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Mono comp __oligopoly___game_theory
- 1. Superio 25 Monopolistic Competition r Characteristics Cheese CHAPTER Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency Oligopoly Oligopolies and Mergers Three Oligopoly Models Kinked-Demand Theory Cartels and Collusion Price Leadership Oligopoly and Efficiency Key Terms Monopolistic Previous Next Competition and Oligopoly Slide Slide End Show 25 - 1 Copyright McGraw-Hill/Irwin, 2002
- 2. FOUR MARKET MODELS Monopolistic Competition: Monopolistic Competition Characteristics Price and Output in Monopolistic Competition • Relatively Large Monopolistic Competition and Efficiency Oligopoly Number of Sellers Oligopolies and Mergers Three Oligopoly Models Kinked-Demand Theory Cartels and Collusion Price Leadership • Differentiated Products • Easy Entry and Exit Oligopoly and Efficiency Key Terms Pure Monopolistic Pure Competition Competition Oligopoly Monopoly Previous Next Slide Slide End Market Structure Continuum Show 25 - 2 Copyright McGraw-Hill/Irwin, 2002
- 3. CHARACTERISTICS Monopolistic Competition Characteristics Relatively Large Number Price and Output in Monopolistic Competition of Sellers Monopolistic Competition and Efficiency Oligopoly Oligopolies and Mergers Three Oligopoly Models Kinked-Demand Theory •Small Market Shares •No Collusion Cartels and Collusion Price Leadership Oligopoly and Efficiency Key Terms •Independent Action Previous Next Slide Slide End Show 25 - 3 Copyright McGraw-Hill/Irwin, 2002
- 4. CHARACTERISTICS Monopolistic Competition Characteristics Differentiated Products Price and Output in Monopolistic Competition • Product Attributes Monopolistic Competition and Efficiency Oligopoly Oligopolies and Mergers Three Oligopoly Models Kinked-Demand Theory • Service Cartels and Collusion Price Leadership • Location • Brand Names and Oligopoly and Efficiency Key Terms Packaging • Some Control Over Price Previous Next Slide End Slide Role of Advertising Show 25 - 4 Copyright McGraw-Hill/Irwin, 2002
- 5. PRICE AND OUTPUT IN Monopolistic Competition MONOPOLISTIC COMPETITION Expect New Competitors MC Characteristics Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency Oligopoly ATC Oligopolies and Mergers Three Oligopoly Models Price and Costs Kinked-Demand Theory Cartels and Collusion P1 Price Leadership Oligopoly and Efficiency A1 Key Terms Economic Profits D Previous Slide Next Slide MR End Show Q1 25 - 5 Quantity Copyright McGraw-Hill/Irwin, 2002
- 6. PRICE AND OUTPUT IN Monopolistic Competition MONOPOLISTIC COMPETITION Expect New Competitors MC Characteristics Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency Oligopoly ATC Oligopolies and Mergers Three Oligopoly Models New competition drives down the Price and Costs Kinked-Demand Theory Cartels and Collusion Price Leadership price level – leading to economic P 1 Oligopoly and Efficiency Key Terms A 1 losses in the short run Economic Profits D Previous Slide Next Slide MR End Show Q1 25 - 6 Quantity Copyright McGraw-Hill/Irwin, 2002
- 7. PRICE AND OUTPUT IN Monopolistic Competition MONOPOLISTIC COMPETITION Characteristics MC Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency Oligopoly ATC Oligopolies and Mergers Three Oligopoly Models A2 Price and Costs Kinked-Demand Theory P2 Cartels and Collusion Price Leadership Oligopoly and Efficiency Key Terms Economic Losses D Previous Slide Next Slide MR End Show Q2 25 - 7 Quantity Copyright McGraw-Hill/Irwin, 2002
