ECON 115. Industrial Organization

Size: px
Start display at page:

Download "ECON 115. Industrial Organization"

Transcription

1 ECON 115 Industrial Organization

2 1. The Take-home Final (Final Essay) 2. What have we learned in Industrial Organization? What are the major takeaways?

3 The Final: write a short essay about a firm s or group of firms behavior... behavior that was prosecuted by the government... But behavior which can also be explained as the product of rational activity by the firm, its suppliers and customers.

4 This is, in the end, what our course in Industrial Organization is about: finding rational (theoretically-sound) explanations for why firms behave in the myriad ways they do.

5 Firms sell products for different prices, giving discounts... to some customers and bundling up products for others. Firms offer lots of different products Firms offer different quality products 2 competitors may sell a level of output with prices > cost Or 2 other competitors may set prices = to their costs In some circumstances a firm has an advantage moving first In other circumstances it is better to be a follower Sometimes firms accommodate new market entrants Or they may fight entry by adding capacity Other times firms buy or merge with competitors... or by pricing < cost appear more efficient than they really are

6 This is the stuff of industrial organization. To study all these variations... and seek rational explanations for them. This diversity is representative of what we call imperfect competition. Unlike perfect competition which exists primarily in textbooks imperfect competition exists in the real world.

7 It the goal of this course was to use economic theory to examine imperfect competition; i.e., the diversity we see in the real economy.

8 In this course, we concentrated on certain parts of the imperfectly competitive markets: monopolies and oligopolies. Monopolies provide the sharpest insights into how price discrimination and anticompetitive strategies work. Oligopolies are useful in understanding strategic interactions between firms.

9 PRICE DISCRIMINATION

10 Price discrimination means charging different prices to different consumers for the same good. Recall that a monopolist facing a downward sloping demand curve and employing nondiscriminatory pricing must reduce its price to all consumers in order to sell more product.

11 If price discrimination allows a monopolist to sell more product, it may be seen as increasing total surplus, thus improving efficiency. Of course to price discriminate, the monopolist must address two problems: 1. Identification: can the firm identify demands of different types of consumers or in separate markets 2. Arbitrage: can the firm prevent consumers charged a low price from reselling to consumers charged a higher price

12 The firm then must choose the type of price discrimination first-degree or personalized pricing second-degree or menu pricing third-degree or group pricing

13 There are three types of price discrimination: Type Name Example First Degree Personalized Pricing Maximum price charged to each consumer Second Degree Menu Pricing Quantity discounts Third Degree Group Pricing Group discounts ( early bird special senior discount )

14 Third-degree price discrimination: Group pricing. Consumers differ by some observable characteristic(s). A uniform price is charged to everyone in the group. This is linear pricing. Different uniform prices are charged to different groups: student discounts (Characteristic: student ID) senior discounts (Characteristic: appearance) early-bird specials (Characteristic: time) 14

15 Pricing Rule (Elasticity of Demand) consumers with low elasticity of demand should be charged a high price. consumers with high elasticity of demand should be charged a low price. 15

16 Pricing Rule (Marginal Revenue and Marginal Cost) marginal revenue must be equalized in each market. marginal revenue must equal aggregate marginal cost. 16

17 RULE #3: If demands are linear price discrimination results in the same aggregate output as no price discrimination. price discrimination increases profit because allocated more profitably across two markets. 17

18 From Last Week s Assignment Aggregate Demand: P = 14 ½ Q MC = 4. Under Perfect Competition, P = MC. P = 4, and Q = 20 Under Monopoly, MR = MC PQ (total revenue) = Q*(14 ½ Q) = 14Q - ½Q 2 MR = d(tr)/dq = 14 Q = MC = 4. Q = 10 and P = 14 ½ *10 = 9 Profit = = 50 18

19 Now let s solve Part 3, Group Pricing Aggregate Demand: P = 14 ½ Q High Demand Group: P = 16 Q Low Demand Group: P = 12 Q Please note: if you write the HD and LD demands in terms of Q, then Q = 16 - P + Q = 12 P = Q total = 28 2P. Therefore P = 14 ½ Q 19

20 Find the individual Marginal Revenue Curves for the HD and LD consumers: HD Demand: P = 16 Q LD Demand: P = 12 Q HD MR = 16 2Q LD MR = 12 2Q MR HD = MR LD = MC HD 16 2Q = 4 Therefore Q = 6 and P = 10 LD 12 2Q = 4 Therefore Q = 4 and P = 8 Profits = (10 4)*6 + (8 4)*4 = = 52>50 20

21 We now move to pricing strategies designed by monopolies to capture the consumer surplus. The primary example of this form of price discrimination is the quantity discount. Annual subscriptions often cost less in than one-off purchases. Buying in bulk usually offers a price discount. Prices are nonlinear, with the unit price dependent upon the quantity bought. Pricing is nearer to willingness to pay. 21

22 A nonlinear pricing strategy depends upon the information available to the seller. That determines whether to employ first-degree (personalized) or second-degree (menu) pricing. Under first-degree price discrimination, the monopolist charges the maximum price that each consumer is willing to pay. Extracts all consumer surplus Since profit equals the total surplus, first-degree price discrimination is efficient. 22

23 Can a seller achieve a similar outcome if prices must be announced in advance? Yes, with non-linear prices Two-part pricing is an example of common non-linear pricing strategy. charge a quantity-independent fee (membership?), plus a per unit usage charge Block pricing is a second example. bundle total charge and quantity in a package Quantity Discounts 23

24 Second-degree price discrimination & Quantity Discounts: 1. Extract all consumer surplus from the lowestdemand group. 2. Leave some consumer surplus for other groups... to satisfy the incentive compatibility constraint. 3. Offer less than the socially efficient quantity to all groups other than the highest-demand group. 4. Offer quantity-discounting. 24

25 100 wealthy consumers, who value the 1 st unit of a good at $15 and a 2 nd unit at $ moderate income consumers, who value only the 1 st unit at $12. For the producer, MC = 6. Solution: $12 for 1, $20 for Extract all consumer surplus from the lowest-demand group (Price for 1 unit = 12) 2. Leave some consumer surplus for other groups... to satisfy the incentive compatibility constraint. (CS w = $500) 3. Offer less than the socially efficient quantity to all groups other than the highest-demand group. 4. Offer quantity-discounting ($2.00 discount per unit if you buy two) 25

26 PRODUCT DIFFERENTION 26

27 Most firms sell more than one product. We classify product differences as either horizontal or vertical. Horizontal Differentiation: Products differ by their appeal to different types of consumers. Vertical Differentiation: Products differ by the consumers willingness to pay for quality. 27

28 Suppose consumers differ in their tastes; A firm may decide it best serves these different types of consumers by offering products with different characteristics but similar qualities. This is horizontal product differentiation. The firm designs products to appeal to different types of consumers. Questions: how many different types of products? how do we model this problem? 28

29 A useful way to formulate answers is to use a spatial model (Hotelling [1929]) to consider: Product pricing Design characteristics Product variety This model provides insights into product differentiation because location can stand-in for: space (geography) time (departure times of planes, buses, trains) product characteristics (design and variety) Consumers want products close to their preferences in space, time or characteristics. 29

