Monopolistic Competition and Oligopoly Superior Cheese CHAPTER TWENTY-FIVE.
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Transcript of Monopolistic Competition and Oligopoly Superior Cheese CHAPTER TWENTY-FIVE.
![Page 1: Monopolistic Competition and Oligopoly Superior Cheese CHAPTER TWENTY-FIVE.](https://reader030.fdocuments.us/reader030/viewer/2022032708/56649e8b5503460f94b90bd6/html5/thumbnails/1.jpg)
Monopolistic Monopolistic CompetitionCompetition
andandOligopolyOligopoly
Monopolistic Monopolistic CompetitionCompetition
andandOligopolyOligopoly
SuperiorCheese
CHAPTER TWENTY-FIVE
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Four Market ModelsFour Market Models
Market Structure ContinuumMarket Structure Continuum
PurePureCompetitionCompetition
PurePureMonopolyMonopoly
MonopolisticMonopolisticCompetitionCompetition
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Monopolistic CompetitionMonopolistic CompetitionCharacteristics...Characteristics...
• Relatively Large NumbersRelatively Large Numbers
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Monopolistic CompetitionMonopolistic CompetitionCharacteristics...Characteristics...
• Relatively Large NumbersRelatively Large NumbersSmall Market ShareSmall Market Share
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Monopolistic CompetitionMonopolistic CompetitionCharacteristics...Characteristics...
• Relatively Large NumbersRelatively Large NumbersSmall Market ShareSmall Market ShareNo CollusionNo Collusion
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Monopolistic CompetitionMonopolistic CompetitionCharacteristics...Characteristics...
• Relatively Large NumbersRelatively Large NumbersSmall Market ShareSmall Market ShareNo CollusionNo CollusionIndependent ActionsIndependent Actions
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Monopolistic CompetitionMonopolistic CompetitionCharacteristics...Characteristics...
• Relatively Large NumbersRelatively Large NumbersSmall Market ShareSmall Market ShareNo CollusionNo CollusionIndependent ActionsIndependent Actions
• Product DifferentiationProduct Differentiation
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Monopolistic CompetitionMonopolistic CompetitionCharacteristics...Characteristics...
• Relatively Large NumbersRelatively Large NumbersSmall Market ShareSmall Market ShareNo CollusionNo CollusionIndependent ActionsIndependent Actions
• Product DifferentiationProduct DifferentiationProduct AttributesProduct Attributes
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Monopolistic CompetitionMonopolistic CompetitionCharacteristics...Characteristics...
• Relatively Large NumbersRelatively Large NumbersSmall Market ShareSmall Market ShareNo CollusionNo CollusionIndependent ActionsIndependent Actions
• Product DifferentiationProduct DifferentiationProduct AttributesProduct AttributesServicesServices
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Monopolistic CompetitionMonopolistic CompetitionCharacteristics...Characteristics...
• Relatively Large NumbersRelatively Large NumbersSmall Market ShareSmall Market ShareNo CollusionNo CollusionIndependent ActionsIndependent Actions
• Product DifferentiationProduct DifferentiationProduct AttributesProduct AttributesServicesServicesLocationLocation
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Monopolistic CompetitionMonopolistic CompetitionCharacteristics...Characteristics...
• Relatively Large NumbersRelatively Large NumbersSmall Market ShareSmall Market ShareNo CollusionNo CollusionIndependent ActionsIndependent Actions
• Product DifferentiationProduct DifferentiationProduct AttributesProduct AttributesServicesServicesLocationLocationBrand Names and PackagingBrand Names and Packaging
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Monopolistic CompetitionMonopolistic CompetitionCharacteristics...Characteristics...
• Relatively Large NumbersRelatively Large NumbersSmall Market ShareSmall Market ShareNo CollusionNo CollusionIndependent ActionsIndependent Actions
• Product DifferentiationProduct DifferentiationProduct AttributesProduct AttributesServicesServicesLocationLocationBrand Names and PackagingBrand Names and PackagingSome Control Over PriceSome Control Over Price
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• Easy Entry and ExitEasy Entry and Exit
Monopolistic CompetitionMonopolistic CompetitionCharacteristics...Characteristics...
