Chapter 8 - Economics 101 Competition 1. Imperfect...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Economics 101 Chapter 8: Monopoly ad Other Forms of Imperfect Competition 1. Imperfect Competition -Price Taker versus Price Setter -Perfectly Competitive Firm : -A firm that must take the price in the market – i.e. a Price Taker -Imperfectly Competitive Firm : -A firm with at least some latitude to set its own price – i.e. A Price Setter -Forms of Imperfect Competition -Pure Monopolist : -A firm that’s the only supplier of a unique product with no close substitutes -Oligopolist : -A firm that produces a product for which only a few rival firms produce close substitutes -Monopolistically Competitive Firm : -One of a large number of firms that produce slightly differentiated products that are reasonably close substitutes for one another -An Essential Difference -A Perfectly Competitive Firm faces a perfectly elastic demand curve for its product at the equilibrium price in the market -Charging a higher price or a lower price never increases a firm’s profit -An Imperfectly Competitive Firm faces a downward-sloping demand curve -Charging a price different from its competitors may increase a firm’s profit 2. Market Power -Market Power -A firm has Market Power ability to raise the price of a good without losing all its sales -“Market Power” does not mean that a firm can sell any quantity at any price it wishes -If price is raised, then quantity demanded falls – but only somewhat – i.e. the quantity demanded does not fall to zero -The crucial issue is “how much does the quantity demanded fall for a given change in price?” -Sources of Market Power-Market power arises from factors that limit competition: -Economies of Scale -Natural Monopolies -Declining costs mean largest firm can always undercut competitors -eg. Electricity distribution -Network Economies -Compatibility with (& control over) established product standards gives advantage -eg. Microsoft -Exclusive Control over Inputs -Patents and Copyrights -Grand exclusive rights for a specified time period -Promote monopoly but reward innovation -Licenses or Franchises -Government or private
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/08/2009 for the course ECON 101 taught by Professor Lemche during the Summer '05 term at The University of British Columbia.

Page1 / 4

Chapter 8 - Economics 101 Competition 1. Imperfect...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online