30 Here is an example. Assume F = $50,000, N = 5 million and t = $1. Then tn/2f = 50. For an additional shop to be profitable, we need n(n + 1) < 50. This is true for n < 6. Therefore, if n = 6, then adding one more shop is profitable. But if n = 7 then adding another shop is unprofitable. 30

31 What does the condition on n [n(n + 1) < tn/2f] tell us? Simply, we should expect to find greater product variety when: there are many consumers (N/). set-up costs of increasing product variety are low (/F). consumers have strong preferences over product characteristics and are unwilling to buy a product if it is not very close to their most preferred product (t in the numerator). 31

32 BUNDLING AND TIE-IN SALES 32

33 Firms often bundle the goods that they offer. Microsoft bundles Windows and Explorer Office bundles Word, Excel, PowerPoint, Access Bundled package is usually offered at a discount. Tie-in sales ties the sale of one product to the purchase of another: Tying may be contractual or technological IBM computer card machines and computer cards Kodak tie service to sales of large-scale photocopiers Tie computer printers and printer cartridges Why? To make money! 33

34 There are two types of bundling (1) Pure bundling, which is when the products are only offered in a bundle. (2) Mixed bundling, when you offer the products both individually and in a bundle. 34

35 Two television stations offered two old Hollywood films Casablanca and Son of Godzilla Arbitrage is possible between the stations Willingness to pay is: $7,000 Willingness to pay for Casablanca Willingness to pay for Godzilla $2,500 Station A $8,000 $2,500 Station B $7,000 $3,000 35

36 Now suppose that the two films are bundled and sold as a package Industrial Organization Willingness to pay for Casablanca Willingness to pay for Godzilla How much can be charged for the package? Total Willingness to pay Station A Station B If the $8,000 films are sold $2,500 $10,500 as a package total revenue is $20,000 $7,000 $3,000 $10,000 Bundling is profitable because it exploits $10,000 aggregate willingness pay 36

37 If we extend our examples to include costs, should a firm offer products individually, in a bundle only or both individually and bundled? There is no simple answers: mixed bundling is generally better than pure bundling; but bundling is not always the best strategy Each case needs to be worked out on its merits. 37

38 Here are some basic observations: Bundling is a form of price discrimination Bundling does not always work. Pure bundling is not necessarily better than no bundling. It requires there are reasonably large differences in consumer valuations of the goods However, mixed bundling is always more profitable than either no bundling or pure bundling. 38

39 What about tie-in sales? Like bundling but proportions vary. It allows the monopolist to make supernormal profits on the tied good. Different users charged different effective prices depending upon usage. Facilitates price discrimination by making buyers reveal their demands. 39

40 2 nd Degree Price Discrimination 3 rd Degree Price Discrimination Product differentiation Bundling and Tie-sales Example: Quantity Discounts Example: Group Pricing Example: A new product. Example: Combo Products Consumers can t be identified; must force them to reveal their true selves. (Selfselect). Consumers can be identified by some observable characteristic. Consumers want products close to their preferences in space, time or characteristics Consumers willing to pay more in the aggregate. Rule: leave some consumer surplus on the table to induce high-demand groups to buy large quantities. Rule: charge consumers with low elasticity of demand a high price; equate MR for all groups. Rule: add a new product (n + 1) if: n(n + 1) < tn/2f N = size of market F = setup $ t = preference for a new product Rule: must examine profits on a case by case basis. 40

41 2 nd Degree Price Discrimination Industrial Organization FROM THE REAL ECONOMY 3 rd Degree Price Discrimination Horizontal Product differentiation Bundling Starbucks Latte: Tall: $2.85 (24 ) Venti: $3.95 (20 ) Oreos (Walmart) 15oz: $2.98 (20 ) 20oz: $3.50 (18 ) Theaters: Adult: $10.00 Senior: $7.00 Matinee: $6.00 Insurance: Student Discount Good Driver Fit Civic Accord Pilot Odyssey McDonalds Burgers & Fries Big Mac ( 68) Egg McMf ( 71) Drive Thru ( 75) Microsoft Office Word, Excel and Power Point. McDonald s Extra Value Meal. Computer Bundle: Laptop, Flash Drive, Case, Printer (Costco) 41

42 Question: in the real world, how do firms identify different groups demand functions, individuals desire for different products or consumers willingness to pay? Entrepreneurship = alertness to market opportunities. Competition is an ongoing process of discovery. Entrepreneur means acting man in regards to changes occurring in the data of the market. Ludwig von Mises The entrepreneur brings into mutual adjustment those discordant elements which resulted from prior market ignorance. Israel Kirzner I wish to consider competition... as a procedure for discovering facts. Freidrich Hayek 42

43 OLIGOPOLIES AND GAME THEORY 43

44 We now turn to a common type of market, where firms interact with a few competitors oligopoly market. Each firm has to consider its rival s actions with regards to prices, outputs, advertising, etc. This kind of strategic interaction is analyzed using game theory. To understand games, we assume players are rational distinguish between cooperative and noncooperative games distinguish between simultaneous versus sequential games 44

45 Need a concept of equilibrium Players (firms) choose a strategy. The strategy combination determines outcome. The outcome determines pay-offs (profits?). Equilibrium first formalized by Nash: No firm wants to change its current strategy given that no other firm changes its current strategy. 45

46 There are three dominant oligopoly models Cournot Bertrand Stackelberg They are distinguished by: The decision variable that firms choose The timing of the underlying game 46

47 The Cournot model begins with a duopoly. Two firms making an identical product Demand for this product is: P = A - BQ = A - B(q 1 + q 2 ) where q 1 is output of firm 1 and q 2 is output of firm 2 Marginal cost for each firm is constant at c per unit To get the demand curve for one of the firms we treat the output of the other firm as constant, so for firm 2, demand is P = (A - Bq 1 ) - Bq 2 You then find q 2 by finding the second firm s marginal revenue function and setting it to c. 47

48 For our problem, P = 14 ½ q 1 ½ q 2 Firm 2 s demand function is: P = (14 ½ q 1 ) ½ q 2 TR = Pq 2 = (14 ½ q 1 )q 2 ½ q 2 2 MR = (TR) = (14 ½ q 1 ) q 2 = MC = 4 q 2 = 10 ½ q 1 This is Firm 2 s Reaction Function. For Firm 1 it s q 1 = 10 ½ q 2 Their intersection is the Nash Equilibrium q 1 = 10 ½ q 2 = 10 ½ (10 ½ q 1 ) = 5 + ¼ q1 q 1 = 20/3 By symmetry, q 2 = 20/3. Q total = 40/3 Price = 14 ½ (40/3) = = 7.33 Q perfectcompetition = 20 > 40/3 (13.33) > Q monopoly = 10 48

49 q* 1 = (A - c)/2b - Q -1 /2 Q* -1 = (N - 1)q* 1 How do we solve this The firms for q* are 1? identical. q* 1 = (A - c)/2b - (N - 1)q* 1 /2 So in equilibrium they (1 + (N - 1)/2)q* 1 = (A - c)/2b will have identical As the number of q* outputs 1 (N + 1)/2 = (A - c)/2b firms increases price q* 1 = (A - c)/(n + 1)B tends to marginal cost Q* = N(A - c)/(n + 1)B P* = A - BQ* = (A + Nc)/(N + 1) KEEP49

