Nov 9 and 11 Imperfect Competition Models

Cartels a group of firms using formal or informal

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    Cartels A group of firms using formal or informal  arrangements to act as a single entity in  controlling price and/or total volume of  business Examples include? Market collusion is illegal in the U.S. AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles
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    The “Good” and “Bad” of Oligopoly “Good” Product Innovations Motive – strategic interdependencies Opportunity – sufficient resources Economies of Scale Large size (through mergers, take-overs, innovations, basic  economics) leads to cost efficiencies “Bad” Inefficiencies  – charges a price greater than it’s marginal  cost and produces less than a firm in perfect competition Concentration in wealth and income  as a result of  enhanced market power AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles
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    Comparisons of Industry Market  Structures Characteristics Perfect  Competition Monopolistic  Competition Oligopoly Monopoly Price Maker Non-Price Competition     -- Advertising     -- Product Dev.     -- Barriers to Entry Relationship of Price to  Marginal Revenue and  Marinal Cost at Profit Max  Quantity Producing at the Minimum  Avg Total Cost Level?  Degree of Market Power   No                   Yes Yes Yes No                   Yes Yes Yes P = MR= MC      P >MR = MC        P>MR = MC    P> MR = MC Yes                 No   No No None                Limited   Strong Total
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    Imperfect Competition on the Buying Side Monopsony  – single buyer Oligopsony  – few buyers who closely monitor and  react to the purchasing behavior of their  competitors Monopsonistic Competition  – a larger  number of  buyers who compete more on offering services  than on price competition …. In all cases, buyers have some degree of market  power who generally offer a lower price to sellers  than what they could receive if their were a larger  number of buyers who bid competitively. AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles
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    Imperfect Competition on the Buying Side With increased concentration in U.S. agribusiness, U.S.  farmers are discovering a reduction in the number of  buyers, raising concerns over the degree of competition in  the marketplace. Agribusiness counters that the their larger size allow them  to have a lower overall cost structure  (economies of scale)  which enables them to pay producers more and their  product promotion efforts (both domestically and  internationally offers a bigger overall market for producer’s  products.
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  • Spring '10
  • Dr.WilliamM.Snell
  • Monopoly, Oligopoly, Agricultural Marketing Principles, Food and Agricultural Marketing Principles

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