- 8. PRICE AND OUTPUT IN Monopolistic Competition MONOPOLISTIC COMPETITION Characteristics MC Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency Oligopoly ATC Oligopolies and Mergers A With economic losses, firms will Three Oligopoly Models 2 Price and Costs Kinked-Demand Theory P 2 exit the market – Stability occurs Cartels and Collusion Price Leadership when economic profits are zero Economic Oligopoly and Efficiency Key Terms Losses D Previous Slide Next Slide MR End Show Q2 25 - 8 Quantity Copyright McGraw-Hill/Irwin, 2002
- 9. PRICE AND OUTPUT IN Monopolistic Competition MONOPOLISTIC COMPETITION Long-Run Equilibrium MC Characteristics Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency Normal Oligopoly Oligopolies and Mergers Profit ATC Three Oligopoly Models Only Price and Costs Kinked-Demand Theory P3 Cartels and Collusion Price Leadership = A3 Oligopoly and Efficiency Key Terms D Previous Slide Next Slide MR End Show Q3 25 - 9 Quantity Copyright McGraw-Hill/Irwin, 2002
- 10. MONOPOLISTIC COMPETITION Monopolistic Competition Characteristics AND EFFICIENCY • Not Productively Efficient Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency Oligopoly ≠ Minimum ATC Oligopolies and Mergers Three Oligopoly Models Kinked-Demand Theory Cartels and Collusion Price Leadership Oligopoly and Efficiency • Not Allocatively Efficient Key Terms Price ≠ MC Previous Slide Next Slide • Excess Capacity End Show 25 - 10 Graphically… Copyright McGraw-Hill/Irwin, 2002
- 11. MONOPOLISTIC COMPETITION Monopolistic Competition AND EFFICIENCY Characteristics Long-Run Equilibrium MC Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency Price is Not Oligopoly Oligopolies and Mergers = Minimum ATC Three Oligopoly Models ATC Price and Costs Kinked-Demand Theory P3 Cartels and Collusion Price Leadership = A3 Oligopoly and Efficiency Key Terms Price ≠ MC D Previous Slide Next Slide MR End Show Q3 25 - 11 Quantity Copyright McGraw-Hill/Irwin, 2002
- 12. MONOPOLISTIC COMPETITION Monopolistic Competition Characteristics AND EFFICIENCY Product Variety Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency Oligopoly Oligopolies and Mergers Three Oligopoly Models Kinked-Demand Theory • Benefits of Product Variety Cartels and Collusion Price Leadership Oligopoly and Efficiency • Nonprice Competition Key Terms • Advertising Role • Trial & Error Search for Previous Next Maximum Profits Slide Slide End Show 25 - 12 Copyright McGraw-Hill/Irwin, 2002
- 13. FOUR MARKET MODELS Oligopoly: Monopolistic Competition Characteristics • A Few Large Producers Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency • Homogeneous or Oligopoly Oligopolies and Mergers Three Oligopoly Models Kinked-Demand Theory Cartels and Collusion Differentiated Products Price Leadership Oligopoly and Efficiency • Control Over Price, But Key Terms Mutual Interdependence • Entry Barriers Pure Monopolistic Pure Previous Next Competition Competition Oligopoly Monopoly Slide Slide End Show 25 - 13 Market Structure Continuum Copyright McGraw-Hill/Irwin, 2002
- 14. OLIGOPOLIES AND MERGERS Mergers Monopolistic Competition Characteristics Price and Output in Monopolistic Competition Measures of Industry Monopolistic Competition and Efficiency Oligopoly Concentration Oligopolies and Mergers Three Oligopoly Models Kinked-Demand Theory Cartels and Collusion Price Leadership • Concentration Ratio Oligopoly and Efficiency Key Terms • Localized Markets • Interindustry Competition Previous Next • World Trade Slide End Slide •Import Competition Show 25 - 14 Copyright McGraw-Hill/Irwin, 2002
