2d_Oligopoly

2d_Oligopoly - Oligopoly Economics of Competition and...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
Nile W. Hatch © 2002 – 2008 ManEc 387 Economics of Strategy Oligopoly Economics of Competition and Performance 1
Background image of page 1

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

View Full DocumentRight Arrow Icon
Nile Hatch © 1996 – 2008 Exploring Industry Structure Threat of Potential Entrants Bargaining Power of Suppliers Rivalry between Competitors 2 Customer Preferences Threat of Substitutes 2
Background image of page 2
Nile Hatch © 1996 – 2008 Market Structure and Performance • There are few examples of pure perfect competition and monopoly – it is more realistic to allow differentiated products with a few rivals • These market structures represent different levels of expected price competition: Market Structure Intensity of Price Competition Perfect Competition Fierce Monopolistic Competition May be ±erce or light depending on the degree of differentiation Oligopoly May be ±erce or light depending on the degree of inter±rm rivalry Monopoly Light unless threatened by entry 3
Background image of page 3

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

View Full DocumentRight Arrow Icon
Nile Hatch © 1996 – 2008 Oligopoly • Characteristics of oligopoly – A few, concentrated sellers who act and react to each other – All Frms are selling undifferentiated products • ±ew rivals may collectively act like a monopolist (tacit collusion) over market demand. By restricting output, oligopolists can earn price premia and economic proFts. • Actual performance depends on discipline among rivals to avoid price competition. 4
Background image of page 4
Nile Hatch © 1996 – 2008 Types of Oligopoly 5 Competition in . .. Goods are . .. Quantity Price Time Homogeneous Cournot Undifferentiated Bertrand Stackelberg Differentiated Differentiated Bertrand 5
Background image of page 5

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

View Full DocumentRight Arrow Icon
Nile Hatch © 1996 – 2008 Cournot Model of Oligopoly • A few Frms produce goods that are either perfect substitutes (homogeneous) or imperfect substitutes (differentiated) • ±irms set output, as opposed to price • Each Frm believes their rivals will hold output constant if it changes its own output (The output of rivals is viewed as given or “Fxed”) • Barriers to entry exist 6
Background image of page 6
Nile Hatch © 1996 – 2008 Cournot (Duopoly) Example 2 frms producing a homogeneous product – inverse demand is P(Q) = P(q 1 +q 2 ) = a - bQ = a - bq 1 - bq 2 Profts For frm 1 are π 1 = q 1 (a – bq 1 – bq 2 ) – cq 1 – k where marginal cost = c and fxed costs = k Optimal output choice For frm 1 MR = a - 2bq 1 – bq 2 – MC = c q 1 = (a – c – bq 2 )/2b 7
Background image of page 7

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

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/22/2011 for the course MANEC 387 taught by Professor Crawford,l during the Fall '08 term at BYU.

Page1 / 29

2d_Oligopoly - Oligopoly Economics of Competition and...

This preview shows document pages 1 - 8. Sign up to view the full document.

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