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lecture 20 - Economics 100A Lecture#20 Thursday April 8 1 2...

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Economics 100A Lecture #20: Thursday, April 8 1) Concentrated industries 2) The oligopoly problem 3) Cournot’s oligopoly model 4) Stackelberg leader-follower model
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(1) Dimensions of competition Pure Monopoly Monopolistic competition Oligopoly Dominant firm Cartel Perfect Competition
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Concentrated industries in U.S. history U.S. Steel’s dominance in the 1910s and 1920s “Big three” auto makers in the 1950s and 1960s IBM’s dominance of mainframe computers in the 1960s and 1970s Microsoft’s and Intel’s dominance of PC software and microprocessors in 1990s “Seven sisters” of the oil industry in 1950s and 1960s Big eight cereal makers through most of 1900s Anheuser-Busch and SAB/Miller in beer today
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Causes for concentration Cost conditions Scale and scope economies Absolute cost advantages (e.g., scarce inputs) Barriers to entry Gov’t regulation (e.g., patents) Product differentiation Collusive and exclusionary behavior
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Consequences of Concentration Concentration + profits in U.S. manufacturing 6.9% < 70% Source : Joe S. Bain, "Relation of Profit Rate to Industry Concentration: American Manufacturing, 1936-1940," Quarterly Journal of Economics, August 1951. 12.1% > 70% Average industry profit rate Market share of largest 8 firms
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