ch13 - Chapter 13 Market Structure And Competition 1...

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1 Market Structure And Competition Chapter 13
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2 Chapter Thirteen Overview 1. Introduction: Cola Wars 1. A Taxonomy of Market Structures 1. Monopolistic Competition 1. Oligopoly – Interdependence of Strategic Decisions Bertrand with Homogeneous and Differentiated Products 1. The Effect of a Change in the Strategic Variable Theory vs. Observation Cournot Equilibrium (homogeneous) Comparison to Bertrand, Monopoly Reconciling Bertrand, and Cournot 1. The Effect of a Change in Timing: Stackelberg Equilibrium Chapter Thirteen
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3 Chapter Thirteen Market Structures • The number of sellers • The number of buyers • Entry conditions • The degree of product differentiation
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4 Chapter Thirteen Product Differentiation Definition: Product Differentiation between two or more products exists when the products possess attributes that, in the minds of consumers, set the products apart from one another and make them less than perfect substitutes. Examples: Pepsi is sweeter than Coke, Brand Name batteries last longer than "generic" batteries.
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5 Chapter Thirteen Product Differentiation "Superiority" ( Vertical Product Differentiation ) i.e. one product is viewed as unambiguously better than another so that, at the same price, all consumers would buy the better product "Substitutability " ( Horizontal Product Differentiation ) i.e. at the same price, some consumers would prefer the characteristics of product A while other consumers would prefer the characteristics of product B.
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6 Chapter Thirteen Types of Market Structures
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7 Chapter Thirteen Oligopoly Assumptions: Many Buyers and Few Sellers Each firm faces downward-sloping demand because each is a large producer compared to the total market size There is no one dominant model of oligopoly. We will review several.
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8 Chapter Thirteen Cournot Oligopoly Assumptions Firms set outputs (quantities)* Homogeneous Products Simultaneous Non-cooperative *Definition: In a Cournot game, each firm sets its output (quantity) taking as given the output level of its competitor(s), so as to maximize profits. Price adjusts according to demand. Residual Demand: Firm i's guess about its rival's output determines its residual demand.
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9 Chapter Thirteen Simultaneously vs. Non-cooperatively Definition : Firms act simultaneously if each firm makes its strategic decision at the same time, without prior observation of the other firm's decision. Definition: Firms act non- cooperatively if they set strategy independently, without colluding with the other firm in any way
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10 Chapter Thirteen Definition: The relationship between the price charged by firm i and the demand firm i faces is firm is residual demand In other words, the residual demand of firm i is the market demand minus the amount of demand fulfilled by other firms in the market: Q 1 = Q - Q 2 Residual Demand
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11 Price Quantity 0 Demand Residual Demand when q 2 = 10 10 units Residual Marginal Revenue when q 2 = 10 MC q 1 * Chapter Thirteen Residual Demand
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12 Chapter Thirteen Profit Maximization
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This note was uploaded on 09/15/2011 for the course ECON 300 taught by Professor Zh during the Spring '11 term at SUNY Albany.

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ch13 - Chapter 13 Market Structure And Competition 1...

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