Chapter 9 - Monopolistic competition and oligopoly. In this chapter, the two market structures that fall between the extremes are discussed. Monopolistic competition contains a considerable amount of competition mixed with a small dose of monopoly power. Oligopoly, in contrast, implies a blend of greater monopoly power and less competition.
Trang 1Monopolistic Competition and
Oligopoly
Chapter 9
Trang 3Competition
• Demand is highly elastic
• Short-run profit or loss
• Produce where MR = MC
• Long-run normal profit
• Entry and exit
• Inefficient
• Product variety
Trang 4A1
P1
0
Trang 8Monopolistic competition is not efficient
Trang 9• The consumer benefits by greater array of
choices and better products
• Types and styles
• Brands and quality
Trang 10• A few large producers
• Homogeneous or differentiated products
• Limited control over price
• Mutual interdependence
• Strategic behavior
• Entry barriers
• Mergers
Trang 14• Noncollusive oligopoly
• Uncertainty about rivals’ reactions
• Rivals match any price change
• Rivals ignore any price change
• Assume combined strategy
• Match price reductions
• Ignore price increases
Trang 15g
Trang 16• Criticisms
• Explains inflexibility, not price
• Prices are not that rigid
• Price wars
Trang 17• Price leadership
• Dominant firm initiates price changes
• Other firms follow the leader
• Use limit pricing to block entry of new
firms
• Possible price war
Trang 19D
MR=MC
ATC MC
Trang 20• Cartels: a group of firms or nations
that collude
• Formally agree to the price
• Set output levels for members
• Collusion is illegal in the United
States
Trang 22• Prevalent to compete with product
development and advertising
• Less easily duplicated than a price change
• Financially able to advertise
Trang 23• Speeds up technological progress
• Can help firms obtain economies of
scale
Trang 25• Can be manipulative
• Contains misleading claims that
confuse consumers
• Consumers pay high prices for a
good while forgoing a better, priced, unadvertised version of the product
Trang 26The World’s Top 10
Brands
Coca-Cola IBM Microsoft Google General Electric McDonald’s Intel Apple Disney Hewlett-Packard
Trang 27• Oligopolies are inefficient
• Productively inefficient P > min ATC