50 In Cournot prices are set by market mechanisms. An alternative approach is to assume that firms compete in prices. This is the approach taken by Bertrand. This leads to dramatically different results. Take a simple example: Two firms producing an identical product... choose the prices at which they sell their products. Each firm has constant marginal cost of c Demand is P = A BQ In terms of Q = a bp with a = A/B and b= 1/B 50

51 These best response function for functions look like this: p 2 The best response firm 1 R 1 R 2 The best response function for firm 2 (a + c)/2b c The Bertrand The equilibrium equilibrium has is both with firms both charging firms pricing marginal at cost c c (a + c)/2b p 1 51

52 The Bertrand model makes clear that competing on price is different from competition in quantities. Under standard Bertrand Competition, P = MC P = 4 and Q = 20, equal to Perfect Competition. COURNOT: P monopoly > P cournot > P competitive BERTRAND: P monopoly > P bertrand = P competitive Since many firms compete on price rather than quantity, this is a challenge to the Cournot approach. 52

53 Bertrand also says competing on price doesn t result in P = MC if certain conditions are present such as differentiated products or capacity constraints. RE: capacity constraints, at P = MC there will be more customers than both firms can satisfy. If Firm 1 sets its price at cost, Firm 2 will raise its price because it can get all the customers it can handle at a higher price. Therefore, P = MC is not a Nash Equilibrium. 53

54 In the Problem, each firm s capacity constraint = 5 customers. If the firms set the highest price where they each can be assured of 5 customers this would be a Nash Equilibrium. An even higher price may not assure them of all the customers they can handle; A lower price leaves money on the table. P = 14 ½ Q. Using the capacity constraints, Q total = = 10 Price = 14 ½*10 = 14 5 = 9. 54

55 Both the Cournot and Bertrand models are examples of simultaneous games. We assume both firms move simultaneously and the market interaction is once-and-for-all. In a wide variety of markets firms compete sequentially. One firm makes a move. For example it may introduce a new product or ad campaign and The second firms sees this move and responds. 55

56 Sequential games are also called dynamic games. These games may create a first-mover advantage; or create a second-mover advantage; or may allow an early mover to preempt the market. Therefore, sequential move games can generate very different equilibria from simultaneous move games. 56

57 The most common model of a sequential game is the Stackelberg Model. The standard Stackelberg duopoly model is similar to the Cournot model in that it is output (quantity) based. However, firms choose quantities sequentially rather than simultaneously. 57

58 Choosing output sequentially means the leader sets its output first, and visibly, and the follower then sets its output. The firm moving first has a leadership advantage. It can anticipate the follower s actions and can therefore manipulate the follower. However, for this to work the leader must be able to commit to its choice of output. 58

59 In the problem, we assume there are two firms with identical products. Marginal cost for each firm = 4. Firm 1 is the market leader and chooses q 1 Firms 1 also knows how Firm 2 will react because Firm 2 will maximize profits by equating its marginal revenue [MR = (A Bq 1 ) 2Bq 2 ] to MC. This is the same reaction function we calculated in the Cournot problem, q 2 = 10 ½ q 1 59

60 Firm 1 knows Firm 2 s reaction function. Since Firm 1 moves first and can set quantity at whatever level it wishes, Firm 1 puts Firm 2 s reaction function into its Demand Curve, then calculates its Marginal Revenue, sets it to MC and determines it s profit-maximizing Quantity. Firm 1 s Demand Function: P = 14 ½ q 1 ½ q 2 Plugging in #2 s reaction function: P = 14 ½ q 1 ½ (10 ½ q 1 ) = 9 ¼ q 1 Therefore TR = 9q 1 ¼ q 12 MR = 9 ½ q 1 60

61 If MR = 9 ½ q 1 = MC = 4 q 1 = 10. This is the same quantity produced by the profitmaximizing monopolist. Plugging q 1 = 10 into Firm 2 s reaction function, you get q 2 = 5. Q total = 15. Price = 6.50 Under Stackelberg, when two firms and compete on quantity, there is a definite 1 st mover advantage. The overall market is better off under Stackelberg then under Cournot because Q total is larger (15 > 13.33) and price is lower (6.5 < 7.33). 61

62 It is crucial that the leader can commit to its output choice. Without such commitment Firm 2 would ignore any stated intent by Firm 1 at the monopolist profit maximizing point (here 10 units) and the only equilibrium would be the Cournot equilibrium. So how does Firm 1 commit? (1) Prior reputation (2) Investment in additional capacity (3) Place the stated output on the market 62

63 Clearly, in this example, being the first mover is advantageous. But is moving first always better than following? This example was based on output. What happens if we are looking at price competition? 63

64 With price competition matters are different: the first move does NOT have an advantage. Suppose, again, products are identical but the first-mover commits to a price greater than marginal cost. The second-mover will undercut this price and take the market. Therefore the first-mover will set price at P = MC. This is identical to simultaneous game played under Bertrand competition. 64

65 ANTI-COMPETITVE BEHAVIOR: Limit pricing and quantities

66 A firm that can restrict output to raise market price has market power. Why can t rivals compete away those positions? Why aren t new rivals lured in by high profits? Answer: firms with monopoly power may eliminate existing rivals prevent entry of new firms

67 Predatory actions come in two broad forms: Limit pricing: prices so low that entry is deterred. Predatory pricing: prices so low that existing firms are driven out. Outcome of either action is the same: the monopolist retains control of the market. Legal action focuses on predatory pricing because there exists an identifiable victim: a firm that was in the market but has left.

68 We are going to consider a model of limit pricing using what was developed previously, specifically the Stackelberg Model. Recall that the Stackelberg leader chooses output first. We also assume that: The entrant believes that the leader is committed to this output choice.

69 $/unit P d P e Industrial Organization Then the entrant s marginal revenue is MR e R 1 q e MR e At price P e entry is unprofitable Q d MC e R e AC e Q d The entrant equates marginal revenue with marginal cost D(P) = Market Demand Q 1 By committing to output Q d the incumbent deters entry. Market price P d is the limit price Assume instead that the incumbent commits to output Q d Quantity The entrant s residual demand is R e = D(P) - Q d 69

70 In our problem, the overall demand curve is P = 14 Q i q e The entrant s residual demand function is P = (14 Q i ) q e MR = (14 Q i ) 2 q e Equate it to MC = 4. Therefore the entrant s reaction function is q e = 5 Q i /2 For a limit price to be effective it must eliminate the entrant s profits at its profit maximizing level. π = TR TC = Pq e 9 4q e Set it equal to 0 By setting the profit function to 0, we can determine the quantity the incumbent must produce to forestall entry and to establish the limit price. 10

