Micro2_Chapter9

Micro2_Chapter9 - School of Business International...

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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 1 School of Business International University Mar 2009
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 2 Introduction ± Time: 3 hrs ± Readings: ± Content: – Introduction – Monopolistic Competition – Oligopoly – Pricing in an Oligopolistic Market: Rivalry and Mutual Interdependence – Competing in Imperfectly Competitive Markets – Strategy: The Fundamental Challenge for Firms in Imperfect Competition
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 3 Learning Objectives ± Cite the main differences between monopolistic competition and oligopoly ± Describe the role that mutual interdependence plays in setting prices in oligopolistic markets ± Illustrate price rigidity in oligopoly markets using the “kinked demand curve” ± Elaborate on how non-price factors help firms in monopolistic competition and oligopoly to differentiate their products and services ± Cite and briefly describe the five forces in Porter’s model of competition
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 4 Introduction ± Imperfect Competition – Some market power but not absolute market power – Have the ability to set prices within the limits of certain constraints – Mutual Interdependence: interaction among competitors when making decisions
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 5 Introduction Perfect Monopolistic Competition Monopoly Competition Oligopoly Market Power? No Yes, subject to Yes Yes government regulation Mutual interdependence No No No Yes among competing firms? Non-price competition? No Optional Yes Yes Easy market entry or exit ? Yes No Yes, No, relatively relatively easy difficult
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 6 Oligopoly ± Oligopoly is a market dominated by a relatively small number of large firms ± Products are either standardized or differentiated ± Measures of Market Concentration – Herfindahl-Hirschman index (HH): measure of market concentration (max HH = 10,000) • n: number of firms in the industry •S i : firm’s market share • Unconcentrated markets have HH < 1,000 = = n i i S HH 1 2
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 7
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 8 Sources of Oligopoly ± Economies of scale ± Large capital investment required ± Patented production processes ± Brand loyalty ± Control of a raw material or resource ± Government franchise ± Limit pricing
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 9 Pricing in an Oligopolistic Market:
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Micro2_Chapter9 - School of Business International...

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