ManEconCh10 - MANAGERIAL ECONOMICS THEORY APPLICATIONS AND...

Info iconThis preview shows pages 1–13. Sign up to view the full content.

View Full Document Right Arrow Icon
MANAGERIAL ECONOMICS: THEORY, APPLICATIONS, AND CASES W. Bruce Allen | Keith Weigelt | Neil Doherty | Edwin Mansfield CHAPTER  10 Oligopoly
Background image of page 1

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

View Full DocumentRight Arrow Icon
OBJECTIVES Explain how managers of firms that operate  in an oligopoly market can use strategic  decision-making to maintain relatively high  profits Understand how the reactions of market  rivals influence the effectiveness of  decisions in an oligopoly market
Background image of page 2
OLIGOPOLY: A MARKET WITH A  SMALL NUMBER OF FIRMS Characterized by interdependence and the  need for managers to explicitly consider the  reactions of rivals Protected by barriers to entry that result  from government fiat, economies of scale,  or control of strategically important  resources
Background image of page 3

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

View Full DocumentRight Arrow Icon
COOPERATIVE BEHAVIOR The small number of firms in an oligopoly  market tends to encourage cooperative  behavior (collusion). Increase profits Decrease uncertainty Raise barriers to entry
Background image of page 4
COOPERATIVE BEHAVIOR Cartel: A collusive arrangement made openly and  formally Cartels, and collusion in general, are illegal in the United  States. Cartels maximize profit by restricting the output of member  firms to a level that the marginal cost of production of every firm  in the cartel is equal to the market's marginal revenue and then  charging the market-clearing price. The need to allocate output among member firms results in an  incentive for the firms to cheat by overproducing and thereby  increase profit.
Background image of page 5

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

View Full DocumentRight Arrow Icon
Background image of page 6
THE BREAKDOWN OF  COLLUSIVE AGREEMENTS By producing a quantity of output that  exceeds the quota established by a cartel, a  firm can generally increase profits.
Background image of page 7

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

View Full DocumentRight Arrow Icon
Background image of page 8
PRICE LEADERSHIP Price leadership: In oligopolistic industries,  managers at one firm have significant  market power and can set their price.
Background image of page 9

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

View Full DocumentRight Arrow Icon
PRICE LEADERSHIP Assumptions There is a single firm, the price leader, that sets price in the market. There are also follower firms who behave as price takers,  producing a quantity at which marginal cost is equal to price. Their  supply curve is the horizontal summation of their marginal cost  curves. The price leader faces a residual demand curve that is the  horizontal difference between the market demand curve and the  followers' supply curve. The price leader produces a quantity at which the residual marginal  revenue is equal to marginal cost. Price is then set to clear the  market.
Background image of page 10
Background image of page 11

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

View Full DocumentRight Arrow Icon
POSSIBLE BEHAVIOR IN  MARKETS WITH FEW RIVALS Duopoly: A market in which there are only two  sellers Firms produce identical products. Rival managers make decisions simultaneously.
Background image of page 12
Image of page 13
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/30/2011 for the course ECON 3020 taught by Professor Lucas during the Spring '10 term at Hawaii Pacific.

Page1 / 36

ManEconCh10 - MANAGERIAL ECONOMICS THEORY APPLICATIONS AND...

This preview shows document pages 1 - 13. Sign up to view the full document.

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