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• Easy Entry and ExitEasy Entry and Exit• Nonprice CompetitionNonprice Competition
Monopolistic CompetitionMonopolistic CompetitionCharacteristics...Characteristics...
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• Easy Entry and ExitEasy Entry and Exit• Nonprice Competition Nonprice Competition • AdvertisingAdvertising
Monopolistic CompetitionMonopolistic CompetitionCharacteristics...Characteristics...
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• Easy Entry and ExitEasy Entry and Exit• Nonprice Competition Nonprice Competition • AdvertisingAdvertising• Monopolistically Monopolistically
Competitive Competitive IndustriesIndustries
Monopolistic CompetitionMonopolistic CompetitionCharacteristics...Characteristics...
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Short-Run Price and Output DeterminationShort-Run Price and Output Determination
PPP
rice
an
d C
ost
sP
rice
an
d C
ost
sMonopolistic competitorsMonopolistic competitors
have an elastic demand curve,have an elastic demand curve,but not perfectly elastic... but not perfectly elastic...
Copyright McGraw-Hill, Inc., 1999
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DD
PPP
rice
an
d C
ost
sP
rice
an
d C
ost
s
Copyright McGraw-Hill, Inc., 1999
Short-Run Price and Output DeterminationShort-Run Price and Output Determination
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DD
MRMR
PPP
rice
an
d C
ost
sP
rice
an
d C
ost
s
Copyright McGraw-Hill, Inc., 1999
Short-Run Price and Output DeterminationShort-Run Price and Output Determination
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DD
MRMR
MCMCPPP
rice
an
d C
ost
sP
rice
an
d C
ost
s
QQCopyright McGraw-Hill, Inc., 1999
Short-Run Price and Output DeterminationShort-Run Price and Output Determination
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DD
MRMR
MCMCPP
ATCATCP
rice
an
d C
ost
sP
rice
an
d C
ost
s
QQCopyright McGraw-Hill, Inc., 1999
Short-Run Price and Output DeterminationShort-Run Price and Output Determination
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DD
MRMR
MCMCPP
ATCATCP
rice
an
d C
ost
sP
rice
an
d C
ost
s
EconomicProfits
Expect New CompetitorsExpect New CompetitorsShort-Run Price and Output DeterminationShort-Run Price and Output Determination
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DD
MRMR
MCMCPP
ATCATCP
rice
an
d C
ost
sP
rice
an
d C
ost
s
EconomicProfits
How wouldHow wouldshort-run lossesshort-run losses
be different?be different?
How wouldHow wouldshort-run lossesshort-run losses
be different?be different?
Expect New CompetitorsExpect New CompetitorsShort-Run Price and Output DeterminationShort-Run Price and Output Determination
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DD
MRMR
MCMCPP
ATCATC
Pri
ce a
nd
Co
sts
Pri
ce a
nd
Co
sts
EconomicLossesExpectExpect
LessLessCompetitorsCompetitors
Short-Run Price and Output DeterminationShort-Run Price and Output Determination
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DD
MRMR
MCMCPP
ATCATC
Pri
ce a
nd
Co
sts
Pri
ce a
nd
Co
sts
EconomicLossesExpectExpect
LessLessCompetitorsCompetitors
How wouldthe long-run
differ?
How wouldthe long-run
differ?
Short-Run Price and Output DeterminationShort-Run Price and Output Determination
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DD
MRMR
MCMCPP
ATCATCP
rice
an
d C
ost
sP
rice
an
d C
ost
s
EconomicProfits
Expect New CompetitorsExpect New CompetitorsShort-Run Price and Output DeterminationShort-Run Price and Output Determination
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DD
MRMR
MCMCPP
ATCATC
Pri
ce a
nd
Co
sts
Pri
ce a
nd
Co
sts
Long-run equilibriumLong-run equilibriumShort-Run Price and Output DeterminationShort-Run Price and Output Determination
Q @ ATC Min ?Q @ ATC Min ?