- 15. OLIGOPOLIES AND MERGERS Herfindahl Index Monopolistic Competition Characteristics Sum of the squared percentage Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency Oligopoly Oligopolies and Mergers market Three Oligopoly Models shares for all firms in the industry – Kinked-Demand Theory Cartels and Collusion Places greater weight upon the larger Price Leadership Oligopoly and Efficiency firms (%s1)2 + (%s2)2 + (%s3)2 + … + (%sn)2 Key Terms A greater Herfindahl Index indicates a greater concentration Previous Next of market power in the industry Slide Slide End (Pure competition is near zero) Show 25 - 15 Copyright McGraw-Hill/Irwin, 2002
- 16. OLIGOPOLIES AND MERGERS Monopolistic Competition Characteristics Mutual Interdependence Price and Output in Monopolistic Competition Game-Theory Model Monopolistic Competition and Efficiency Oligopoly Oligopolies and Mergers Three Oligopoly Models Kinked-Demand Theory Collusive Tendencies •Collusion Cartels and Collusion Price Leadership Oligopoly and Efficiency Incentive to Cheat Key Terms Introduction to Game Previous Slide End Next Slide Theory… Show 25 - 16 Copyright McGraw-Hill/Irwin, 2002
- 17. OLIGOPOLY BEHAVIOR A Game-Theory Overview Monopolistic Competition Characteristics Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency RareAir’s Price Strategy Oligopoly High Low Oligopolies and Mergers A B Three Oligopoly Models $12 $15 Uptown’s Price Strategy Kinked-Demand Theory Cartels and Collusion Price Leadership High Oligopoly and Efficiency Key Terms $12 $6 C $6 D $8 Previous Next Low Slide Slide $15 $8 End Show 25 - 17 Copyright McGraw-Hill/Irwin, 2002
- 18. OLIGOPOLY BEHAVIOR A Game-Theory Overview Monopolistic Competition Characteristics Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency RareAir’s Price Strategy Oligopoly High Low Oligopolies and Mergers A B Three Oligopoly Models $12 $15 Greatest Uptown’s Price Strategy Kinked-Demand Theory Cartels and Collusion Combined Price Leadership High Profit Oligopoly and Efficiency Key Terms $12 $6 C $6 D $8 Previous Next Low Slide Slide $15 $8 End Show 25 - 18 Copyright McGraw-Hill/Irwin, 2002
- 19. OLIGOPOLY BEHAVIOR A Game-Theory Overview Monopolistic Competition Characteristics Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency RareAir’s Price Strategy Oligopoly High Low Oligopolies and Mergers A B Three Oligopoly Models $12 $15 Uptown’s Price Strategy Kinked-Demand Theory Independent Cartels and Collusion Actions Price Leadership High Stimulate Oligopoly and Efficiency Key Terms $12 $6 Response C $6 D $8 Previous Next Low Slide Slide $15 $8 End Show 25 - 19 Copyright McGraw-Hill/Irwin, 2002
- 20. OLIGOPOLY BEHAVIOR A Game-Theory Overview Monopolistic Competition Characteristics Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency RareAir’s Price Strategy Oligopoly High Low Oligopolies and Mergers A B Three Oligopoly Models $12 $15 Uptown’s Price Strategy Kinked-Demand Theory Independent Cartels and Collusion Actions Price Leadership High Stimulate Oligopoly and Efficiency Key Terms $12 $6 Response Gravitating C $6 D $8 to the Low Worst Case Previous Next Slide Slide $15 $8 End Show 25 - 20 Copyright McGraw-Hill/Irwin, 2002
- 21. OLIGOPOLY BEHAVIOR A Game-Theory Overview Monopolistic Competition Characteristics Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency RareAir’s Price Strategy Oligopoly High Low Oligopolies and Mergers Collusion A B Three Oligopoly Models $12 $15 Uptown’s Price Strategy Kinked-Demand Theory Cartels and Collusion Invites a Price Leadership High Different Oligopoly and Efficiency $12 $6 Solution Key Terms C $6 D $8 Previous Next Low Slide Slide $15 $8 End Show 25 - 21 Copyright McGraw-Hill/Irwin, 2002
