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Unformatted text preview: Imperfect Competition Todd Sarver Northwestern University Econ 3102 – Fall 2011 Todd Sarver (Northwestern University) Imperfect Competition Econ 3102 – Fall 2011 1 / 30 Outline 1 Benchmarks for Market Power 2 Models of Imperfect Competition Cournot Competition Bertrand Competition 3 Which Model is the Right One? 4 Other Considerations Todd Sarver (Northwestern University) Imperfect Competition Econ 3102 – Fall 2011 2 / 30 Different Benchmarks for Market Power Perfect Competition Many firms, acting as pricetakers. Take prices as given and therefore optimize by setting p = MC . (in other words, the price p is a firm’s marginal revenue for each unit) Todd Sarver (Northwestern University) Imperfect Competition Econ 3102 – Fall 2011 3 / 30 Different Benchmarks for Market Power Perfect Competition Many firms, acting as pricetakers. Take prices as given and therefore optimize by setting p = MC . (in other words, the price p is a firm’s marginal revenue for each unit) Monopoly Single firm, realizes it has pricesetting power. Changing quantity changes price, optimizes by setting MR = MC . Todd Sarver (Northwestern University) Imperfect Competition Econ 3102 – Fall 2011 3 / 30 Different Benchmarks for Market Power Perfect Competition Many firms, acting as pricetakers. Take prices as given and therefore optimize by setting p = MC . (in other words, the price p is a firm’s marginal revenue for each unit) Imperfect Competition A “few” firms. Realize that their production decisions effect market prices. At the same time, any one firm’s decisions do not uniquely determine prices, since prices are determined by the combined production decisions of all firms. Monopoly Single firm, realizes it has pricesetting power. Changing quantity changes price, optimizes by setting MR = MC . Todd Sarver (Northwestern University) Imperfect Competition Econ 3102 – Fall 2011 3 / 30 Illustration of Perfect Competition and Monopoly Pricing (Covered in lecture) Todd Sarver (Northwestern University) Imperfect Competition Econ 3102 – Fall 2011 4 / 30 Outline 1 Benchmarks for Market Power 2 Models of Imperfect Competition Cournot Competition Bertrand Competition 3 Which Model is the Right One? 4 Other Considerations Todd Sarver (Northwestern University) Imperfect Competition Econ 3102 – Fall 2011 5 / 30 Different Models of Imperfect Competition In this lecture, we will study two different models of imperfect competition: The Cournot model of quantity competition. The Bertrand model of price competition. Todd Sarver (Northwestern University) Imperfect Competition Econ 3102 – Fall 2011 6 / 30 Different Models of Imperfect Competition In this lecture, we will study two different models of imperfect competition: The Cournot model of quantity competition....
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 Spring '08
 SARVER
 Microeconomics, Game Theory, Oligopoly, Perfect Competition, Cournot Competition, Todd Sarver, (Northwestern University)

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