Chapter 7 - Chapter 7: Price Searching The Firm with Market...

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Chapter 7: Price Searching The Firm with Market Power
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The Acquisition of Market Power Usually: firms can influence their prices to a certain extent firms have price discretion (or market power ) How can a firm acquire the possibility to influence the market price of its products? Product differentiation (make one‘s product distinguishable) Gaining control of a significant fraction of the industry output
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The Acquisition of Market Power Product Differentiation Increase market power by convincing customers that my product is superior to competitors‘ products therefore it‘s worth a higher price ( gives me the possibility to charge higher price: „price discretion“) Possibilities: real differences, promotion/advertising
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The Acquisition of Market Power Control over supply Control a share of the market that is large enough enables you to drive up prices by restricting supply If there is only a single firm in an industry ( monopolist ) only the decision of the firm determines quantity supplied If there is more than one firm task of controlling output is more difficult possible solution: cartel
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Chapter 7 - Chapter 7: Price Searching The Firm with Market...

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