71 π = TR TC = Pq e 9 4q e Set it equal to 0 (P 4)q e = 9 = (14 Q i q e 4) = 9/q e = (14 Q i 5 + Q i /2 4) = 9/(5 Q i /2) = (5 Q i /2) = 9/(5 Q i /2) = (5 Q i /2) 2 = 9 take the square root of both sides = 5 Q i /2 = 3. Q i = 4, plugging this back into the reaction function q e = 5 Q i /2, q e = 3. Price = 14 Q i q e = = 7. That s the limit price. At P = 7, TR for the entrant = 7*3 = 21. TC = 9 + 4* q e = 21. Profit is 0. Entry is deterred. 10

72 There are issues with limit pricing and predation: How does the incumbent make it credible? Are there more profitable alternatives to limit pricing? (Merging?) Are there circumstances that encourage limit pricing? (Asymmetrical information? Pretending to be a low cost competitor?) Is there any empirical evidence of predatory behavior? (Perhaps) 10

73 This brings us to the end of our course. The primary takeaway is this: in the hurly-burly of the marketplace, when firms appear to be behaving in peculiar and somewhat inexplicable ways, there is often a rational, logically-compelling explanation for that behavior. 73

74 This is empowering, because nothing strengthens one s faith in economic activity and therefore in human existence than the belief in rationality. There does remain one challenge, which is what economics is all about... 74

75 To be able to RATIONALLY figure it all out. 75

76 Good luck on your final paper... And thanks so much for taking ECON 115! 76

Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry s output.

Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry s output. Topic 8 Chapter 13 Oligopoly and Monopolistic Competition Econ 203 Topic 8 page 1 Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry

More information

ECON 115. Industrial Organization

ECON 115. Industrial Organization ECON 115 Industrial Organization 1. Linear (3rd Degree) Price Discrimination First Hour QUIZ Second Hour Introduction to Price Discrimination Third-degree price discrimination Two Rules Examples of price

More information

INTERMEDIATE MICROECONOMICS LECTURE 13 - MONOPOLISTIC COMPETITION AND OLIGOPOLY. Monopolistic Competition

INTERMEDIATE MICROECONOMICS LECTURE 13 - MONOPOLISTIC COMPETITION AND OLIGOPOLY. Monopolistic Competition 13-1 INTERMEDIATE MICROECONOMICS LECTURE 13 - MONOPOLISTIC COMPETITION AND OLIGOPOLY Monopolistic Competition Pure monopoly and perfect competition are rare in the real world. Most real-world industries

More information

Managerial Economics & Business Strategy Chapter 9. Basic Oligopoly Models

Managerial Economics & Business Strategy Chapter 9. Basic Oligopoly Models Managerial Economics & Business Strategy Chapter 9 Basic Oligopoly Models Overview I. Conditions for Oligopoly? II. Role of Strategic Interdependence III. Profit Maximization in Four Oligopoly Settings

More information

Do not open this exam until told to do so. Solution

Do not open this exam until told to do so. Solution Do not open this exam until told to do so. Department of Economics College of Social and Applied Human Sciences K. Annen, Fall 003 Final (Version): Intermediate Microeconomics (ECON30) Solution Final (Version

More information

Econ Microeconomic Analysis and Policy

Econ Microeconomic Analysis and Policy ECON 500 Microeconomic Theory Econ 500 - Microeconomic Analysis and Policy Monopoly Monopoly A monopoly is a single firm that serves an entire market and faces the market demand curve for its output. Unlike

More information

Chapter 13. Oligopoly and Monopolistic Competition

Chapter 13. Oligopoly and Monopolistic Competition Chapter 13 Oligopoly and Monopolistic Competition Chapter Outline Some Specific Oligopoly Models : Cournot, Bertrand and Stackelberg Competition When There are Increasing Returns to Scale Monopolistic

More information

14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen November 7, Lecture 22

14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen November 7, Lecture 22 Monopoly. Principles of Microeconomics, Fall Chia-Hui Chen November, Lecture Monopoly Outline. Chap : Monopoly. Chap : Shift in Demand and Effect of Tax Monopoly The monopolist is the single supply-side

More information

Basic Monopoly Pricing and Product Strategies

Basic Monopoly Pricing and Product Strategies Chapter 3 Basic Monopoly Pricing and Product Strategies Industrial 1 Introduction A monopolist has the power to set prices Consider how the monopolist exercises this power Focus in this section on a single-product

More information

ECN 3103 INDUSTRIAL ORGANISATION

ECN 3103 INDUSTRIAL ORGANISATION ECN 3103 INDUSTRIAL ORGANISATION 5. Game Theory Mr. Sydney Armstrong Lecturer 1 The University of Guyana 1 Semester 1, 2016 OUR PLAN Analyze Strategic price and Quantity Competition (Noncooperative Oligopolies)

More information

Lecture 22. Oligopoly & Monopolistic Competition

Lecture 22. Oligopoly & Monopolistic Competition Lecture 22. Oligopoly & Monopolistic Competition Course Evaluations on Thursday: Be sure to bring laptop, smartphone, or tablet with browser, so that you can complete your evaluation in class. Oligopoly

More information

Chapter 13. Microeconomics. Monopolistic Competition: The Competitive Model in a More Realistic Setting

Chapter 13. Microeconomics. Monopolistic Competition: The Competitive Model in a More Realistic Setting Microeconomics Modified by: Yun Wang Florida International University Spring, 2018 1 Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Chapter Outline 13.1 Demand and

More information

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition Unit 4: Imperfect Competition 1 Monopoly 2 Characteristics of Monopolies 3 5 Characteristics of a Monopoly 1. Single Seller One Firm controls the vast majority of a market The Firm IS the Industry 2. Unique

More information

Chapter 13 MODELS OF MONOPOLY. Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.

Chapter 13 MODELS OF MONOPOLY. Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved. Chapter 13 MODELS OF MONOPOLY Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved. 1 Monopoly A monopoly is a single supplier to a market This firm may choose to produce

More information

Monopoly. 3 Microeconomics LESSON 5. Introduction and Description. Time Required. Materials

Monopoly. 3 Microeconomics LESSON 5. Introduction and Description. Time Required. Materials LESSON 5 Monopoly Introduction and Description Lesson 5 extends the theory of the firm to the model of a Students will see that the profit-maximization rules for the monopoly are the same as they were

More information

ECONOMICS. Paper 3 : Fundamentals of Microeconomic Theory Module 28 : Non collusive and Collusive model

ECONOMICS. Paper 3 : Fundamentals of Microeconomic Theory Module 28 : Non collusive and Collusive model Subject Paper No and Title Module No and Title Module Tag 3 : Fundamentals of Microeconomic Theory 28 : Non collusive and Collusive model ECO_P3_M28 TABLE OF CONTENTS 1. Learning Outcomes 2. Introduction

More information

Market structures. Why Monopolies Arise. Why Monopolies Arise. Market power. Monopoly. Monopoly resources

Market structures. Why Monopolies Arise. Why Monopolies Arise. Market power. Monopoly. Monopoly resources Market structures Why Monopolies Arise Market power Alters the relationship between a firm s costs and the selling price Charges a price that exceeds marginal cost A high price reduces the quantity purchased

