market_power

market_power - Overview Market Power • Competitive...

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Unformatted text preview: Overview: Market Power • Competitive Equilibrium • Profit Maximization • Monopoly – Output and Price Analytics • Coordination of Multiple Plants • Pricing with Learning Effects and Network Externalities 1 Competitive Equilibrium • Mechanism of Competitive Equilibrium – Demand Growth • Higher prices stimulate more supply from existing firms • Emergence of profits causes entry/expansion of capacity – Demand shortfall • Lower prices cause cutbacks in in supply from existing firms • Losses (negative profits) cause exit/contraction of capacity – Processes continue until economic profits return to 0 2 Market Power • Ability to raise price above costs and make sustainable profits – Economic costs and economic profits • Requires that the mechanism of competition fails to operate – Barriers to entry – Sufficient product differentiation (that cannot be copied) – Secret technology - No information on profitability – Market too small relative to efficient production scale Profit Maximization ? Pick Q such that MR = MC Production: Cost C(Q) Distribution and Sale: Revenue R(Q) Q How do you maximize profit Π = R – C (drum roll) 3 Monopoly: Price and Output Analytics • Focus on monopoly, the simplest case of...
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market_power - Overview Market Power • Competitive...

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