Monopolistic Competition and Oligopoly

Monopolistic Competition and Oligopoly - Brand advertising...

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Monopolistic Competition and Oligopoly
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Monopolistic Competition Many firms Differentiated product Try to create an inelastic demand for brand Cross price elasticity comes into play When does monopolistic competition turn into an oligopoly?
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Oligopoly Few firms dominant 5/50 or 4/60, four firm concentration Herfindahl index Justice department reviews industries with index over 1000 Examples (see text): Monopolistic Comp: electronic equipment, meat products Oligopoly: breakfast cereal, burial caskets
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Examples from market share Restaurants 71 competitors dominated by McDonalds Clothing 49 competitors Gap leads in market share Less domination
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Examples Car industry 7 competitors Toyota #1 Cigarette industry 9 competitors Altria (Philip Morris - Marlboro) #1
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Advertising Advertising can be in 2 forms
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Unformatted text preview: Brand advertising ie: Coke vs. Pepsi Industry advertising: Got Milk? Interdependence Occurs in Oligopolies Interdependent strategies Pricing strategies: Collude to fix prices Under cut each other Examples: car industry with zero percent financing and Universal dropping price of CD’s Graphing and Profit Maximization Graph will be similar to a monopoly with a downward sloping marginal revenue curve and a separate demand curve P* and Q* is where MR=MC Decision making in Oligopoly This usually includes some type of game theory approach A decision tree is constructed based on a payoff matrix A dominant strategy is determined where applicable If no dominant strategy, a Nash equilibrium is developed...
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This note was uploaded on 04/09/2008 for the course ECON 101 taught by Professor Micro during the Spring '08 term at Siena College (Loudonville).

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Monopolistic Competition and Oligopoly - Brand advertising...

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