More information

Monopoly. Cost. Average total cost. Quantity of Output

Monopoly. Cost. Average total cost. Quantity of Output While a competitive firm is a price taker, a monopoly firm is a price maker. A firm is considered a monopoly if... it is the sole seller of its product. its product does not have close substitutes. The

More information

ECON 2100 Principles of Microeconomics (Summer 2016) Monopoly

ECON 2100 Principles of Microeconomics (Summer 2016) Monopoly ECON 21 Principles of Microeconomics (Summer 216) Monopoly Relevant readings from the textbook: Mankiw, Ch. 15 Monopoly Suggested problems from the textbook: Chapter 15 Questions for Review (Page 323):

More information

Advanced Microeconomic Theory. Chapter 7: Monopoly

Advanced Microeconomic Theory. Chapter 7: Monopoly Advanced Microeconomic Theory Chapter 7: Monopoly Outline Barriers to Entry Profit Maximization under Monopoly Welfare Loss of Monopoly Multiplant Monopolist Price Discrimination Advertising in Monopoly

More information

Competition Policy Monopoly Competition Other. Bundling. Patrick Legros

Competition Policy Monopoly Competition Other. Bundling. Patrick Legros Bundling Patrick Legros / 33 Introduction Sale of two or more products in fixed (or variable) combination Related to tie-in-sales (can buy 2 only if already bought ) hardware-software, printer-ink, tv-channels,

More information

The Analysis of Competitive Markets

The Analysis of Competitive Markets C H A P T E R 12 The Analysis of Competitive Markets Prepared by: Fernando & Yvonn Quijano CHAPTER 12 OUTLINE 12.1 Monopolistic Competition 12.2 Oligopoly 12.3 Price Competition 12.4 Competition versus

More information

UC Berkeley Haas School of Business Economic Analysis for Business Decisions (EWMBA 201A) Fall 2013

UC Berkeley Haas School of Business Economic Analysis for Business Decisions (EWMBA 201A) Fall 2013 UC Berkeley Haas School of Business Economic Analysis for Business Decisions (EWMBA 201A) Fall 2013 Monopolistic markets and pricing with market power (PR 10.1-10.4 and 11.1-11.4) Module 4 Sep. 20, 2014

More information

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition Unit 4: Imperfect Competition 1 Monopoly 2 Characteristics of Monopolies 3 5 Characteristics of a Monopoly 1. Single Seller One Firm controls the vast majority of a market The Firm IS the Industry 2. Unique

More information

Monopolistic Competition. Chapter 17

Monopolistic Competition. Chapter 17 Monopolistic Competition Chapter 17 The Four Types of Market Structure Number of Firms? Many firms One firm Few firms Differentiated products Type of Products? Identical products Monopoly Oligopoly Monopolistic

More information

Econ 2113: Principles of Microeconomics. Spring 2009 ECU

Econ 2113: Principles of Microeconomics. Spring 2009 ECU Econ 2113: Principles of Microeconomics Spring 2009 ECU Chapter 12 Monopoly Market Power Market power is the ability to influence the market, and in particular the market price, by influencing the total

More information

Monopoly. PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University

Monopoly. PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 15 Monopoly PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 Market power Why Monopolies Arise Alters the relationship between a firm s costs and the selling price Monopoly

More information

EconS 301 Intermediate Microeconomics Review Session #9 Chapter 12: Capturing Surplus

EconS 301 Intermediate Microeconomics Review Session #9 Chapter 12: Capturing Surplus EconS 30 Intermediate Microeconomics Review Session #9 Chapter : Capturing Surplus. With second-degree price discrimination a) The firm tries to price each unit at the consumer s reservation price. b)

More information

Oligopoly Pricing. EC 202 Lecture IV. Francesco Nava. January London School of Economics. Nava (LSE) EC 202 Lecture IV Jan / 13

Oligopoly Pricing. EC 202 Lecture IV. Francesco Nava. January London School of Economics. Nava (LSE) EC 202 Lecture IV Jan / 13 Oligopoly Pricing EC 202 Lecture IV Francesco Nava London School of Economics January 2011 Nava (LSE) EC 202 Lecture IV Jan 2011 1 / 13 Summary The models of competition presented in MT explored the consequences

More information

A monopoly market structure is one characterized by a single seller of a unique product with no close substitutes.

A monopoly market structure is one characterized by a single seller of a unique product with no close substitutes. These notes provided by Laura Lamb are intended to complement class lectures. The notes are based on chapter 12 of Microeconomics and Behaviour 2 nd Canadian Edition by Frank and Parker (2004). Chapter

More information

Monopoly. While a competitive firm is a price taker, a monopoly firm is a price maker.

Monopoly. While a competitive firm is a price taker, a monopoly firm is a price maker. Monopoly Monopoly While a competitive firm is a price taker, a monopoly firm is a price maker. Monopoly A firm is considered a monopoly if... it is the sole seller of its product. its product does not

More information

29/02/2016. Market structure II- Other types of imperfect competition. What Is Monopolistic Competition? OTHER TYPES OF IMPERFECT COMPETITION

29/02/2016. Market structure II- Other types of imperfect competition. What Is Monopolistic Competition? OTHER TYPES OF IMPERFECT COMPETITION Market structure II- Other types of imperfect competition OTHER TYPES OF IMPERFECT COMPETITION Characteristics of Monopolistic Competition Monopolistic competition is a market structure in which many firms

More information

Monopoly. Chapter 15

Monopoly. Chapter 15 Monopoly Chapter 15 Monopoly While a competitive firm is a price taker, a monopoly firm is a price maker. Monopoly u A firm is considered a monopoly if... it is the sole seller of its product. its product

More information

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition Unit 4: Imperfect Competition 1 FOUR MARKET STRUCTURES Perfect Competition Monopolistic Competition Oligopoly Pure Monopoly Imperfect Competition Every product is sold in a market that can be considered

More information

Contents in Brief. Preface

Contents in Brief. Preface Contents in Brief Preface Page v PART 1 INTRODUCTION 1 Chapter 1 Nature and Scope of Managerial Economics and Finance 3 Chapter 2 Equations, Graphs and Optimisation Techniques 21 Chapter 3 Demand, Supply

More information

Commerce 295 Midterm Answers

Commerce 295 Midterm Answers Commerce 295 Midterm Answers October 27, 2010 PART I MULTIPLE CHOICE QUESTIONS Each question has one correct response. Please circle the letter in front of the correct response for each question. There

More information

7 The Optimum of Monopoly, Price Discrimination

7 The Optimum of Monopoly, Price Discrimination Microeconomics I - Lecture #7, March 31, 2009 7 The Optimum of Monopoly, Price Discrimination 7.1 Monopoly Up to now we have analyzed the behavior of a competitive industry, a market structure that is

More information

Question Collection. European Competition Policy Chair of Economic Policy

Question Collection. European Competition Policy Chair of Economic Policy Question Collection European Competition Policy Chair of Economic Policy Question 1: - Perfect Competition Suppose a perfect competitive market where all firms produce a homogenous good. Assume the cost

More information

Chapter 10: Monopoly

Chapter 10: Monopoly Chapter 10: Monopoly Answers to Study Exercise Question 1 a) horizontal; downward sloping b) marginal revenue; marginal cost; equals; is greater than c) greater than d) less than Question 2 a) Total revenue

