Principles of Economics Session 8
Principles of Economics Session 8
Topics To Be Covered iMperfect Competition market Power Characteristics of oligopoly Collusion vs Competition Kinked demand Curve model ◆ Game Theory Characteristics of Monopolistic Competition
Topics To Be Covered Imperfect Competition & Market Power Characteristics of Oligopoly Collusion vs. Competition Kinked Demand Curve Model Game Theory Characteristics of Monopolistic Competition
Topics To Be Covered Profits and Losses of the monopolistic firm Long-Run Equilibrium of Monopolistic Competitive market Monopolistic vs Perfect Competition Comparison and Contrast between Four Types of market structure ◆ Standards wars
Topics To Be Covered Profits and Losses of the Monopolistic Firm Long-Run Equilibrium of Monopolistic Competitive Market Monopolistic vs. Perfect Competition Comparison and Contrast between Four Types of Market Structure Standards Wars
Four Types of Market Structure Number of firms Many firms One Type of Products firm/Few firms Differentiated Identical products products Monopolistic Perfect Monopoly oligopoly Competition Competition · Tap water Automobile Clothing Wheat ●Cab|eTV ● Crude oil Furniture ●Rice
Four Types of Market Structure Monopoly • Tap water • Cable TV Oligopoly • Automobile • Crude oil Monopolistic Competition Perfect Competition • Clothing • Furniture • Wheat • Rice Number of Firms One Type of Products firm Few firms Differentiated products Many firms Identical products
Imperfect Competition Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly
Imperfect Competition Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly
Imperfect Competition Imperfect competition includes industries in which firms have competitors but do not face so much competition that they are price takers
Imperfect Competition Imperfect competition includes industries in which firms have competitors but do not face so much competition that they are price takers
Types of Imperfectly Competitive Markets ◆ Oligopoly Only a few sellers, each offering a similar or identical product to the others o Monopolistic Competition .Many firms selling products that are similar but not identical
Types of Imperfectly Competitive Markets Oligopoly Only a few sellers, each offering a similar or identical product to the others. Monopolistic Competition Many firms selling products that are similar but not identical
Market power Market power is the des gree of control that a firm or group of firms has over the price and production decisions in an industry. o The monopolistic firm has a high degree of market power while perfectly competitive firms have no market power. Measures of market power: concentration ratio. Lerner's index herfindahl-Hirschman index
Market Power Market power is the degree of control that a firm or group of firms has over the price and production decisions in an industry. The monopolistic firm has a high degree of market power while perfectly competitive firms have no market power. Measures of market power: concentration ratio, Lerner’s index, Herfindahl-Hirschman index
Concentration Ratio o Concentration ratio is the percentage of an industry's total output accounted for by the largest firms A typical measure is the four-firm concentration ratio. which is the fraction of output accounted for by the four largest firms
Concentration Ratio Concentration ratio is the percentage of an industry’s total output accounted for by the largest firms. A typical measure is the four-firm concentration ratio, which is the fraction of output accounted for by the four largest firms
Lerner's Index Lerner's index is an efficient way to measure the market power. Costs, revenue and price L=(P-MC)/P MC P-MC ATC DE AR MR MAX Quantity
Lerner’s Index Lerner’s index is an efficient way to measure the market power. L = (P - MC)/P 0 Quantity Costs, Revenue and Price D= AR MC MR QMAX E ATC P M C P-MC P
