Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace...
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Transcript of Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace...
![Page 1: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/1.jpg)
Monopolistic Competition and
Oligopoly
These slides supplement the textbook, but should not replace reading the textbook
![Page 2: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/2.jpg)
2
A market structure between pure competition and monopoly
What isimperfect competition?
![Page 3: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/3.jpg)
3
What is monopolistic competition?
A market structure in which a large number of firms sell close substitutes which are different enough that each firm’s demand curve slopes downward
![Page 4: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/4.jpg)
4
How can firms differentiate under
monopolistic competition?
Physical differencesLocationServicesProduct image
![Page 5: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/5.jpg)
5
Restaurants Clothing stores Grocery stores Jewelry stores
What are examples of monopolistic competition?
![Page 6: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/6.jpg)
6
Where are profits maximized or minimized ?
MR = MC
![Page 7: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/7.jpg)
7
Dol
lars
per
un
it
p
Quantity per period
The Firm Monopolistic Competition in the Short Run
MC
0Exhibit 1 (a)
MR
ATC
c Profit
q
D = AR
b
ce
![Page 8: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/8.jpg)
8
Dol
lars
per
un
it
p
Quantity per period
The Firm Monopolistic Competition in the Short Run
MC
0Exhibit 1 (b)
MRq
ATCLoss
D=AR
AVC
c cb
![Page 9: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/9.jpg)
9
Yes!Positive or negative
economic profit can be made in the short run
In monopolistic competition, can
economic profit be made in the short run?
![Page 10: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/10.jpg)
10
What is long-run profit in monopolistic
competition?
Zero
![Page 11: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/11.jpg)
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Why is economic profit zero over the long-run?Because if economic profits are being made more firms will enter into the industry; if losses are being made more firms will leave the industry
![Page 12: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/12.jpg)
12
Dol
lars
per
un
it
p
Quantity per period
Long Run Equilibrium in Monopolistic Competition
MC
0Exhibit 2
MR
ATC
q
D = AR
b
a
![Page 13: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/13.jpg)
13
How does monopolistic
competition compare with perfect
competition?They both make a normal profit over the long-run
![Page 14: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/14.jpg)
14
Dol
lars
per
un
it
p
Quantity per period
Perfect Competition
MC
0Exhibit 3 (a)
ATC
q
d = AR
![Page 15: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/15.jpg)
15
What is an oligopoly?
A market structure characterized by a small number of firms whose behavior is interdependent
![Page 16: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/16.jpg)
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AutomobilesSteelSoupCereals
What are examples of oligopoly?
![Page 17: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/17.jpg)
17
What is a possible explanation for the
formation of oligopolies?
Barriers to entry, such as economies of scale or a high cost of entry
![Page 18: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/18.jpg)
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Dol
lars
per
un
it
ca
Autos per year
Economies of Scale as Barriers to Entry
0Exhibit 4
S
a
cb
b
M
![Page 19: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/19.jpg)
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What is a collusion?An agreement among firms to divide the market or to fix the market price to maximize economic profit
![Page 20: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/20.jpg)
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Cooperation involving direct communication between competing firms about setting prices
What is explicit collusion?
![Page 21: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/21.jpg)
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Cooperation involving indirect communication between competing firms about setting prices
What is implicit collusion?
![Page 22: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/22.jpg)
22
What is a cartel?A group of firms that agree to coordinate their production and pricing decisions, thereby behaving as a monopolist
![Page 23: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/23.jpg)
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Organization of Petroleum Exporting Countries (OPEC)
International Electrical Association (IEA)
What are two examples of cartels?
![Page 24: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/24.jpg)
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Dol
lars
per
un
it
P
Quantity per period
Cartel Model Where Firms Act as a Monopolist
MC
0Exhibit 5
MRQ
D = AR
![Page 25: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/25.jpg)
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What are the problems of stability?
Differences in costsNumber of firmsNew entryCheating
![Page 26: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/26.jpg)
26
Interdependence - No firm will not take an action unless it considers the reaction from the other firms
What distinguishes oligopoly?
![Page 27: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/27.jpg)
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B and C will not raise their price
Imagine 3 identical firms in an industry – A, B, C. What happens if A raises price?
![Page 28: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/28.jpg)
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B and C will lower their price
Imagine 3 identical firms in an industry – A, B, C. What happens if A lowers price?
![Page 29: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/29.jpg)
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What is a price leader?A firm whose price is adopted by the rest of the industry
![Page 30: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/30.jpg)
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barometric-firmdominant firmmost innovative
Who is the price leader?
![Page 31: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/31.jpg)
31
What iscost-plus pricing?
A method of determining the price of a good by adding a percentage markup to average variable cost
![Page 32: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/32.jpg)
32
What is game theory?A model that analyzes oligopolistic behavior as a series of strategic moves and countermoves by rival firms
![Page 33: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/33.jpg)
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What is a duopoly?A market with only two producers, who compete with each other; a type of oligopoly market structure
![Page 34: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/34.jpg)
34
What is strategy?In game theory, the operational plan pursued by a player
![Page 35: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/35.jpg)
35
What is apayoff matrix?
In game theory, a table listing the payoffs that each player can expect based on the strategy that each player pursues
![Page 36: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/36.jpg)
36
What is a kinked demand curve?A demand curve that illustrates price stickiness; if one firm cuts prices, others will cut theirs, but if the firm raises prices, others will not change theirs
![Page 37: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/37.jpg)
37
Pri
ce p
er u
nit
P
Quantity per period
The Kinked Demand Model of Oligopoly
0Exhibit 7
Q
DD'
more elastic
more inelastic
![Page 38: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/38.jpg)
38
Pri
ce p
er u
nit
P
Quantity per period
D and MR Curves for the Kinked Demand Model
0Exhibit 8
Q
D1
D2MR1
MR2
![Page 39: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/39.jpg)
39
How does price under an oligopoly compare to price under perfect
competition?Price is usually higher under an oligopoly
![Page 40: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/40.jpg)
40
How do profits under an oligopoly compare to profits under perfect
competition?Profits are higher under an oligopoly
![Page 41: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/41.jpg)
41
What is a horizontal merger?
A merger in which one firm combines with another firm that produces the same product
![Page 42: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/42.jpg)
42
What is avertical merger?
A merger in which one firm combines with another from which it purchases inputs or to which it sells output
![Page 43: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/43.jpg)
43
What is a conglomerate merger?
A merger involving the combination of firms producing in different industries
![Page 44: Monopolistic Competition and Oligopoly These slides supplement the textbook, but should not replace reading the textbook.](https://reader036.fdocuments.in/reader036/viewer/2022062804/56649d155503460f949ea614/html5/thumbnails/44.jpg)
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