market models ppt

8/17/2019 Market Models PPT

1/14

Involves a very large number of rms producing astandardized product or identical products.

Characteristics:

1.Very large numbers

2. Standardized product

.! "rice ta#ers$

%. &ree entry and e'it


2/14

(emand by a purely competitive seller:

)he rm represented cannot obtain a higher

price by restricting its output * nor does itneed to lo+er its price to increase its sales

volume.

Slope of demand curve: ,orizontal

"roductive e-ciency

Is achieved because free entry and e'it force rms tooperate +here )C is at minimum. "roduct price is at thelo+est level consistent +ith minimum )C.

)he llocative e-ciency

/esults because production occurs up to that

output at +hich price e0uals marginal cost.

"rice and outputdetermination:

"erfectly elastic demand


3/14

'ists +hen a single rm is the sole producer of aproduct for +hich there are no close substitutes.

Characteristics:

1.Single seller

2. o close substitutes

. "rice 3a#er

%. 4loc#ed entry

5. on price competition


4/14

(emand by a monopolist:

demand is elastic* a decline in price +ill increase totalrevenue.

Slope of 3onopolist6s demand curve : (o+n+ard

"rice and 7utput

determination:

3onopolist has to lo+er the price and considerproducing goods in economies of scale 8volume ofproduction9 to increase revenue.

3onopolist produce +here 3arginal /evenue ispositive* it never produce at negative 3/.


5/14

3onopolist (emand curve is its mar#etdemand curve:

4ecause the pure monopolist is the

industry.

4arriers to entry:

1.conomies of scale

2. egal barriers to entry:"atents and /esearch

. 7+nership or control ofessential resources

%. "ricing and otherstrategic barriers to entry.


6/14

Marginal revenue is less than the price (AR)

;here pure monopolist can

increase sales only by charginglo+er price.

;hy is it that monopolist sets price in theelastic region of demand<

7utput and "rice determination:

3onopolist +ill produce up to the output at+hich 3/ e0ual 3C.

nother +ay is by comparing )/ and )C


7/14

3isconceptions concerning 3onopoly"ricing:1.ot highest price.

2. )otal* not unit prot

)he practice of selling a specic product at more

than one price +hen the price di=erences are not >ustied by cost di=erences.

"rice discrimination can ta#e three forms:

1.Charging each customer in a single mar#et the

ma'imum price she or he is +illing to pay.2. Charging each customer one price for the rst set

of unitspurchased and a lo+er price for subse0uent

units.. Charging some customers one price and other


8/14

Conditions to price discrimination:

1.3onopoly po+er

2. 3ar#et

segregation

.o resale


9/14

Characteristics:1. relatively large number of sellers

2. (i=erentiated products

. asy entry to* and e'it from

spects of product di=erentiation:

1. "roduct attributes2. Service. ocation%. 4rand names and

pac#aging


10/14

(emand curve is highly * but notperfectly elastic.

(C is not perfectly elastic because of t+o

reasons:1.3onopolistic competitor has fe+er

rivals.

2. "roducts are di=erentiated* so theyare not perfect substitutes.


11/14

)he Short /un: "rot or oss

3onopolistic competitors produce the level ofoutput at +hich marginal revenue equals marginal cost(MR=MC) .

Earn economic proftong /un:

&irms can only earn normal prot or

brea# even prot


12/14S

3ar#et dominated by a fe+ largeproducers of a homogenous ordi=erentiated product.Characteristics:

1.,omogenous or di=erentiatedproduct.

2. Control over price but mutualinterdependence

. ntry barriers

%. 3ergers


13/14S

he stud! o" ho# people $ehave in

strategic situations. %ligopolies aremutuall! interdependent in their pricingpolicies.

&la!ers (oligopolists) must pattern theiractions according to the actions ande'pected reactions o" rivals.

Cooperation +ith rivals. secretagreement among producers8oligopolists9 concerning controlover price and output


14/14S

)hree oligopoly models:

1.)he ?in#ed (emand

Curve

2.Collusive pricing

. "rice leadership

market models ppt

Documents