More information

Microeconomics (Oligopoly & Game, Ch 12)

Microeconomics (Oligopoly & Game, Ch 12) Microeconomics (Oligopoly & Game, Ch 12) Lecture 17-18, (Minor 2 coverage until Lecture 18) Mar 16 & 20, 2017 CHAPTER 12 OUTLINE 12.1 Monopolistic Competition 12.2 Oligopoly 12.3 Price Competition 12.4

More information

Chapter 12. Oligopoly. Oligopoly Characteristics. Oligopoly Equilibrium

Chapter 12. Oligopoly. Oligopoly Characteristics. Oligopoly Equilibrium Chapter Oligopoly Oligopoly Characteristics Small number of firms Product differentiation may or may not eist Barriers to entry Chapter Oligopoly Equilibrium Defining Equilibrium Firms are doing the best

More information

Price Discrimination

Price Discrimination Price Discrimination Firm charges either di erent consumers, di erent prices for the same product supplied with identical costs or di erent consumers the same price even though the cost of supplying them

More information

Contents. Concepts of Revenue I-13. About the authors I-5 Preface I-7 Syllabus I-9 Chapter-heads I-11

Contents. Concepts of Revenue I-13. About the authors I-5 Preface I-7 Syllabus I-9 Chapter-heads I-11 Contents About the authors I-5 Preface I-7 Syllabus I-9 Chapter-heads I-11 1 Concepts of Revenue 1.1 Introduction 1 1.2 Concepts of Revenue 2 1.3 Revenue curves under perfect competition 3 1.4 Revenue

More information

AQA Economics A-level

AQA Economics A-level AQA Economics A-level Microeconomics Topic 5: Perfect Competition, Imperfectly Competitive Markets and Monopoly 5.6 Monopoly and monopoly power Notes Characteristics of monopoly: Monopolies can be characterised

More information

Section I (20 questions; 1 mark each)

Section I (20 questions; 1 mark each) Foundation Course in Managerial Economics- Solution Set- 1 Final Examination Marks- 100 Section I (20 questions; 1 mark each) 1. Which of the following statements is not true? a. Societies face an important

More information

Price Discrimination. It is important to stress that charging different prices for similar goods is not pure price discrimination.

Price Discrimination. It is important to stress that charging different prices for similar goods is not pure price discrimination. What is price discrimination? Price discrimination or yield management occurs when a firm charges a different price to different groups of consumers for an identical good or service, for reasons not associated

More information

Economics. Monopoly. N. Gregory Mankiw. Premium PowerPoint Slides by Vance Ginn & Ron Cronovich C H A P T E R P R I N C I P L E S O F

Economics. Monopoly. N. Gregory Mankiw. Premium PowerPoint Slides by Vance Ginn & Ron Cronovich C H A P T E R P R I N C I P L E S O F C H A P T E R Monopoly Economics P R I N C I P L E S O F N. Gregory Mankiw Premium PowerPoint Slides by Vance Ginn & Ron Cronovich 2009 South-Western, a part of Cengage Learning, all rights reserved In

More information

CHAPTER NINE MONOPOLY

CHAPTER NINE MONOPOLY CHAPTER NINE MONOPOLY This chapter examines how a market controlled by a single producer behaves. What price will a monopolist charge for his output? How much will he produce? The basic characteristics

More information

ECON 115. Industrial Organization

ECON 115. Industrial Organization ECON 115 Industrial Organization 1. Tonight is a calculus review. 2. And a review of basic microeconomics. 3. We will do a couple of problems in class. First hour: Calculus Thinking on the margin. Introducing

More information

Market Structure & Imperfect Competition

Market Structure & Imperfect Competition In the Name of God Sharif University of Technology Graduate School of Management and Economics Microeconomics (for MBA students) 44111 (1393-94 1 st term) - Group 2 Dr. S. Farshad Fatemi Market Structure

More information

Solutions to Final Exam

Solutions to Final Exam Solutions to Final Exam AEC 504 - Summer 2007 Fundamentals of Economics c 2007 Alexander Barinov 1 Veni, vidi, vici (30 points) Two firms with constant marginal costs serve two markets for two different

More information

FINALTERM EXAMINATION FALL 2006

FINALTERM EXAMINATION FALL 2006 FINALTERM EXAMINATION FALL 2006 QUESTION NO: 1 (MARKS: 1) - PLEASE CHOOSE ONE Compared to the equilibrium price and quantity sold in a competitive market, a monopolist Will charge a price and sell a quantity.

More information

ECON 311 MICROECONOMICS THEORY I

ECON 311 MICROECONOMICS THEORY I ECON 311 MICROECONOMICS THEORY I Profit Maximisation & Perfect Competition (Short-Run) Dr. F. Kwame Agyire-Tettey Department of Economics Contact Information: fagyire-tettey@ug.edu.gh Session Overview

More information

Marginal willingness to pay (WTP). The maximum amount a consumer will spend for an extra unit of the good.

Marginal willingness to pay (WTP). The maximum amount a consumer will spend for an extra unit of the good. McPeak Lecture 10 PAI 723 The competitive model. Marginal willingness to pay (WTP). The maximum amount a consumer will spend for an extra unit of the good. As we derived a demand curve for an individual

More information

C H A P T E R 12. Monopolistic Competition and Oligopoly CHAPTER OUTLINE

C H A P T E R 12. Monopolistic Competition and Oligopoly CHAPTER OUTLINE C H A P T E R 12 Monopolistic Competition and Oligopoly CHAPTER OUTLINE 12.1 Monopolistic Competition 12.2 Oligopoly 12.3 Price Competition 12.4 Competition versus Collusion: The Prisoners Dilemma 12.5

More information

Chapter 15 Oligopoly

Chapter 15 Oligopoly Goldwasser AP Microeconomics Chapter 15 Oligopoly BEFORE YOU READ THE CHAPTER Summary This chapter explores oligopoly, a market structure characterized by a few firms producing a product that mayor may

More information

Chapter 6. Game Theory Two

Chapter 6. Game Theory Two 6.8 Repeated Games A game that is played only once is called a one-shot game. Repeated games are games that are played over and over again. Repeated Game = A game in which actions are taken and payoffs

More information

1.3. Levels and Rates of Change Levels: example, wages and income versus Rates: example, inflation and growth Example: Box 1.3

1.3. Levels and Rates of Change Levels: example, wages and income versus Rates: example, inflation and growth Example: Box 1.3 1 Chapter 1 1.1. Scarcity, Choice, Opportunity Cost Definition of Economics: Resources versus Wants Wants: more and better unlimited Versus Needs: essential limited Versus Demand: ability to pay + want

More information

Perfect competition: occurs when none of the individual market participants (ie buyers or sellers) can influence the price of the product.

