{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

ECE1010-07

# ECE1010-07 - UNIT III COMPETITIVE STRATEGY 11/12 Monopoly...

This preview shows pages 1–9. Sign up to view the full content.

UNIT III: COMPETITIVE STRATEGY • Monopoly • Oligopoly Strategic Behavior 11/12

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Monopoly Market Structure Monopoly Multiplant Monopoly: 1 Firm – 2 Plants Price Discrimination: 1 Firm – 2 Markets Next Time: Duopoly
Market Structure So far, we have looked at how consumers and firms make optimal decisions (maximize utility and profits) under constraint. Then we looked at how those individual decisions are coordinated via the market. Under Perfect Competition, we assume an infinite number of infinitely small price-takers, and we know that the competitive market equilibrium is Pareto-efficiency. Now want to consider other market structures (e.g., monopoly; duopoly) and characterize the corresponding equilibria; what are the welfare consequences of these market structures?

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Market Structure Market structure is related to market concentration and competitiveness . Perfect Competition is a polar case (low conc; high comp), where rational decision-making at the individual level (consumer; firm) adds up to optimal outcomes at the social level – The Invisible Hand Theorem of Welfare Economics. Once we move away from perfect competition, firms can exploit market power : their behavior can influence prices (and profits). Monopoly is the case where a single firm has market power. Later we will consider what happens when several firms have power in the market (oligopoly). Here, competitive strategy comes to the fore.
Market Structure Perfect Comp Oligopoly Monopoly No. of Firms infinite (>)2 1 Output MR = MC = P ??? MR = MC < P Profit 0 ? Yes Efficiency Yes ??? POINT 1: Under every market structure, all firms attempt to maximize profits, s.t., MR = MC. POINT 1: The number of firms in the market is determined by entry conditions.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Market Structure Perfect Comp Oligopoly Monopoly No. of Firms infinite (>)2 1 Output MR = MC = P ??? MR = MC < P Profit 0 ? Yes Efficiency Yes ??? POINT 1: Under every market structure, all firms attempt to maximize profits, s.t., MR = MC. POINT 1: Profits signal entry. For a firm to remain profitable, there must be barriers to entry (or the market is too small for a second firm).
Market Structure Perfect Comp Oligopoly Monopoly No. of Firms infinite (>)2 1 Optimality MR = MC = P ??? MR = MC < P Profit 0 ? Yes Efficiency Yes ??? POINT 2: Under every market structure, all firms attempt to maximize profits, s.t., MR = MC.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Market Structure Perfect Comp Oligopoly Monopoly No. of Firms infinite (>)2 1 Optimality MR = MC = P ??? MR = MC < P Profit 0 ? Yes Efficiency Yes ???
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern