Kinh tế học - Market structures

MarketStructuresThe Degree of CompetitionClassifying marketsnumber of firmsfreedom of entry to industrynature of productnature of demand curveThe four market structuresperfect competitionmonopolymonopolistic competitionoligopolyFeatures of the four market structuresFeatures of the four market structuresFeatures of the four market structuresFeatures of the four market structuresFeatures of the four market structuresFeatures of the four market structuresThe Degree of CompetitionClassifying marketsnumber of firmsfreedom of entry to industrynature of productnature of demand curveThe four market structuresperfect competitionmonopolymonopolistic competitionoligopolyStructure  conduct  performancePerfect CompetitionAssumptionsfirms are price takersfreedom of entryidentical productsperfect knowledgeShort-run equilibrium of the firmprice, output and profitO£(b) FirmQ (thousands)O(a) IndustryPQ (millions)SDPeMCARD = AR= MRQeACACShort-run equilibrium of industry and firm under perfect competitionQeP1D1 = AR1= MR1AR1OO(a) IndustryP£Q (millions)SD(b) FirmMCACACQ (thousands)Loss minimising under perfect competitionPerfect CompetitionAssumptionsfirms are price takersfreedom of entryidentical productsperfect knowledgeShort-run equilibrium of the firmprice, output and profitThe short-run supply curve of the firmPerfect CompetitionLong-run equilibrium of the firmall supernormal profits competed awayLRAC = AC = MC = MR = AROO(a) IndustryP£Q (millions)S1D(b) FirmLRACPLP1QLSeAR1D1ARLDLQ (thousands)Long-run equilibrium under perfect competitionNew firms enterSupernormal profitsProfits returnto normal£ Q O(SR)AC (SR)MC LRAC AR = MRDLLRAC = (SR)AC = (SR)MC = MR = ARLong-run equilibrium of the firm under perfect competitionPerfect CompetitionIncompatibility of economies of scale with perfect competitionBenefits of perfect competitionprice equals marginal costprices kept lowfirms must be efficient to surviveMonopolyDefining monopolyBarriers to entryeconomies of scaleeconomies of scopeproduct differentiation and brand loyaltylower costs for an established firmownership/control of key factorsownership/control over outletslegal protectionmergers and takeoversaggressive tacticsintimidationMonopolyThe monopolist’s demand curvedownward slopingMR below AREquilibrium price and outputEquilibrium output, where MC = MRProfit maximising under monopolyMR£ Q OMC QmMonopolyThe monopolist’s demand curvedownward slopingMR below AREquilibrium price and outputEquilibrium output, where MC = MREquilibrium price, found from demand curve£ Q OMC ACQmMRAR AC Profit maximising under monopolyARMonopolyThe monopolist’s demand curvedownward slopingMR below AREquilibrium price and outputEquilibrium output, where MC = MREquilibrium price, found from demand curveProfitMeasuring profit£ Q OMC ACQmMRAR AC Profit maximising under monopolyARTotal profitMonopolyThe monopolist’s demand curvedownward slopingMR below AREquilibrium price and outputEquilibrium output, where MC = MREquilibrium price, found from demand curveProfitMeasuring profitSupernormal profit can persist in long runMonopolyDisadvantages of monopolyhigh prices / low output: short runAR = DMC MR£ Q OQ1P1MonopolyEquilibrium of industry under perfect competition and monopoly: with the same MC curve£ Q OMC ( = supply under perfect competition)Q1MRP1P2Q2AR = DComparison withPerfect competitionEquilibrium of industry under perfect competition and monopoly: with the same MC curveMonopolyDisadvantages of monopolyhigh prices / low output: short runhigh prices / low output: long runMonopolyDisadvantages of monopolyhigh prices / low output: short runhigh prices / low output: long runlack of incentive to innovateMonopolyDisadvantages of monopolyhigh prices / low output: short runhigh prices / low output: long runlack of incentive to innovateinefficiencyMonopolyDisadvantages of monopolyhigh prices / low output: short runhigh prices / low output: long runlack of incentive to innovateinefficiencyAdvantages of monopolyMonopolyDisadvantages of monopolyhigh prices / low output: short runhigh prices / low output: long runlack of incentive to innovateinefficiencyAdvantages of monopolyeconomies of scaleMonopolyDisadvantages of monopolyhigh prices / low output: short runhigh prices / low output: long runlack of incentive to innovateinefficiencyAdvantages of monopolyeconomies of scaleprofits can be used for investmentMonopolyDisadvantages of monopolyhigh prices / low output: short runhigh prices / low output: long runlack of incentive to innovateinefficiencyAdvantages of monopolyeconomies of scaleprofits can be used for investmenthigh profits encourage risk takingMonopolistic CompetitionAssumptions of monopolistic competitionEquilibrium of the firmshort run£ Q OQsAR = DMCACMRShort-run equilibrium of the firmunder monopolistic competitionPsACsMonopolistic CompetitionAssumptions of monopolistic competitionEquilibrium of the firmshort runlong runLong-run equilibrium of the firmunder monopolistic competitionARL = DLMRL£ Q OQLPLLRACLRMCMonopolistic CompetitionAssumptions of monopolistic competitionEquilibrium of the firmshort runlong rununderutilisation of capacity in the long runQ2P2DL under perfectcompetitionLong run equilibrium of the firm under perfect andmonopolistic competition£QOP1LRACDL under monopolistic competitionQ1Monopolistic CompetitionAssumptions of monopolistic competitionEquilibrium of the firmshort runlong rununderutilisation