Bài giảng MicroEconomics - Chapter 011 Monopolistic Competition and Oligopoly

Monopolistic Competition and OligopolyChapter 11McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter ObjectivesCharacteristics of monopolistic competitionNormal profit in the long runCharacteristics of oligopolyGame theory The oligopolist’s kinked demand curveCollusion among oligopolistsThe effects of advertising11-2Monopolistic CompetitionLarge number of sellersSmall market sharesNo collusionIndependent actionDifferentiated ProductsProduct attributesServiceLocationBrand names and packagingSome control over price11-3Easy entry and exitNeed for advertisingNonprice CompetitionWhich industries?Degree of concentrationFour-firm concentration ratioHerfindahl indexMonopolistic CompetitionMonopolistic Competition11-4Firm’s demand curveHighly elasticShort run profit or lossProduce where MR=MCLong run normal profitEntry and exitInefficientProduct varietyMonopolistic Competition11-5Short-Run ProfitsQuantityPrice and CostsMR = MCMCMRD1ATCEconomicProfitQ1A1P10Monopolistic Competition11-6Short-Run LossesQuantityPrice and CostsMR = MCMCMRD2ATCLossQ2A2P20Monopolistic Competition11-7Long-Run EquilibriumQuantityPrice and CostsMR = MCMCMRD3ATCQ3P3= A30Monopolistic Competition11-8QuantityPrice and CostsMR = MCMCMRD3ATCQ30P3= A3P=MC=Min ATC for pure competition (recall)P4Q4Price is LowerExcess Capacity atMinimum ATCMonopolistic competition is not efficientMonopolistic Competition11-9OligopolyA few large producersHomogeneous or differentiated productsControl over priceMutual interdependenceStrategic behaviorEntry barriersMergers11-10OligopolyFour-firm concentration ratioNeeds to be more than 40%Half of U.S. manufacturingLocalized marketsInterindustry competitionWorld tradeImport CompetitionHerfindahl index11-11Game TheoryRareAir’s Price StrategyUptown’s Price StrategyABCD$12$12$15$6$8$8$6$15HighHighLowLow2 competitors2 price strategiesEach strategy has a payoff matrixGreatest combined profitIndependent actions stimulate a response11-12Game TheoryRareAir’s Price StrategyUptown’s Price StrategyABCD$12$12$15$6$8$8$6$15HighHighLowLowIndependently lowered prices in expectation of greater profit leads to the worst combined outcomeEventually low outcomes make firms return to higher prices 11-13Game TheoryMutual interdependencePricing policyCollusionEnhances profitIncentive to cheatPrisoner’s dilemma11-14Three Oligopoly ModelsKinked-demand curveCollusive pricingPrice leadershipWhy three models?Diversity of oligopoliesComplications of interdependence11-15Kinked-Demand CurveNoncollusive oligopolyStrategiesMatch price changesIgnore price changesCombined strategyPrice inflexibilityThe kinked-demand curve 11-16PricePrice and CostsQuantityQuantity00P0MR2D2D1MR1efgRivals IgnorePrice IncreaseRivals MatchPrice DecreaseQ0Competitor and rivals strategize versus each otherConsumers effectively have 2 partial demand curves and each part has its own marginal revenue partMR2D2D1MR1Q0MC1MC2P0Resulting in a kinked-demand curve to the consumer – price and output are optimized at the kinkefgKinked-Demand Curve11-17Criticisms of the modelHow does price get to P0Explains inflexibility, not pricePrices are not that rigidPrice wars Kinked-Demand Curve11-18Price and CostsQuantityCartels and Other CollusionPrice and outputJoint profit maximizationDMR=MCATCMCMRP0A0Q0EconomicProfitEffectively SharingThe Monopoly Profit11-19The OPEC CartelSource: A. T. Kearney, Foreign PolicyIran 3,843,000Kuwait 2,538,000Venezuela 2,368,000Iraq 2,297,000Nigeria 2,183,000UAE 2,117,000Angola 1,804,000Libya 1,737,000Algeria 1,417,000Qatar 848,000 Indonesia 843,000Ecuador 530,000Daily oil production (barrels) , November 2008 Saudi Arabia 8,904,00011-20Cartels and Other CollusionCovert collusionTacit understandingsObstacles to collusionDemand and cost differencesNumber of firmsCheatingRecessionPotential entryLegal obstacles: antitrust law11-21Price Leadership ModelLeadership tacticsInfrequent price changesCommunicationsLimit pricingBreakdowns in price leadership:Price wars11-22AdvertisingPrevalent in monopolistic competition and oligopolyCapture market shareBetter than a price cutInformation for consumersManipulation 11-23Oligopoly and AdvertisingThe Largest U.S. Advertisers, 2006CompanyAdvertising SpendingMillions of $Proctor and GambleAT&TGeneral MotorsTime WarnerVerizonFord MotorGlaxoSmithKlineWalt DisneyJohnson & JohnsonUnilever$4898334532963089282225772444232022912098Source: Advertising Age11-24World’s Top 10 Brand Names, 2007Source: InterbrandCoca-ColaMicrosoftIBMGeneral ElectricNokiaToyotaIntelMcDonald’sDisneyMercedes-BenzOligopoly and Advertising11-25Oligopoly and EfficiencyNot productively efficientNot allocatively efficientTendency to share the monopoly profitQualificationsIncreased foreign competitionLimit pricingTechnological advance11-26Oligopoly in the Beer IndustryFrom hundreds to a few firms Demand side changesTaste shifts to lighter beers Shift from tap to cans or bottlesSupply side changesTechnological change increased minimum efficient scaleNational brands enjoy cost advantagesConsolidation into oligopoly11-27Key Termsmonopolistic competitionproduct differentiationnonprice competitionfour-firm concentration ratioHerfindahl indexexcess capacityoligopolyhomogeneous oligopolydifferentiated oligopolystrategic behaviormutual interdependenceinterindustry competitionimport competitiongame theorycollusionkinked-demand curveprice warcartelprice leadership11-28Next Chapter PreviewTechnology, R&D,And Efficiency11-29