62: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/62.jpg)
Oligopoly
• The breakdown of collusion• Non-collusive oligopoly: game theory
– alternative strategies• maximax and maximin
– simple dominant strategy games
![Page 63: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/63.jpg)
Profits 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
![Page 64: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/64.jpg)
Oligopoly
• The breakdown of collusion• Non-collusive oligopoly: game theory
– alternative strategies• maximax and maximin
– simple dominant strategy games• Nash equilibrium
![Page 65: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/65.jpg)
Profits 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
![Page 66: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/66.jpg)
Oligopoly
• The breakdown of collusion• Non-collusive oligopoly: game theory
– alternative strategies• maximax and maximin
– simple dominant strategy games• Nash equilibrium• the prisoners’ dilemma
![Page 67: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/67.jpg)
The 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
![Page 68: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/68.jpg)
Oligopoly
• 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
![Page 69: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/69.jpg)
Oligopoly
• 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
![Page 70: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/70.jpg)
Oligopoly
• 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
![Page 71: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/71.jpg)
Oligopoly
• 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
![Page 72: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/72.jpg)
Boeingdecides
500 s
eater
500 seater
500 seater
400 seater
400 seater
400 seater
A decision tree
Boeing –£10mAirbus –£10m (1)
Boeing +£30mAirbus +£50m (2)
Boeing +£50mAirbus +£30m (3)
Boeing –£10mAirbus –£10m (4)
Airbusdecides
B2
Airbusdecides
B1
A
![Page 73: Market Structures](https://reader037.fdocuments.us/reader037/viewer/2022103109/54651773b4af9fdd2e8b4821/html5/thumbnails/73.jpg)
Oligopoly
• Non-collusive oligopoly: the kinked demand curve theory– assumptions of the model
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Kinked demand for a firm under oligopoly£
QO
P1
Q1
Current priceand quantity
give one pointon demand curve
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£
QO
P1
Q1
D
D
Kinked demand for a firm under oligopoly
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Oligopoly
• Non-collusive oligopoly: the kinked demand curve theory– assumptions of the model– stable prices
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£
QO
P1
Q1
MC2
MC1
MR
a
b D AR
Stable price under conditions of a kinked demand curve
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Oligopoly
• Non-collusive oligopoly: the kinked demand curve theory– assumptions of the model– stable prices– limitations of the model
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Oligopoly
• Non-collusive oligopoly: the kinked demand curve theory– assumptions of the model– stable prices– limitations of the model
• Oligopoly and the public interest
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Oligopoly
• Non-collusive oligopoly: the kinked demand curve theory– assumptions of the model– stable prices– limitations of the model
• Oligopoly and the public interest– advantages
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Oligopoly
• 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
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Oligopoly
• 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
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Price Discrimination
• Meaning of price discrimination
– First degree
– Second degree
– Third degree (the most common form)
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Third-degree price discriminationP
QO
P1
D
200
Revenue froma single price
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O
P1
D
200
P2
150
P
Q
Increased revenuefrom price
discriminationA higher discriminatoryprice is now introduced
Third-degree price discrimination
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Price Discrimination
• Meaning of price discrimination
– First degree
– Second degree
– Third degree (the most common form)
• Conditions necessary for price discrimination
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Price Discrimination
• Meaning of price discrimination
– First degree
– Second degree
– Third degree (the most common form)
• Conditions necessary for price discrimination
• Advantages to the firm
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Price Discrimination
• Profit maximising prices and output under price discrimination
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O O OMRX
(a) Market X
DX
Profit-maximising output underthird degree price discrimination
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O O O
DY
MRX
MRY
(a) Market X (b) Market Y
DX
Profit-maximising output underthird degree price discrimination
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O O OMRX
MRY MRT
(a) Market X (b) Market Y (c) Total(markets X + Y)
DX
Profit-maximising output underthird degree price discrimination
DY
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Profit-maximising output underthird degree price discrimination
O O OMRX
MRY MRT
MC
(a) Market X (b) Market Y (c) Total(markets X + Y)
DX
DY
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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 discrimination
DY
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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 discrimination
DY
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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 discrimination
DY
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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 discrimination
DY
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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 discrimination
DY
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O O OMRX
MRY MRT
MC
DY
57
1000 2000 3000
(a) Market X (b) Market Y (c) Total(markets X + Y)
9
DX
Profit-maximising output underthird degree price discrimination
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Price Discrimination
• Profit maximising prices and output under price discrimination
• Price discrimination and the public interest
– competition
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Price Discrimination
• Profit maximising prices and output under price discrimination
• Price discrimination and the public interest
– competition
– profits