P = MCP = MC
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Monopolistic CompetitionMonopolistic Competitionand Economic Efficiencyand Economic Efficiency
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Monopolistic CompetitionMonopolistic Competitionand Economic Efficiencyand Economic Efficiency
• Not Productively EfficientNot Productively Efficient
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Monopolistic CompetitionMonopolistic Competitionand Economic Efficiencyand Economic Efficiency
• Not Productively EfficientNot Productively Efficient• Not Allocatively EfficientNot Allocatively Efficient
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Monopolistic CompetitionMonopolistic Competitionand Economic Efficiencyand Economic Efficiency
• Not Productively EfficientNot Productively Efficient• Not Allocatively EfficientNot Allocatively Efficient• Excess CapacityExcess Capacity
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Monopolistic CompetitionMonopolistic Competitionand Economic Efficiencyand Economic Efficiency
Nonprice CompetitionNonprice Competition
• Not Productively EfficientNot Productively Efficient• Not Allocatively EfficientNot Allocatively Efficient• Excess CapacityExcess Capacity
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Monopolistic CompetitionMonopolistic Competitionand Economic Efficiencyand Economic Efficiency
Nonprice CompetitionNonprice Competition• Product DifferentiationProduct Differentiation
• Not Productively EfficientNot Productively Efficient• Not Allocatively EfficientNot Allocatively Efficient• Excess CapacityExcess Capacity
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Monopolistic CompetitionMonopolistic Competitionand Economic Efficiencyand Economic Efficiency
Nonprice CompetitionNonprice Competition• Product DifferentiationProduct Differentiation• Product DevelopmentProduct Development
• Not Productively EfficientNot Productively Efficient• Not Allocatively EfficientNot Allocatively Efficient• Excess CapacityExcess Capacity
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Features of a Monopolistic Competitive Markets:1. Many sellers 2. Unique Products that have close or identical substitutes:
Big Mac v Whopper3. Small barrier to entry or exit4. Some market power exists5. Price is greater than MR, Separate DARP and MR curves6. Non price competition and advertising exist7. Profits maximized at the Quantity and Price where MC = MR8. Excess or Economic Profits in the Short Run only (P>ATC)9. Profits must be Normal in the Long Run (P=ATC) 10. Firms should shut down when P < AVC11. Excess capacity exists in terms of potential output 12. Demand is relatively elastic by comparison to monopoly13. Example market - Minimarts, Fast food at local franchises14. This market is much closer to perfect competition than
pure monopoly
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Four Market ModelsFour Market ModelsOligopolyOligopoly
Market Structure ContinuumMarket Structure Continuum
PurePureCompetitionCompetition
PurePureMonopolyMonopoly
MonopolisticMonopolisticCompetitionCompetition
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Oligopoly: CharacteristicsOligopoly: Characteristics
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Oligopoly: CharacteristicsOligopoly: Characteristics• Oligopoly DefinedOligopoly Defined
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Oligopoly: CharacteristicsOligopoly: Characteristics• Oligopoly DefinedOligopoly Defined• Homogeneous or Homogeneous or
Differentiated ProductsDifferentiated Products
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Oligopoly: CharacteristicsOligopoly: Characteristics• Oligopoly DefinedOligopoly Defined• Homogeneous or Homogeneous or
Differentiated ProductsDifferentiated Products• Control over PriceControl over Price
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Oligopoly: CharacteristicsOligopoly: Characteristics• Oligopoly DefinedOligopoly Defined• Homogeneous or Homogeneous or
Differentiated ProductsDifferentiated Products• Control over PriceControl over Price• Mutual InterdependenceMutual Interdependence
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Oligopoly: CharacteristicsOligopoly: Characteristics• Oligopoly DefinedOligopoly Defined• Homogeneous or Homogeneous or
Differentiated ProductsDifferentiated Products• Control over PriceControl over Price• Mutual InterdependenceMutual Interdependence• Entry BarriersEntry Barriers
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Oligopoly: CharacteristicsOligopoly: Characteristics• Oligopoly DefinedOligopoly Defined• Homogeneous or Homogeneous or
Differentiated ProductsDifferentiated Products• Control over PriceControl over Price• Mutual InterdependenceMutual Interdependence• Entry BarriersEntry Barriers• MergersMergers
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• Concentration RatiosConcentration RatiosOligopoly: CharacteristicsOligopoly: Characteristics
Ratios that look at what the concentration of firms are in the industry.
