7137223 market structures
DESCRIPTION
Market StructuresTRANSCRIPT
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Market
Structures
Market
Structures
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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
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Features of the four market structuresFeatures of the four market structures
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Features of the four market structuresFeatures of the four market structures
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Features of the four market structuresFeatures of the four market structures
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Features of the four market structuresFeatures of the four market structures
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Features of the four market structuresFeatures of the four market structures
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Features of the four market structuresFeatures of the four market structures
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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
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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
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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
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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
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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
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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
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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
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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
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£
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
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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
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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
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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
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Profit maximising under monopolyProfit maximising under monopoly
MR
£
Q O
MC
Qm
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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
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£
Q O
MC
AC
Qm
MR
AR
AC
Profit maximising under monopolyProfit maximising under monopoly
AR
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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
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£
Q O
MC
AC
Qm
MR
AR
AC
Profit maximising under monopolyProfit maximising under monopoly
AR
Total profit
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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
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MonopolyMonopoly
• Disadvantages of monopoly– high prices / low output: short run
• Disadvantages of monopoly– high prices / low output: short run
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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
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£
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
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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
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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
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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
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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
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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
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£
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
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£
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
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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
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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
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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
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Monopolistic CompetitionMonopolistic Competition
• Assumptions of monopolistic competition
• Equilibrium of the firm
– short run
• Assumptions of monopolistic competition
• Equilibrium of the firm
– short run
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£
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
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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
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Long-run equilibrium of the firmunder monopolistic competitionLong-run equilibrium of the firmunder monopolistic competition
ARL DL
MRL
£
Q O QL
PL
LRAC
LRMC
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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
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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
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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
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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
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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
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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
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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
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£
Q O
Industry D AR
Profit-maximising cartelProfit-maximising cartel
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Profit-maximising cartelProfit-maximising cartel£
Q O
Industry D AR
Industry MC
Industry MR
Q1
P1
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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
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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
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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
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OligopolyOligopoly
• Tacit collusion
– price leadership: dominant firm
• Tacit collusion
– price leadership: dominant firm
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£
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
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£
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
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OligopolyOligopoly
• Tacit collusion
– price leadership: dominant firm
– price leadership: barometric
• Tacit collusion
– price leadership: dominant firm
– price leadership: barometric
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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Kinked demand for a firm under oligopolyKinked 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 oligopolyKinked demand for a firm under oligopoly
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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
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£
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
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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
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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
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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
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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
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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
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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)
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Third-degree price discriminationThird-degree price discrimination
P
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 discriminationThird-degree price discrimination
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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
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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
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Price DiscriminationPrice Discrimination
• Profit maximising prices and output under 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 discriminationProfit-maximising output under
third 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 discriminationProfit-maximising output under
third 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 discriminationProfit-maximising output under
third degree price discrimination
DY
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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
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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 discriminationProfit-maximising output under
third 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 discriminationProfit-maximising output under
third 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 discriminationProfit-maximising output under
third 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 discriminationProfit-maximising output under
third 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 discriminationProfit-maximising output under
third degree price discrimination
DY
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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
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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
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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