Perfect competition: occurs when none of the individual market participants (ie buyers or sellers) can influence the price of the product. Perfect Competition In this section of work and the next one we derive the equilibrium positions of firms in order to determine whether or not it is profitable for a firm to produce and, if so, what quantities

More information

Chapter Summary and Learning Objectives

Chapter Summary and Learning Objectives CHAPTER 11 Firms in Perfectly Competitive Markets Chapter Summary and Learning Objectives 11.1 Perfectly Competitive Markets (pages 369 371) Explain what a perfectly competitive market is and why a perfect

More information

Monopolistic Markets. Regulation

Monopolistic Markets. Regulation Monopolistic Markets Regulation Comparison of monopolistic and competitive equilibrium output The profits of a monopolist are maximized when MC(Q M ) = P(Q M ) + Q P (Q M ) negative In a competitive market:

More information

Chapter 9: Static Games and Cournot Competition

Chapter 9: Static Games and Cournot Competition Chapter 9: Static Games and Cournot Competition Learning Objectives: Students should learn to:. The student will understand the ideas of strategic interdependence and reasoning strategically and be able

More information

Edexcel (A) Economics A-level

Edexcel (A) Economics A-level Edexcel (A) Economics A-level Theme 3: Business Behaviour & the Labour Market 3.4 Market Structures 3.4.5 Monopoly Notes Characteristics of monopoly: Monopolies can be characterised by: o Profit maximisation.

More information

ECON 202 2/13/2009. Pure Monopoly Characteristics. Chapter 22 Pure Monopoly

ECON 202 2/13/2009. Pure Monopoly Characteristics. Chapter 22 Pure Monopoly ECON 202 Chapter 22 Pure Monopoly Pure Monopoly Exists when a single firm is the sole producer of a product for which there are no close substitutes. There are a number of products where the producers

More information

PRICING. Quantity demanded is the number of the firm s product customers wish to purchase. What affects the quantity demanded?

PRICING. Quantity demanded is the number of the firm s product customers wish to purchase. What affects the quantity demanded? PRICING So far we have supposed perfect competition: the firm cannot affect the price. Whatever the firm produces is sold at the world market price. Most commodity businesses are highly competitive: regardless

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Micro - HW 4 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In central Florida during the spring, strawberry growers are price takers. The reason

More information

a. Find MG&E s marginal revenue function. That is, write an equation for MG&E's MR function.

a. Find MG&E s marginal revenue function. That is, write an equation for MG&E's MR function. Economics 101 Spring 2015 Answers to Homework #5 Due Thursday, May 7, 2015 Directions: The homework will be collected in a box before the lecture. Please place your name on top of the homework (legibly).

More information

Chapter 10 Lecture Notes

Chapter 10 Lecture Notes Chapter 10 Lecture Notes I. Pure Monopoly: An Introduction A. Definition: Pure monopoly exists when a single firm is the sole producer of a product for which there are no close substitutes. B. There are

More information

Monopolistic Competition Oligopoly Duopoly Monopoly. The further right on the scale, the greater the degree of monopoly power exercised by the firm.

Monopolistic Competition Oligopoly Duopoly Monopoly. The further right on the scale, the greater the degree of monopoly power exercised by the firm. Oligopoly Monopolistic Competition Oligopoly Duopoly Monopoly The further right on the scale, the greater the degree of monopoly power exercised by the firm. Imperfect competition refers to those market

More information

Industrial Organization

Industrial Organization Industrial Organization Markets and Strategies 2nd edition Paul Belleflamme Université CatholiquedeLouvain Martin Peitz University of Mannheim University Printing House, Cambridge CB2 8BS, United Kingdom

More information

ECMC02H Intermediate Microeconomics - Topics in Price Theory

ECMC02H Intermediate Microeconomics - Topics in Price Theory 1 ECMC02H Intermediate Microeconomics - Topics in Price Theory Answers to the Term Test June 23, 2010 Version A of the test Your name (Print clearly and underline your last name) Your student number 1.

More information

SAMPLE MULTIPLE CHOICE FINAL EXAM CHAPTER 6 THE ANALYSIS OF COSTS

SAMPLE MULTIPLE CHOICE FINAL EXAM CHAPTER 6 THE ANALYSIS OF COSTS 1. SAMPLE MULTIPLE CHOICE FINAL EXAM CHAPTER 6 THE ANALYSIS OF COSTS Long-run average cost equals long-run marginal cost whenever a) the production function exhibits constant returns to scale. b) fixed

More information

Perfect price discrimination (PPD) 1 Graph. Monopolist sells product with downward-sloping demand curve Each consumer demands one unit: demand curve

Perfect price discrimination (PPD) 1 Graph. Monopolist sells product with downward-sloping demand curve Each consumer demands one unit: demand curve Price discrimination Up to now, consider situations where each firm sets one uniform price Consider cases where firm engages in non-uniform pricing: 1. Charging customers different prices for the same

More information

Monopoly Monopoly occurs when there is a single seller of a good or service. Despite this simple definition that is usually given in textbooks, we

Monopoly Monopoly occurs when there is a single seller of a good or service. Despite this simple definition that is usually given in textbooks, we Monopoly Monopoly occurs when there is a single seller of a good or service. Despite this simple definition that is usually given in textbooks, we must criticize it a bit. Monopoly occurs when there is

More information

Pricing with Market Power

Pricing with Market Power Chapter 7 Pricing with Market Power 7.1 Motives and objectives Broadly The model of perfect competition is extreme (and hence wonderfully powerful and simple) because of its assumption that each firm believes

More information

iv. The monopolist will receive economic profits as long as price is greater than the average total cost

iv. The monopolist will receive economic profits as long as price is greater than the average total cost Chapter 15: Monopoly (Lecture Outline) -------------------------------------------------------------------------------------------------------------------------- Monopolies have no close competitors and,

More information

Monopoly CHAPTER. Goals. Outcomes

Monopoly CHAPTER. Goals. Outcomes CHAPTER 15 Monopoly Goals in this chapter you will Learn why some markets have only one seller Analyze how a monopoly determines the quantity to produce and the price to charge See how the monopoly s decisions

More information

EconS Bundling and Tying

EconS Bundling and Tying EconS 425 - Bundling and Tying Eric Dunaway Washington State University eric.dunaway@wsu.edu Industrial Organization Eric Dunaway (WSU) EconS 425 Industrial Organization 1 / 39 Introduction Let s talk

More information

Chapter 10 Pure Monopoly

Chapter 10 Pure Monopoly Chapter 10 Pure Monopoly Multiple Choice Questions 1. Pure monopoly means: A. any market in which the demand curve to the firm is downsloping. B. a standardized product being produced by many firms. C.

More information

Managerial Economics

Managerial Economics Managerial Economics Unit 5: Bundling and Intrafirm-Pricing Rudolf Winter-Ebmer Johannes Kepler University Linz Winter Term 2017 Managerial Economics: Unit 5 - Bundling 1 / 64 OBJECTIVES Explain how managers

More information

INTERPRETATION. SOURCES OF MONOPOLY (Related to P-R pp )

INTERPRETATION. SOURCES OF MONOPOLY (Related to P-R pp ) ECO 300 Fall 2005 November 10 MONOPOLY PART 1 INTERPRETATION Literally, just one firm in an industry But interpretation depends on how you define industry General idea a group of commodities that are close

More information

Monopoly and How It Arises

Monopoly and How It Arises Monopoly and How It Arises A monopoly is a market: That produces a good or service for which no close substitute exists In which there is one supplier that is protected from competition by a barrier preventing

More information

Managerial Economics

Managerial Economics Managerial Economics Unit 5: Bundling and Intrafirm-Pricing Rudolf Winter-Ebmer Johannes Kepler University Linz Winter Term 2014 Managerial Economics: Unit 4 - Price discrimination 1 / 64 OBJECTIVES Explain

More information

Market structure 1: Perfect Competition The perfectly competitive firm is a price taker: it cannot influence the price that is paid for its product.