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• Concentration RatiosConcentration Ratios - Herfindahl Index – The larger- Herfindahl Index – The largerthe index number the higher the the index number the higher the concentration of the industry.concentration of the industry.
Oligopoly: CharacteristicsOligopoly: Characteristics
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Oligopoly BehaviorOligopoly BehaviorA Game Theory Overview...A Game Theory Overview...
HighHigh
LowLow
HighHigh LowLow
Up
tow
n’s
Pri
ce S
trat
egy
Up
tow
n’s
Pri
ce S
trat
egy
RareAir’s Price StrategyRareAir’s Price Strategy
A
C
B$12 $15
$12 $6
$6 $8
$15 $8
D
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A
C
B$12 $15
$12 $6
$6 $8
$15 $8
D
HighHigh LowLow
GreatestGreatestCombinedCombined
ProfitProfit
RareAir’s Price StrategyRareAir’s Price Strategy
Oligopoly BehaviorOligopoly BehaviorA Game Theory Overview...A Game Theory Overview...
HighHigh
LowLow
Up
tow
n’s
Pri
ce S
trat
egy
Up
tow
n’s
Pri
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trat
egy
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A
C
B$12 $15
$12 $6
$6 $8
$15 $8
D
HighHigh LowLow
IndependentIndependentActionsActions
StimulateStimulateResponseResponse
RareAir’s Price StrategyRareAir’s Price Strategy
Oligopoly BehaviorOligopoly BehaviorA Game Theory Overview...A Game Theory Overview...
HighHigh
LowLow
Up
tow
n’s
Pri
ce S
trat
egy
Up
tow
n’s
Pri
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trat
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A
C
B$12 $15
$12 $6
$6 $8
$15 $8
D
HighHigh LowLow
IndependentIndependentActionsActions
StimulateStimulateResponseResponseGravitatingGravitating
to theto theWorst CaseWorst Case
RareAir’s Price StrategyRareAir’s Price Strategy
Oligopoly BehaviorOligopoly BehaviorA Game Theory Overview...A Game Theory Overview...
HighHigh
LowLow
Up
tow
n’s
Pri
ce S
trat
egy
Up
tow
n’s
Pri
ce S
trat
egy
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A
C
B$12 $15
$12 $6
$6 $8
$15 $8
D
HighHigh LowLow
CollusionCollusionInvites aInvites aDifferentDifferentSolutionSolution
RareAir’s Price StrategyRareAir’s Price Strategy
Oligopoly BehaviorOligopoly BehaviorA Game Theory Overview...A Game Theory Overview...
HighHigh
LowLow
Up
tow
n’s
Pri
ce S
trat
egy
Up
tow
n’s
Pri
ce S
trat
egy
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A
C
B$12 $15
$12 $6
$6 $8
$15 $8
D
HighHigh LowLow
CollusionCollusionInvites aInvites aDifferentDifferentSolutionSolution
RareAir’s Price StrategyRareAir’s Price Strategy
Oligopoly BehaviorOligopoly BehaviorA Game Theory Overview...A Game Theory Overview...
