+ All Categories
Home > Documents > 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition...

9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition...

Date post: 18-Dec-2015
Category:
Upload: bertram-fletcher
View: 275 times
Download: 8 times
Share this document with a friend
Popular Tags:
24
9. Monopolistic 9. Monopolistic Competition Competition & Oligopoly & Oligopoly Monopolistic Competition Oligopoly
Transcript
Page 1: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

9. Monopolistic Competition9. Monopolistic Competition& Oligopoly& Oligopoly

9. Monopolistic Competition9. Monopolistic Competition& Oligopoly& Oligopoly

• Monopolistic Competition

• Oligopoly• Monopolistic Competition

• Oligopoly

Page 2: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

Measuring market dominanceMeasuring market dominanceMeasuring market dominanceMeasuring market dominance

• 4-firm conentration ratio• % sales from 4 largest firms• > 40% then oligopoly• < 40% then monopolistic comp.

• 4-firm conentration ratio• % sales from 4 largest firms• > 40% then oligopoly• < 40% then monopolistic comp.

Page 3: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

Herfindahl-Hirschman Index (HHI)Herfindahl-Hirschman Index (HHI)Herfindahl-Hirschman Index (HHI)Herfindahl-Hirschman Index (HHI)

• largest 50 firms

• sum square of % market share

• used by Justice Department

• if monopoly

= (100)2 = 10,000

• largest 50 firms

• sum square of % market share

• used by Justice Department

• if monopoly

= (100)2 = 10,000

Page 4: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

HHI (cont.)HHI (cont.)HHI (cont.)HHI (cont.)

• if < 1000• market is competitive

• if > 1800• market is uncompetitive

• if < 1000• market is competitive

• if > 1800• market is uncompetitive

Page 5: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.
Page 6: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

OligopolyOligopolyOligopolyOligopoly

• small number of firms

• interdependent behavior

• barriers to entry

• small number of firms

• interdependent behavior

• barriers to entry

Page 7: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

examplesexamplesexamplesexamples

• Airlines

• Automobiles

• Cereal

• Soft Drinks

• Airlines

• Automobiles

• Cereal

• Soft Drinks

Page 8: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

what types of barriers?what types of barriers?what types of barriers?what types of barriers?

• economies of scale• auto industry

• legal restrictions

• brand recognition• cereal, soft drinks

• control over essential resource

• economies of scale• auto industry

• legal restrictions

• brand recognition• cereal, soft drinks

• control over essential resource

Page 9: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

Firm behaviorFirm behaviorFirm behaviorFirm behavior

• no one model of behavior

• set of possible behaviors• no one model of behavior

• set of possible behaviors

Page 10: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

CartelCartelCartelCartel

• firms collude to act like a single monopolist• restrict output, charge higher price• block entry

• firms collude to act like a single monopolist• restrict output, charge higher price• block entry

Page 11: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

Price leadershipPrice leadershipPrice leadershipPrice leadership

• informal collusion

• dominant firm sets price• other firms follow to avoid a price

war• steel, airline, auto industries

• informal collusion

• dominant firm sets price• other firms follow to avoid a price

war• steel, airline, auto industries

Page 12: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

• cartels are tough to maintain• each firm has output quota• each firm tempted to cheat• tough to block new entry

• cartels are tough to maintain• each firm has output quota• each firm tempted to cheat• tough to block new entry

Page 13: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

Collusion and CartelsCollusion and CartelsCollusion and CartelsCollusion and Cartels

• firms may collude• divide market• fix prices• illegal in U.S.

• examples• OPEC• ADM & others

• firms may collude• divide market• fix prices• illegal in U.S.

• examples• OPEC• ADM & others

Page 14: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

Monopolistic CompetitionMonopolistic CompetitionMonopolistic CompetitionMonopolistic Competition

• large # of firms

• product differentiation

• compete w/ quality, price, marketing

• no one firm dominates

• no collusion among firms

• free to enter/exit

• large # of firms

• product differentiation

• compete w/ quality, price, marketing

• no one firm dominates

• no collusion among firms

• free to enter/exit

Page 15: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

examplesexamplesexamplesexamples

• running shoes

• fast food franchises

• clothing

• cleaning supplies

• beauty products

• running shoes

• fast food franchises

• clothing

• cleaning supplies

• beauty products

Page 16: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

product differentiationproduct differentiationproduct differentiationproduct differentiation• physical differences• color, size, taste ...

• location• convenience, drug stores

• services• delivery

• image• high quality vs. value

• physical differences• color, size, taste ...

• location• convenience, drug stores

• services• delivery

• image• high quality vs. value

Page 17: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

Firm Behavior, short runFirm Behavior, short runFirm Behavior, short runFirm Behavior, short run

• Tommy Hilfiger Jeans

• demand curve downward sloping• less elastic than perfect

competition• more elastic than a monopolist

• choose price & output• like a monopolist

• Tommy Hilfiger Jeans

• demand curve downward sloping• less elastic than perfect

competition• more elastic than a monopolist

• choose price & output• like a monopolist

Page 18: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

P, cost

Q (jeans/day)

DMR

MC

150

$70

Page 19: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

P, cost

Q (jeans/day)

DMR

MC

150

$70 ATC

$20

economic profit($70-$20)(150)= $7500

Page 20: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

Long RunLong RunLong RunLong Run

• zero economic profit

• why?• economic profit leads to entry• economic loss leads to exit• no entry/exit with zero economic

profit

• zero economic profit

• why?• economic profit leads to entry• economic loss leads to exit• no entry/exit with zero economic

profit

Page 21: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

Excess capacityExcess capacityExcess capacityExcess capacity

• firms output is not at minimum of ATC• output too small• loss of economic welfare

• firms output is not at minimum of ATC• output too small• loss of economic welfare

Page 22: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

Advertising & marketingAdvertising & marketingAdvertising & marketingAdvertising & marketing

• firms in monopolistic competition spend more on this than perfect competition• cost curves are higher• is this a waste? Or• do consumer benefit from greater

selection?

• firms in monopolistic competition spend more on this than perfect competition• cost curves are higher• is this a waste? Or• do consumer benefit from greater

selection?

Page 23: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.
Page 24: 9. Monopolistic Competition & Oligopoly Monopolistic Competition Oligopoly Monopolistic Competition Oligopoly.

SummarySummarySummarySummary

• between perfect competition & monopoly

• monopolistic comp. chooses P & Q like a monopolistic

• oligopolist behavior interdependent

• importance of product differentiation

• importance of strategic behavior

• between perfect competition & monopoly

• monopolistic comp. chooses P & Q like a monopolistic

• oligopolist behavior interdependent

• importance of product differentiation

• importance of strategic behavior


Recommended