Market structure 1: Perfect Competition The perfectly competitive firm is a price taker: it cannot influence the price that is paid for its product. Market structure 1: Perfect Competition The perfectly competitive firm is a price taker: it cannot influence the price that is paid for its product. This arises due to consumers indifference between the

More information

a. Sells a product differentiated from that of its competitors d. produces at the minimum of average total cost in the long run

a. Sells a product differentiated from that of its competitors d. produces at the minimum of average total cost in the long run I. From Seminar Slides: 3, 4, 5, 6. 3. For each of the following characteristics, say whether it describes a perfectly competitive firm (PC), a monopolistically competitive firm (MC), both, or neither.

More information

Game Theory & Firms. Jacob LaRiviere & Justin Rao April 20, 2016 Econ 404, Spring 2016

Game Theory & Firms. Jacob LaRiviere & Justin Rao April 20, 2016 Econ 404, Spring 2016 Game Theory & Firms Jacob LaRiviere & Justin Rao April 20, 2016 Econ 404, Spring 2016 What is Game Theory? Game Theory Intuitive Definition: Theory of strategic interaction Technical Definition: Account

More information

CONTENTS. Introduction to the Series. 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply Elasticities 37

CONTENTS. Introduction to the Series. 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply Elasticities 37 CONTENTS Introduction to the Series iv 1 Introduction to Economics 5 2 Competitive Markets, Demand and Supply 17 3 Elasticities 37 4 Government Intervention in Markets 44 5 Market Failure 53 6 Costs of

More information

Chapter 1 Introduction to Pricing Techniques

Chapter 1 Introduction to Pricing Techniques Chapter 1 Introduction to Pricing Techniques 1.1 Services, Booking Systems, and Consumer Value 2 1.1.1 Service definitions 1.1.2 Dynamic reservation systems 1.1.3 Consumer value 1.2 Overview of Pricing

More information

Industrial. Organization. Markets and Strategies. 2nd edition. Paul Belleflamme Universite Catholique de Louvain. Martin Peitz University of Mannheim

Industrial. Organization. Markets and Strategies. 2nd edition. Paul Belleflamme Universite Catholique de Louvain. Martin Peitz University of Mannheim Industrial Organization Markets and Strategies 2nd edition Paul Belleflamme Universite Catholique de Louvain Martin Peitz University of Mannheim CAMBRIDGE UNIVERSITY PRESS Contents List offigures xiii

More information

The Competitive Model in a More Realistic Setting

The Competitive Model in a More Realistic Setting CHAPTER 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Chapter Summary and Learning Objectives 13.1 Demand and Marginal Revenue for a Firm in a Monopolistically Competitive

More information

5/2/2016. Intermediate Microeconomics W3211. Lecture 22: Game Theory 4 Not Really Game Theory. The Story So Far. Today. Two Part Tariff.

5/2/2016. Intermediate Microeconomics W3211. Lecture 22: Game Theory 4 Not Really Game Theory. The Story So Far. Today. Two Part Tariff. Intermediate Microeconomics W3 Lecture : Game Theor 4 Not Reall Game Theor Introduction Columbia Universit, Spring 06 Mark Dean: mark.dean@columbia.edu The Stor So Far. 3 Toda 4 Last lecture we compared

More information

Short run and long run price and output decisions of a monopoly firm,

Short run and long run price and output decisions of a monopoly firm, 1 Chapter 1-Theory of Monopoly Syllabus-Concept of imperfect competition, Short run and long run price and output decisions of a monopoly firm, Concept of a supply curve under monopoly, comparison of perfect

More information

13 C H A P T E R O U T L I N E

13 C H A P T E R O U T L I N E PEARSON PRINCIPLES OF MICROECONOMICS E L E V E N T H E D I T I O N CASE FAIR OSTER Prepared by: Fernando Quijano w/shelly Tefft 2of 37 PART III MARKET IMPERFECTIONS AND THE ROLE OF GOVERNMENT Monopoly

More information

Price discrimination and limits to arbitrage: An analysis of global LNG markets

Price discrimination and limits to arbitrage: An analysis of global LNG markets Price discrimination and limits to arbitrage: An analysis of global LNG markets Robert A. Ritz Faculty of Economics & Energy Policy Research Group (EPRG) University of Cambridge 2014 Toulouse Energy Conference

More information

The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market.

The competition in monopolistically competitive markets is most likely a result of having many sellers in the market. Chapter 16 Monopolistic Competition TRUE/FALSE 1. The "competition" in monopolistically competitive markets is most likely a result of having many sellers in the market. ANS: T 2. The "monopoly" in monopolistically

More information

CHAPTER 5 THE ANALYSIS OF COSTS

CHAPTER 5 THE ANALYSIS OF COSTS 1. CHAPTER 5 THE ANALYSIS OF COSTS Long-run average cost equals long-run marginal cost whenever a) the production function exhibits constant returns to scale. b) fixed costs are zero. c) no factor always

More information

Introduction. Learning Objectives. Learning Objectives. Economics Today Twelfth Edition. Chapter 24 Monopoly

Introduction. Learning Objectives. Learning Objectives. Economics Today Twelfth Edition. Chapter 24 Monopoly Roger LeRoy Miller Economics Today Twelfth Edition Chapter 24 Monopoly Introduction The cement market in Mexico is dominated by a single company that accounts for more than 70 percent of all sales. Why

More information

Monopolistic Competition

Monopolistic Competition CHAPTER 16 Monopolistic Competition Goals in this chapter you will Examine market structures that lie between monopoly and competition Analyze competition among firms that sell differentiated products

More information

Instructions: must Repeat this answer on lines 37, 38 and 39. Questions:

Instructions: must Repeat this answer on lines 37, 38 and 39. Questions: Final Exam Student Name: Microeconomics, several versions Early May, 2011 Instructions: I) On your Scantron card you must print three things: 1) Full name clearly; 2) Day and time of your section (for

More information

Chapter 15: Monopoly. Notes. Watanabe Econ Monopoly 1 / 83. Notes. Watanabe Econ Monopoly 2 / 83. Notes

Chapter 15: Monopoly. Notes. Watanabe Econ Monopoly 1 / 83. Notes. Watanabe Econ Monopoly 2 / 83. Notes Econ 3 Introduction to Economics: Micro Chapter : Monopoly Instructor: Hiroki Watanabe Spring 3 Watanabe Econ 93 Monopoly / 83 Monopolistic Market Monopolistic Pricing 3 Inefficiency of Monopoly Price

More information