HighHigh
LowLow
Up
tow
n’s
Pri
ce S
trat
egy
Up
tow
n’s
Pri
ce S
trat
egy
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A
C
B$12 $15
$12 $6
$6 $8
$15 $8
D
HighHigh LowLow
CollusionCollusionInvites aInvites aDifferentDifferentSolutionSolutionBut, theBut, the
incentiveincentiveto cheatto cheat
is very realis very real
RareAir’s Price StrategyRareAir’s Price Strategy
Oligopoly BehaviorOligopoly BehaviorA Game Theory Overview...A Game Theory Overview...
HighHigh
LowLow
Up
tow
n’s
Pri
ce S
trat
egy
Up
tow
n’s
Pri
ce S
trat
egy
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Company A High Ads $100,000 – 20,000 = $80,000 Low Ads $50,000 – 10,000 = $40,000
Company B Low Ads $50,000 – 10,000 = $40,000 High Ads $100,000 – 20,000 = $80,000
Company A Low Ads $75,000 – 10,000 = $65,000 High Ads $75,000 – 20,000 = $55,000
Company B Low Ads $75,000 – 10,000 = $65,000 High Ads $75,000 – 20,000 = $55,000
Ads Effect Sales (Q) and P x Q = TR so Ads effect Total Revenue!Low Cost Ads: 120 :30 second Ads/week for $10,000High Cost Ads: 240 :30 second Ads/week for $20,000
Pay Off Matrix Oligopoly – Reasons for Collusion
TR - TC = TP TR - TC = TP
If either duopolist begins running High Ads, its competitor willcounter with High Ads!Games Theory and Collusion’s answer is an agreement by “both”to keep advertising low in order to maximize profits!Would their be incentive to Cheat?
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No Standard Model due to...No Standard Model due to...
Three Oligopoly ModelsThree Oligopoly Models
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No Standard Model due to...No Standard Model due to...
DiversityDiversity
Three Oligopoly ModelsThree Oligopoly Models
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No Standard Model due to...No Standard Model due to...
DiversityDiversityInterdependenceInterdependence
Three Oligopoly ModelsThree Oligopoly Models
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No Standard Model due to...No Standard Model due to...
DiversityDiversityInterdependenceInterdependence
1 - Kinked Demand Curve1 - Kinked Demand Curve
Three Oligopoly ModelsThree Oligopoly Models
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No Standard Model due to...No Standard Model due to...
DiversityDiversityInterdependenceInterdependence
1 - Kinked Demand Curve1 - Kinked Demand Curve2 - Collusive Pricing2 - Collusive Pricing
Three Oligopoly ModelsThree Oligopoly Models
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No Standard Model due to...No Standard Model due to...
DiversityDiversityInterdependenceInterdependence
1 - Kinked Demand Curve1 - Kinked Demand Curve2 - Collusive Pricing2 - Collusive Pricing3 - Price Leadership3 - Price Leadership
Three Oligopoly ModelsThree Oligopoly Models
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Kinked Demand: Noncollusive OligopolyKinked Demand: Noncollusive OligopolyPP
QQDD11
MRMR11QuantityQuantity
The firm’s demandThe firm’s demandand marginaland marginal
revenue curvesrevenue curveswhen rivals followwhen rivals followpricing patterns.pricing patterns.
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PP
QQDD11
MRMR22
DD22
MRMR11QuantityQuantity
The firms demandThe firms demandand marginaland marginal
revenue curves when revenue curves when rivals don’t followrivals don’t followpricing patterns.pricing patterns.
