ECMC41-Lec3 - ECMC41 – Lecture 3 2 Market Structure and competition 1 Dominant firm models 2 Oligopoly models 3 Market of monopolistic

Info iconThis preview shows pages 1–12. Sign up to view the full content.

View Full Document Right Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ECMC41 – Lecture 3 2 Market Structure and competition 1. Dominant firm models 2. Oligopoly models 3. Market of monopolistic competition 3 Some key concepts Entry /Exit barriers (i) Government restrictions on entry. (ii) Structural barriers to entry (Bain) Absolute cost advantage Economies of scale Product differentiation (iii) Strategic barriers to entry (Lec6) Limit pricing /Predatory pricing/Investment in R&D to reduce cost/ Raising rival’s costs 4 Residual demand curve ( 29 ( 29 ( 29 p S p D p D residual 3 & 2 1- = S-i D(p) 6 5 50 100 150 3 180 6 5 100 3 180 Q q , Q q , $ $ 5 1. Dominant Firm Models Model 1: No entry model One dominant firm and many fringe firms Entry is blocked Step 1 : Derive the dominant firm’s residual demand curve Step 2: Obtain the dominant firm’s MR curve Step 3: Given MC, find market equilibrium price and Q. 6 Step 1: Derive dominant firm’s residual demand curve i MC f S p p Q ( 29 p D r d $ $ Q q , Q q , 7 Step 2: Derive MR curve Step 3: Find the market price p p MR < + = ε 1 1 1 d MR 2 d MR p p d AC * d AC 1 p 1 d MC 2 d MC 2 p 1 d Q 2 d Q d MR $ $ Q q , Q q , 8 Model 1: Market equilibrium * d MC p d MC f S i AC i MC i q 1 p 1 p 1 d Q 2 p Market equilibrium Scenario1: Dominant firm makes positive profits. Fringe firms exist and might even positive economic profit (in the LR) Scenario2: Only the (rel. low cost) dom. firm serves the market (i.e. fringe firms all shut down as P is too low). d AC d MR $ $ Q q , Q q , 9 Model 2: Dominant firm with free-entry * d MC p p d MC d AC d MR d d D MR = d D $ $ Q q , Q q , 10 Model 2: Dominant firm with free-entry p p f Q Q , d Q Q , * d M C p p d M C d A C Step 1 Residual demand Step 2 Marginal revenue $ $ $ $ Q q , Q q , 11 Step 3: Find the market price * d M C p p d M C d A C Market equilibrium Scenario1: Dominant firm makes positive eco profits (but these have been lowered by entry). Fringe firms exist but earn zero eco profitbeen lowered by entry)....
View Full Document

This note was uploaded on 11/09/2010 for the course ECM ECMC41 taught by Professor Jackparkinson during the Spring '10 term at University of Toronto- Toronto.

Page1 / 29

ECMC41-Lec3 - ECMC41 – Lecture 3 2 Market Structure and competition 1 Dominant firm models 2 Oligopoly models 3 Market of monopolistic

This preview shows document pages 1 - 12. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online