- 22. OLIGOPOLY BEHAVIOR A Game-Theory Overview Monopolistic Competition Characteristics Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency RareAir’s Price Strategy Oligopoly High Low Oligopolies and Mergers Collusion A B Three Oligopoly Models $12 $15 Uptown’s Price Strategy Kinked-Demand Theory Cartels and Collusion Invites a Price Leadership High Different Oligopoly and Efficiency $12 $6 Solution Key Terms C $6 D $8 Previous Next Low Slide Slide $15 $8 End Show 25 - 22 Copyright McGraw-Hill/Irwin, 2002
- 23. OLIGOPOLY BEHAVIOR A Game-Theory Overview Monopolistic Competition Characteristics Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency RareAir’s Price Strategy Oligopoly High Low Oligopolies and Mergers Collusion A B Three Oligopoly Models $12 $15 Uptown’s Price Strategy Kinked-Demand Theory Cartels and Collusion Invites a Price Leadership High Different Oligopoly and Efficiency $12 $6 Solution Key Terms But, the incentive C $6 D $8 to cheat Previous Next Low is very Slide Slide $15 $8 real End Show 25 - 23 Copyright McGraw-Hill/Irwin, 2002
- 24. THREE OLIGOPOLY MODELS Monopolistic Competition Characteristics No Standard Model due to... Diversity of Oligopolies Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency Oligopoly Oligopolies and Mergers Three Oligopoly Models Complications of Interdependence Kinked-Demand Theory Cartels and Collusion Price Leadership Alternative Models: Oligopoly and Efficiency Key Terms 1 - Kinked Demand Curve Previous Next 2 - Collusive Pricing 3 - Price Leadership Slide Slide End Show 25 - 24 Copyright McGraw-Hill/Irwin, 2002
- 25. KINKED DEMAND THEORY: Monopolistic Competition NONCOLLUSIVE OLIGOPOLY Characteristics Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency The firm’s demand and Oligopoly marginal revenue curves Oligopolies and Mergers Three Oligopoly Models Kinked-Demand Theory Cartels and Collusion Price Price Leadership Oligopoly and Efficiency Key Terms Previous Next Slide Slide D1 End Show 25 - 25 Quantity MR1 Copyright McGraw-Hill/Irwin, 2002
- 26. KINKED DEMAND THEORY: Monopolistic Competition NONCOLLUSIVE OLIGOPOLY Characteristics Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency The rival’s demand and Oligopoly marginal revenue curves Oligopolies and Mergers Three Oligopoly Models Kinked-Demand Theory Cartels and Collusion Price Price Leadership Oligopoly and Efficiency Key Terms D2 Previous Next MR2 Slide Slide D1 End Show 25 - 26 Quantity MR1 Copyright McGraw-Hill/Irwin, 2002
- 27. KINKED DEMAND THEORY: Monopolistic Competition NONCOLLUSIVE OLIGOPOLY Characteristics Price and Output in Monopolistic Competition Rivals tend to Monopolistic Competition and Efficiency Oligopoly follow a price cut Oligopolies and Mergers Three Oligopoly Models Kinked-Demand Theory Cartels and Collusion Price Price Leadership Oligopoly and Efficiency Key Terms D2 Previous Next MR2 Slide Slide D1 End Show 25 - 27 Quantity MR1 Copyright McGraw-Hill/Irwin, 2002
- 28. KINKED DEMAND THEORY: Monopolistic Competition NONCOLLUSIVE OLIGOPOLY Characteristics Price and Output in Monopolistic Competition Rivals tend to Monopolistic Competition and Efficiency Oligopoly follow a price cut Oligopolies and Mergers Three Oligopoly Models or ignore a Kinked-Demand Theory price increase Cartels and Collusion Price Price Leadership Oligopoly and Efficiency Key Terms D2 Previous Next MR2 Slide Slide D1 End Show 25 - 28 Quantity MR1 Copyright McGraw-Hill/Irwin, 2002