of capacity in the long runNon-price competitionMonopolistic CompetitionAssumptions of monopolistic competitionEquilibrium of the firmshort runlong rununderutilisation of capacity in the long runNon-price competitionThe public interestMonopolistic CompetitionAssumptions of monopolistic competitionEquilibrium of the firmshort runlong rununderutilisation of capacity in the long runNon-price competitionThe public interestcomparison with perfect competitionMonopolistic CompetitionAssumptions of monopolistic competitionEquilibrium of the firmshort runlong rununderutilisation of capacity in the long runNon-price competitionThe public interestcomparison with perfect competitioncomparison with monopolyOligopolyKey features of oligopolybarriers to entryinterdependence of firmsCompetition versus collusionCollusive oligopoly: cartelsequilibrium of the industry£ Q OIndustry D = ARProfit-maximising cartelProfit-maximising cartel£ Q OIndustry D = ARIndustry MCIndustry MRQ1P1OligopolyKey features of oligopolybarriers to entryinterdependence of firmsCompetition versus collusionCollusive oligopoly: cartelsequilibrium of the industryallocating and enforcing quotasYom KippurWar: Arab oilembargoFirst oil fromNorth SeaRevolutionin IranIraq invadesIranOPEC’s firstquotasCease-fire inIran-Iraq warRecessionin Far EastIraq invadesKuwaitNew OPECquotasWorld-widerecoveryWorld-wideslowdownImpendingwarwith IraqOil pricesYom KippurWar: Arab oilembargoFirst oil fromNorth SeaRevolutionin IranIraq invadesIranOPEC’s firstquotasCease-fire inIran-Iraq warRecessionin Far EastIraq invadesKuwaitNew OPECquotasWorld-widerecoveryWorld-wideslowdownImpendingwarwith IraqOil pricesOligopolyTacit collusionprice leadership: dominant firm£ Q OMR leaderAR = D leaderAR = D market Price leader aiming to maximise profits for a given market shareAssume constantmarket sharefor leader£ Q OAR = D market MCMR leaderPLQTAR = D leaderQLltPrice leader aiming to maximise profits for a given market shareOligopolyTacit collusionprice leadership: dominant firmprice leadership: barometricOligopolyTacit collusionprice leadership: dominant firmprice leadership: barometricrules of thumbOligopolyFactors favouring collusionFew firmsOpen with each otherSimilar production methods and average costsSimilar productsDominant firmSignificant entry barriersStable marketNo government measures to curb collusionOligopolyThe breakdown of collusionNon-collusive oligopoly: game theoryalternative strategiesmaximax and maximinsimple dominant strategy gamesOligopolyThe breakdown of collusionNon-collusive oligopoly: game theoryalternative strategiesmaximax and maximinsimple dominant strategy gamesNash equilibriumOligopolyThe breakdown of collusionNon-collusive oligopoly: game theoryalternative strategiesmaximax and maximinsimple dominant strategy gamesNash equilibriumthe prisoners’ dilemmaOligopolyThe breakdown of collusionNon-collusive oligopoly: game theoryalternative strategiesmaximax and maximinsimple dominant strategy gamesthe prisoners’ dilemmaNash equilibriummore complex non-dominant strategy gamesOligopolyThe breakdown of collusionNon-collusive oligopoly: game theoryalternative strategiesmaximax and maximinsimple dominant strategy gamesthe prisoners’ dilemmaNash equilibriummore complex non-dominant strategy gamesthe importance of threats and promisesOligopolyThe breakdown of collusionNon-collusive oligopoly: game theoryalternative strategiesmaximax and maximinsimple dominant strategy gamesthe prisoners’ dilemmaNash equilibriummore complex non-dominant strategy gamesthe importance of threats and promisesthe importance of timing of decisionsOligopolyThe breakdown of collusionNon-collusive oligopoly: game theoryalternative strategiesmaximax and maximinsimple dominant strategy gamesthe prisoners’ dilemmaNash equilibriummore complex non-dominant strategy gamesthe importance of threats and promisesthe importance of timing of decisionsdecision treesBoeingdecides500 seater500 seater500 seater400 seater400 seater400 seaterA decision treeBoeing –£10mAirbus –£10m(1)Boeing +£30mAirbus +£50m(2)Boeing +£50mAirbus +£30m(3)Boeing –£10mAirbus –£10m(4)AirbusdecidesB2AirbusdecidesB1AOligopolyNon-collusive oligopoly: the kinked demand curve theoryassumptions of the modelKinked demand for a firm under oligopoly£QOP1Q1Current priceand quantitygive one pointon demand curve£QOP1Q1D D Kinked demand for a firm under oligopolyOligopolyNon-collusive oligopoly: the kinked demand curve theoryassumptions of the modelstable prices£QOP1Q1MC2MC1MRabD = ARStable price under conditions of a kinked demand curveOligopolyNon-collusive oligopoly: the kinked demand curve theoryassumptions of the modelstable priceslimitations of the modelOligopolyNon-collusive oligopoly: the kinked demand curve theoryassumptions of the modelstable priceslimitations of the modelOligopoly and the public interestOligopolyNon-collusive oligopoly: the kinked demand curve theoryassumptions of the modelstable priceslimitations of the modelOligopoly and the public interestadvantagesOligopolyNon-collusive oligopoly: the kinked demand curve theoryassumptions of the modelstable priceslimitations of the modelOligopoly and the public interestadvantagesdisadvantagesOligopolyNon-collusive oligopoly: the kinked demand curve theoryassumptions of the modelstable priceslimitations of the modelOligopoly and the public interestadvantagesdisadvantagesdifficulties in drawing general conclusions akpe na mi!