Micro2_Chapter10

Micro2_Chapter10 - 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: – Keat & Young, Chapter 10 ± Content: – Cartel Arrangements – Price Leadership – Revenue Maximization – Price Discrimination – Non-marginal Pricing – Multiproduct Pricing – Transfer Pricing – Other Pricing Practices
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 3 Learning Objectives ± Analyze cartel pricing ± Illustrate price leadership ± Understand price discrimination, and explain how it affects production and prices ± Distinguish between marginal pricing and “cost-plus” pricing ± Discuss the various types of multiproduct pricing ± Explain the meaning of “transfer pricing,” and explain how a company should price products that pass from one operating division to another
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 4 Cartel Arrangements ± Monopoly profits are the largest profits available in an industry. ± A cartel arrangement occurs when the firms in an industry cooperate and act together as if they were a monopoly. ± Cartel arrangements may be tacit or formal ± Illegal in the U.S. – Sherman Antitrust Act, 1890 ± Examples – Organization of Petroleum Exporting Countries (OPEC) – International Air Transport Association (IATA)
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 5 Cartel Arrangements ± Conditions that influence the formation of cartels – Small number of large firms in the industry – Geographical proximity of the firms – Homogeneous products that do not allow differentiation – Stage of the business cycle, usually established during depressed cycles or recovery – Difficult entry into industry – Uniform cost conditions, usually defined by product homogeneity
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 6 Cartel Arrangements ± In order to maximize profits, the cartel as a whole should behave as a monopolist. ± To accomplish this, the cartel determines the output which equates marginal revenue with the marginal cost of the cartel as a whole. ± The marginal cost of the cartel as a whole is the horizontal summation of the members’ marginal cost curves. ± Price is set in the normal monopoly way, by determining quantity demanded where MC=MR and deriving the price from the demand curve at that quantity.
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 7 Cartel Arrangements
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 8 Cartel Arrangements ± MC T is the horizontal sum of MC I and MC II ± Q T is found at the intersection of MR T and MC T ±
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Micro2_Chapter10 - School of Business International...

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