- 29. KINKED DEMAND THEORY: Monopolistic Competition NONCOLLUSIVE OLIGOPOLY Characteristics Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency Effectively creating Oligopoly a kinked demand curve Oligopolies and Mergers Three Oligopoly Models Kinked-Demand Theory Cartels and Collusion Price Price Leadership Oligopoly and Efficiency Key Terms D2 Previous Next MR2 Slide Slide D1 End Show 25 - 29 Quantity MR1 Copyright McGraw-Hill/Irwin, 2002
- 30. KINKED DEMAND THEORY: Monopolistic Competition NONCOLLUSIVE OLIGOPOLY Characteristics Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency Effectively creating Oligopoly a kinked demand curve Oligopolies and Mergers Three Oligopoly Models Kinked-Demand Theory Cartels and Collusion Price Price Leadership Oligopoly and Efficiency Key Terms Previous Next Slide Slide D End Show 25 - 30 Quantity Copyright McGraw-Hill/Irwin, 2002
- 31. KINKED DEMAND THEORY: Monopolistic Competition NONCOLLUSIVE OLIGOPOLY Characteristics Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency Effectively creating Oligopoly a kinked demand curve Oligopolies and Mergers Three Oligopoly Models Kinked-Demand Theory MC1 Cartels and Collusion Price Price Leadership Oligopoly and Efficiency Key Terms MC2 Previous Next Slide Slide D End Show 25 - 31 Quantity MR Copyright McGraw-Hill/Irwin, 2002
- 32. KINKED DEMAND THEORY: Monopolistic Competition NONCOLLUSIVE OLIGOPOLY Characteristics Profit maximization Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency Oligopoly MR = MC occurs Oligopolies and Mergers Three Oligopoly Models at the kink Kinked-Demand Theory MC1 Cartels and Collusion Price Price Leadership Oligopoly and Efficiency Key Terms MC2 Previous Next Slide Slide D End Show 25 - 32 Quantity MR Copyright McGraw-Hill/Irwin, 2002
- 33. KINKED DEMAND THEORY: Monopolistic Competition NONCOLLUSIVE OLIGOPOLY Characteristics Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency This behavior can set Oligopoly Oligopolies and Mergers off a price war Three Oligopoly Models Kinked-Demand Theory MC1 Cartels and Collusion Price Price Leadership Oligopoly and Efficiency Key Terms MC2 Previous Next Slide Slide D End Show 25 - 33 Quantity MR Copyright McGraw-Hill/Irwin, 2002
- 34. CARTELS AND OTHER COLLUSION Oligopoly is conducive to Monopolistic Competition Characteristics Price and Output in Monopolistic Competition collusion Monopolistic Competition and Efficiency Oligopoly Oligopolies and Mergers Three Oligopoly Models Kinked-Demand Theory If a few firms face identical or highly similar demand Cartels and Collusion Price Leadership Oligopoly and Efficiency Key Terms and costs... They will tend to seek joint Previous Slide Next Slide profit maximization... End Show 25 - 34 Graphically… Copyright McGraw-Hill/Irwin, 2002
- 35. CARTELS AND OTHER COLLUSION Monopolistic Competition Characteristics Colluding Oligopolists Will Price and Output in Monopolistic Competition Split the Monopoly Profits Economic Monopolistic Competition and Efficiency Oligopoly Profit Oligopolies and Mergers Price and costs Three Oligopoly Models Kinked-Demand Theory MC Cartels and Collusion Price Leadership P0 Oligopoly and Efficiency Key Terms A0 ATC D Previous Next MR = MC Slide Slide MR End Show Q0 25 - 35 Copyright McGraw-Hill/Irwin, 2002
- 36. CARTELS AND OTHER COLLUSION Monopolistic Competition Characteristics Overt Collusion Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency Oligopoly Oligopolies and Mergers •Cartel •OPEC Three Oligopoly Models Kinked-Demand Theory Cartels and Collusion Covert Collusion Price Leadership Oligopoly and Efficiency Key Terms •Recent Examples Previous Next •Tacit Understandings Slide Slide End Show 25 - 36 Copyright McGraw-Hill/Irwin, 2002