Kinked Demand: Noncollusive OligopolyKinked Demand: Noncollusive Oligopoly
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PP
MRMR22DD11
DD22
MRMR11QuantityQuantity
Rivals tend toRivals tend tofollow a price cutfollow a price cut
Kinked Demand: Noncollusive OligopolyKinked Demand: Noncollusive Oligopoly
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PP
MRMR22DD11
DD22
MRMR11QuantityQuantity
Rivals tend toRivals tend tofollow a price cutfollow a price cut
or ignore aor ignore aprice increaseprice increase
Kinked Demand: Noncollusive OligopolyKinked Demand: Noncollusive Oligopoly
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PP
MRMR22DD11
DD22
MRMR11QuantityQuantity
Effectively creatingEffectively creatinga kinked demand curvea kinked demand curve
Kinked Demand: Noncollusive OligopolyKinked Demand: Noncollusive Oligopoly
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PP
MRMR22
DD11
DD22
MRMR11QuantityQuantity
Effectively creatingEffectively creatinga kinked demand curvea kinked demand curve
Kinked Demand: Noncollusive OligopolyKinked Demand: Noncollusive Oligopoly
MCMC22
MCMC11
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Cartels and CollusionCartels and Collusion
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Oligopoly is conducive to collusionOligopoly is conducive to collusion
Cartels and CollusionCartels and Collusion
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If a few firms face identical orIf a few firms face identical orhighly similar demand and costs...highly similar demand and costs...
Oligopoly is conducive to collusionOligopoly is conducive to collusion
Cartels and CollusionCartels and Collusion
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If a few firms face identical orIf a few firms face identical orhighly similar demand and costs...highly similar demand and costs...
Oligopoly is conducive to collusionOligopoly is conducive to collusion
They will seek joint profitThey will seek joint profitmaximization...maximization...
Cartels and CollusionCartels and Collusion
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DD
Colluding Oligopolists WillColluding Oligopolists WillSplit the Monopoly Profits Split the Monopoly Profits
MCMC
ATCATC
MRMR
PP
EconomicEconomicProfitProfit
Pric
eP
rice
QuantitQuantityy
MR = MCMR = MC
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Overt CollusionOvert CollusionCartels and CollusionCartels and Collusion
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Overt CollusionOvert CollusionOPEC CartelOPEC Cartel
Cartels and CollusionCartels and Collusion
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Overt CollusionOvert CollusionOPEC CartelOPEC Cartel
Covert CollusionCovert Collusion
Cartels and CollusionCartels and Collusion
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Obstacles to CollusionObstacles to Collusion
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Obstacles to CollusionObstacles to Collusion
Demand & Cost DifferencesDemand & Cost Differences
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Obstacles to CollusionObstacles to Collusion
Demand & Cost DifferencesDemand & Cost DifferencesNumber of FirmsNumber of Firms
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Obstacles to CollusionObstacles to Collusion
Demand & Cost DifferencesDemand & Cost DifferencesNumber of FirmsNumber of FirmsCheatingCheating
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Obstacles to CollusionObstacles to Collusion
Demand & Cost DifferencesDemand & Cost DifferencesNumber of FirmsNumber of FirmsCheatingCheatingRecessionRecession
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Obstacles to CollusionObstacles to Collusion
Demand & Cost DifferencesDemand & Cost DifferencesNumber of FirmsNumber of FirmsCheatingCheatingRecessionRecessionPotential EntryPotential Entry
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Obstacles to CollusionObstacles to Collusion
Demand & Cost DifferencesDemand & Cost DifferencesNumber of FirmsNumber of FirmsCheatingCheatingRecessionRecessionPotential EntryPotential EntryLegal Obstacles: AntitrustLegal Obstacles: Antitrust
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Price LeadershipPrice Leadership
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Price LeadershipPrice LeadershipLeadership TacticsLeadership Tactics
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Price LeadershipPrice LeadershipLeadership TacticsLeadership Tactics
Infrequent ChangesInfrequent Changes
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Price LeadershipPrice LeadershipLeadership TacticsLeadership Tactics
Infrequent ChangesInfrequent Changes
CommunicationCommunication
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Price LeadershipPrice LeadershipLeadership TacticsLeadership Tactics
Infrequent ChangesInfrequent ChangesCommunicationCommunicationLimit Pricing - Limit Pricing - sometimessometimessmaller companies will wage price smaller companies will wage price wars to knock the leader down.wars to knock the leader down.
