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Unformatted text preview: Week 3 – Market and Industry Structure - P ricing Market is a place there buyers and seller willing and able to exchange particular goods. Cross-price elasticity is a measurement of the responsiveness of quantity demanded of one good to change in the price of another good Several factors determine the Type of industry structure 1. number and size of the buyer 2. degree of the product dedifferentiation 3. the amount and cost of information about product price and quality 4. conditions of entry and exit The four industry structure 1. perfect competition A market has a large number of firms, free entry and exit, and a relatively homogeneous product Every firm and every consumer must take the market price of the good as given – price taker. No one can unilaterally affect the price by their choice of how much to buy or sell Consumers have perfect information about the prices all sellers in the market charge 2. monopoly – dominant firm the market can only support one firm, either because of scale economics or because of a network effect A firm producing a good which was virtually unique, having no good substitutes Some barriers existed, such as patent rights, new technologies, which prevented other firms from participating in its production The monopoly firm is in a position to influence the market price by deciding how much of the good to produce – price seeker 3. oligopoly A market in which more than one, but still not many firms compete in a market The competition among the firms is characterized by strategic interactions The game theory is the appropriate tool for analysis If the firms choose prices simultaneously we have Bert rand competit ion If the firms choose quant it ies simultaneously we have Cournot competit ion (a) tight oligopoly (2-3 firms Coke & Pepsi or Airbus & Boeing) not engaged in criticizing the other have common interests more sensitive than loose oligopolies to the reaction of their rivals to strategy (b) loose oligopoly (4-5 firms Big Four) different iat ion works well have few ent ry barriers 4. monopolistic competition Each firm can differentiate its own variety of the goods such that consumers cannot substitute perfectly between varieties The characteristics of different market structures – six forces analysis...
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This note was uploaded on 08/11/2009 for the course ECOF 3001 taught by Professor - during the Three '09 term at University of Sydney.
- Three '09