- 37. CARTELS AND OTHER COLLUSION Monopolistic Competition Characteristics Obstacles to Collusion Price and Output in Monopolistic Competition • Demand and Cost Monopolistic Competition and Efficiency Oligopoly Differences Oligopolies and Mergers Three Oligopoly Models Kinked-Demand Theory Cartels and Collusion Price Leadership • Number of Firms • Cheating Oligopoly and Efficiency Key Terms • Recession Previous Slide Next Slide • Potential Entry End Show 25 - 37 • Antitrust Law Copyright McGraw-Hill/Irwin, 2002
- 38. PRICE LEADERSHIP MODEL Monopolistic Competition Characteristics Leadership Tactics Price and Output in Monopolistic Competition •Infrequent Price Monopolistic Competition and Efficiency Oligopoly Oligopolies and Mergers Changes Three Oligopoly Models Kinked-Demand Theory Cartels and Collusion Price Leadership Oligopoly and Efficiency Key Terms •Communications •Limit Pricing Previous Next Breakdowns in Price Slide End Show Slide Leadership 25 - 38 Copyright McGraw-Hill/Irwin, 2002
- 39. OLIGOPOLY AND ADVERTISING Less Easily Duplicated Monopolistic Competition Characteristics Price and Output in Monopolistic Competition Adequate Resources Monopolistic Competition and Efficiency Oligopoly Oligopolies and Mergers Positive Effects of Three Oligopoly Models Kinked-Demand Theory Cartels and Collusion Advertising Price Leadership Oligopoly and Efficiency Key Terms Potential Negative Previous Slide Next Slide Effects of Advertising End Show 25 - 39 Brand Development Copyright McGraw-Hill/Irwin, 2002
- 40. OLIGOPOLY AND EFFICIENCY Productive Efficiency Monopolistic Competition Characteristics Price and Output in Monopolistic Competition P = Minimum ATC Monopolistic Competition and Efficiency Oligopoly Oligopolies and Mergers Three Oligopoly Models Kinked-Demand Theory Oligopoly: No Productive Efficiency Cartels and Collusion Allocative Efficiency Price Leadership Oligopoly and Efficiency Key Terms P = MC Oligopoly: No Allocative Efficiency Previous Next Qualifications Slide Slide End Show 25 - 40 Copyright McGraw-Hill/Irwin, 2002
- 41. OLIGOPOLY AND EFFICIENCY Productive Efficiency Monopolistic Competition Characteristics Price and Output in Monopolistic Competition P = Minimum ATC Monopolistic Competition and Efficiency Oligopoly Chapter Oligopolies and Mergers Three Oligopoly Models Kinked-Demand Theory Oligopoly: No Productive Efficiency Cartels and Collusion Conclusions Allocative Efficiency Price Leadership Oligopoly and Efficiency Key Terms P = MC Oligopoly: No Allocative Efficiency Previous Next Qualifications Slide Slide End Show 25 - 41 Copyright McGraw-Hill/Irwin, 2002
- 42. monopolistic competition interindustry competition product differentiation import competition Herfindahl index nonprice competition game-theory model excess capacity collusion oligopoly kinked-demand curve homogeneous oligopoly price war differentiated oligopoly cartel mutual interdependence tacit understandings concentration ratio price leadership Copyright McGraw-Hill/Irwin 2002 BACK END
- 43. Monopolistic Competition Characteristics Next... Technology, Price and Output in Monopolistic Competition Monopolistic Competition and Efficiency Oligopoly Oligopolies and Mergers R&D, Three Oligopoly Models Kinked-Demand Theory Cartels and Collusion Price Leadership and Oligopoly and Efficiency Key Terms Previous Slide Next Slide Efficiency End Show Chapter 26 25 - 43 Copyright McGraw-Hill/Irwin, 2002