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Oligopoly & AdvertisingOligopoly & Advertising
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Advertising Effects on Output & Average CostsAdvertising Effects on Output & Average Costs
Un
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ost
sU
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Co
sts
ATCATCwithoutwithout
advertisingadvertising
Copyright McGraw-Hill, Inc., 1999
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Un
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ATCATCwithoutwithout
advertisingadvertising
ATCATCwithwith
advertisingadvertising
Copyright McGraw-Hill, Inc., 1999
Advertising Effects on Output & Average CostsAdvertising Effects on Output & Average Costs
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Un
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ATCATCwithoutwithout
advertisingadvertising
ATCATCwithwith
advertisingadvertising
Advertising CostsAdvertising Costs
Copyright McGraw-Hill, Inc., 1999
Advertising Effects on Output & Average CostsAdvertising Effects on Output & Average Costs
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Oligopoly and Economic EfficiencyOligopoly and Economic Efficiency
Allocative EfficiencyAllocative Efficiency(Price = MC)(Price = MC)
Recall...Recall...
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Oligopoly and Economic EfficiencyOligopoly and Economic Efficiency
Allocative EfficiencyAllocative Efficiency(Price = MC)(Price = MC)
Productive EfficiencyProductive Efficiency(Price = Minimum ATC)(Price = Minimum ATC)
Recall...Recall...
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Oligopoly and Economic EfficiencyOligopoly and Economic Efficiency
Allocative EfficiencyAllocative Efficiency(Price = MC)(Price = MC)
Productive EfficiencyProductive Efficiency(Price = Minimum ATC)(Price = Minimum ATC)
Recall...Recall...
Neither is likely in anNeither is likely in anoligopoly market structureoligopoly market structure
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Features of an Oligopolistic Markets:
1. Few sellers (Less than seven), Duopoly - two main sellers + the fringe firms
2. Unique Products but similar products Coke v Pepsi, Chevy v Ford3. Large barrier to entry or exit4. A large measure of market power exists5. Price is greater than MR, Separate DARP and MR curves6. Non price competition and advertising exist
Procter & Gamble: $3,277,000,000 in Ads 19997. Profits maximized at the Quantity and Price where MC = MR8. Excess or Economic Profits possible in the Long Run (P>ATC)9. Interdependence, Collusion, Spies, Pay off Matrix Price and Innovative Leaders exist, Gamesmanship “A Beautiful Mind”10. Firms should shut down when P < AVC11. Excess capacity exists in terms of potential output 12. Demand is relatively inelastic 13. Theory of the Kinked Demand Curve and Price Stickiness results from collusion and gamesmanship14. Example market - Automobiles, Soda, Beer, Steel, Tobacco Products may be differentiated (Toyota v Ford) or homogeneous (Steel)
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Un
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ATCATCwithoutwithout
advertisingadvertising
ATCATCwithwith
advertisingadvertising
Advertising CostsAdvertising Costs
Copyright McGraw-Hill, Inc., 1999
Advertising Effects on Output & Average CostsAdvertising Effects on Output & Average Costs
QuestionsQuestionsandand
Discussion...Discussion...
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monopolistic monopolistic competitioncompetition
product product differentiationdifferentiation
nonprice competitionnonprice competition excess capacityexcess capacity oligopolyoligopoly homogeneous homogeneous
oligopolyoligopoly differentiated differentiated
oligopolyoligopoly mutual mutual
interdependenceinterdependence concentration ratioconcentration ratio
interindustry interindustry competitioncompetition
import competitionimport competition Herfindahl indexHerfindahl index game theory modelgame theory model collusioncollusion kinked demand kinked demand
curvecurve price warprice war cartelcartel tacit understandingstacit understandings price leadershipprice leadership
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Next...Next...
Chapter 26Chapter 26
Technology, Technology, R&D, R&D, and and EfficiencyEfficiency