Competition, Efficiency and Welfare
Outline:
Competition Maximizes Welfare
- The competitive equilibrium model
- The partial equilibrium setting
- Efficiency/Welfare results
Market Power and Efficiency
- Market Power
- Allocative efficiency
- Productive e
EC332, Spring 2014, Prof. Jordi Jaumandreu
Problem set #3
Monopoly, Dominant rm and Almost Perfect Competition
1. (Cabral) After spending 10 years and $1.5 billion, you have nally gotten
Food and Drug Administration (FDA) approval to sell your new patente
EC332, Spring 2014, Prof. Jordi Jaumandreu
Solutions to Problem set #5
Oligopoly Competition
Problem 1.
The new likely equilibrium is the rm that has introduced the innovation
pricing at the old cost minus epsilon. In this way it gets the entire market an
EC332, Spring 2014, Prof. Jordi Jaumandreu
Solutions to Problem set #2
Competition, Eciency and Welfare
Problem 1.
a. = and then = 1 , where stands for competition. Area of the
relevant triangle is = 1 (1 ) = 1 (1 )2 . Absolute value of elasticity
2
2
of
EC332 Market Structure and Economic Performance (Industrial Organization)
Fall 2016
Prof. Jordi Jaumandreu
E-mail: jordij@bu.edu
Department of Economics, 270 Bay State Road
Room 416
Phone: 617 358 5925
Office hours: T 11:00 am -12:30 pm; Th 12:30 pm 2:00
EC332, Spring 2015, Prof. Jordi Jaumandreu
Problem set #5
Oligopoly Competition
1. Two rms compite in prices in a homogeneous market with demand ()
Both rms have equal constant marginal cost Show the Bertrand equilibrium.
Now suppose that one of the rms n
EC332, Spring 2015, Prof. Jordi Jaumandreu
Problem set #6
Collusion
1. (Cabral) In a market with annual demand = 100, there are two rms,
A and B, that make identical products. Because their products are identical, if
one charges a lower price than the oth
EC332, Spring 2015, Prof. Jordi Jaumandreu
Problem set #1
Microeconomics, Firms
1. (Cabral) Consider the following values of the price elasticity of demand:
Cigarettes
0.5
US luxury cars in the United States
1.9
Foreign luxury cars in the United States
2.
EC332, Spring 2015, Prof. Jordi Jaumandreu
Problem set #2
Competition, Eciency and Welfare
1. The demand of an industry which is served by a monopolist is = 1
and the monopolist has constant marginal cost equal to
a. Calculate the price and quantity whi
EC332, Spring 2015, Prof. Jordi Jaumandreu
Problem set #3
Monopoly, Dominant rm and Almost Perfect Competition
1. (Cabral) After spending 10 years and $1.5 billion, you have nally gotten
Food and Drug Administration (FDA) approval to sell your new patente
1 3 OCTOBE R 2014
Scientific Background on the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2014
J E A N T I RO L E : M A R K E T P OW E R A N D R E G U L AT I O N
compiled by the Economic Sciences Prize Committee of the Royal Sw
3.4. Bertrand Model
Matilde Machado
1
3.4. Bertrand Model
In Cournot, firms decide how much to
produce and the market price is set such
that supply equals demand. But the
sentence price is set is too imprecise. In
reality how does it work exactly?
It is m
Week 7 - Game Theory and Industrial Organisation
The Cournot and Bertrand models are the two basic templates for models of oligopoly; industry
structures with a small number of firms. There are a number of similarities in that they are both game
theoretic
Market power, competition, and welfare
1. Allocative efficiency
2. Productive efficiency
3. Dynamic efficiency
4. Public policies, and incentives to innovate
5. Will the market fix it all?
1
1. Allocative efficiency
Definition of market power: the ability
What is Industrial Organization?
Outline
What is Industrial Organization?
Three examples of recent "IO relevant" issues (IO provides tools for analyzing
these facts):
- Will the last great American airline merger harm the consumers?
- 6 global banks agr
EC332, Spring 2014, Prof. Jordi Jaumandreu
Solutions to Problem set #3
Monopoly, Dominant rm and Almost Perfect Competition
Problem 1.
a. You can solve ( 1)125 for the optimal price and you will obtain
= 5 (see problem 1 of Problem set #1) Alternatively
EC332, Spring 2014, Prof. Jordi Jaumandreu
Problem set #8
Product Dierentiation
1 The only two available laundries ( and ) are located at the two extremes
of a linear street one mile long where they live a lot of students. The density
of students is the s
EC332, Spring 2014, Prof. Jordi Jaumandreu
Problem set #6
Collusion
1. (Cabral) In a market with annual demand = 100, there are two rms,
A and B, that make identical products. Because their products are identical, if
one charges a lower price than the oth
EC332, Fall 2013, Prof. Jordi Jaumandreu
Problem set #2
Competition, Eciency and Welfare
1. The demand of an industry which is served by a monopolist is = 1
and the monopolist has constant marginal cost equal to
a. Calculate the price and quantity which
EC332, Spring 2014, Prof. Jordi Jaumandreu
Problem set #5
Oligopoly Competition
1. Two rms compite in prices in a homogeneous market with demand ()
Both rms have equal constant marginal cost Show the Bertrand equilibrium.
Now suppose that one of the rms n
Collusion
Collusion (firms coordinate pricing in order to maximize profits)
Price wars
Factors that facilitate and hinder collusion
Antitrust law and policy toward price fixing
For the moment the number of firms is fixed: no entry
Recall Bertrand equ
What is Industrial Organization?
Outline
What is industrial organization?
- an answer in 12 questions
The central issues:
- Is there market power?
- How do firms acquire and maintain market power?
- What are the consequences of market power?
- Is there
EC332, Spring 2014, Prof. Jordi Jaumandreu
Problem set #1
Microeconomics, Firms
1. (Cabral) Consider the following values of the price elasticity of demand:
Cigarettes
0.5
US luxury cars in the United States
1.9
Foreign luxury cars in the United States
2.
EC332, Spring 2014, Prof. Jordi Jaumandreu
Solutions to Problem set #1
Microeconomics, Firms
Problem 1.
= and = + = (1+ ) = (1) where represents the
elasticity of demand. The elasticity of revenue can hence be written as =
(1) The impacts will be then re
EC332 Market Structure and Economic Performance (Industrial Organization)
Spring 2014
Prof. Jordi Jaumandreu
E-mail: jordij@bu.edu
Department of Economics, 270 Bay State Road
Room 416
Phone: 617 358 5925
Office hours: M 2:00 pm - 3:30 pm; W 3:30 pm 5:00 p
Entry and exit
Entry conditions
A key source of competition: the ease with which entry takes place
- determines concentration
- determines the extent of potential competition
Entry conditions:
- How many firms can enter?
- How long does it take to enter
EC332, Spring 2014, Prof. Jordi Jaumandreu
Solutions to Problem set #8
Product Dierentiation
Problem 1.
a. A straight line with intercept 3 at the axis corresponding to laundry
and slope 2
b. = 3 + 2 and = 3 + 2(1 )
c. The part of the street at which In
EC332, Spring 2014, Prof. Jordi Jaumandreu
Problem set #10
Market Structure and Entry
1. Suppose that an industry has ten rms with market shares with the
following percentages: 25, 15, 12, 10, 10, 8, 7,5 5, and 3.
a. Derive the four-rm concentratio ratio.