Chapter 10 Oligopoly and monopolistic competition A.Behavior of imperfect competitors B.Innovation and information c.A balance sheet on imperfect competition 1 2023/7117 Economics
1 2023/7/17 Economics Chapter 10 Oligopoly and monopolistic competition A. Behavior of imperfect competitors B. Innovation and information C. A balance sheet on imperfect competition
A.Behavior of imperfect competitors Market power signifies the degree of control that a single firm or a small number of firms has over the price and production decision in an industry. The most common measure of market power is the concentration ratio for an industry. The four-firm(or eight-firm)concentration ratio is defined as the percent of total industry production that is accounted for by the largest four firms(or eight firms) (P184,Figure 10-1) ■Herfindahl-Hirschman Index(HHl,赫芬达尔-赫希曼指数) is calculated by summing the squares of the percentage market shares of all participants in a market.(0sHH≤10000) 2 2023/7117 Economics
2 2023/7/17 Economics A.Behavior of imperfect competitors ◼ Market power signifies the degree of control that a single firm or a small number of firms has over the price and production decision in an industry. ◼ The most common measure of market power is the concentration ratio for an industry. ◼ The four-firm(or eight-firm) concentration ratio is defined as the percent of total industry production that is accounted for by the largest four firms(or eight firms). (P184, Figure 10-1) ◼ Herfindahl-Hirschman Index (HHI,赫芬达尔-赫希曼指数) is calculated by summing the squares of the percentage market shares of all participants in a market.(0≤HHI≤10000)
The nature of Imperfect Competition Costs.When the minimum efficient size of operation for a firm occurs at a sizable fraction of industry output,only a few firms can profitably survive and oligopoly is likely to result. Barriers to competition.When there are large economies of scale or government restrictions to entry,they will limit the number of competitors in an industry. Strategic interaction.when only a few firms operate in a market,they will soon recognize their interdependence.strategic interaction occurs when each firm's business depends upon the behavior of its rivals. “ 3 2023/7117 Economics
3 2023/7/17 Economics The nature of Imperfect Competition ◼ Costs. When the minimum efficient size of operation for a firm occurs at a sizable fraction of industry output,only a few firms can profitably survive and oligopoly is likely to result. ◼ Barriers to competition. When there are large economies of scale or government restrictions to entry,they will limit the number of competitors in an industry. ◼ Strategic interaction.when only a few firms operate in a market,they will soon recognize their interdependence.strategic interaction occurs when each firm’s business depends upon the behavior of its rivals
Collusive oligopoly(勾结的寡头) ■Cooperation and noncooperation(合作与不合作). Cooperation among oligopolists means collusion(串谋或勾 ).it denotes a situation in which two or more firms jointly set their prices or outputs,divide the market among themselves,or make other business decision jointly. ■Forms of collusion:Trust or Cartel(托拉斯或卡特 尔，P180,P186). The rewards of successful collusion can be great,however, experience shows that running a successful cartel is a difficult business,whether the collusion is explicit or tacit. Examples:OPEC(The Organization of Petroleum Exporting Countries)and the airline industry. 4 2023/7117 Economics
4 2023/7/17 Economics Collusive oligopoly(勾结的寡头) ◼ Cooperation and noncooperation(合作与不合作). ◼ Cooperation among oligopolists means collusion(串谋或勾 结).it denotes a situation in which two or more firms jointly set their prices or outputs,divide the market among themselves,or make other business decision jointly. ◼ Forms of collusion:Trust or Cartel(托拉斯或卡特 尔,P180,P186). ◼ The rewards of successful collusion can be great,however, experience shows that running a successful cartel is a difficult business,whether the collusion is explicit or tacit. ◼ Examples:OPEC(The Organization of Petroleum Exporting Countries) and the airline industry
Many obstacles hinder effective collusion First,collusion is illegal. ■Second,firms may“cheat''on the agreement by cutting their price to increase their market share. Third,the growth of international trade means that many companies face intensive competition from foreign firms as well as domestic companies 5 2023/7117 Economics
5 2023/7/17 Economics Many obstacles hinder effective collusion ◼ First,collusion is illegal. ◼ Second,firms may “cheat” on the agreement by cutting their price to increase their market share. ◼ Third,the growth of international trade means that many companies face intensive competition from foreign firms as well as domestic companies
Rivalry among the few(少数企业间的对抗) ■A duopoly(双头垄断)is the market which is formed by two firms. ■Strategic interaction and the game theory..(策略互 动和博弈论) Game theory is the analysis of situations involving two or more interacting decision markers who have conflicting objectives.(P189- 190). ■Price discrimination(价格歧视)occurs when the same product is sold to different consumers for different prices.(P190) 6 20237117 Economics
6 2023/7/17 Economics Rivalry among the few(少数企业间的对抗) ◼ A duopoly(双头垄断) is the market which is formed by two firms. ◼ Strategic interaction and the game theory.(策略互 动和博弈论) ◼ Game theory is the analysis of situations involving two or more interacting decision markers who have conflicting objectives.(P189- 190). ◼ Price discrimination(价格歧视)occurs when the same product is sold to different consumers for different prices.(P190)
Figure 10-1 Price discrimination MC MR2 D, MR MR Q Q2 Q Q 7 2023/7117 Economics
7 2023/7/17 Economics Figure 10-1 Price discrimination O Q P D1 MR D2 2 MR1 MR MC E Q1 Q2 Q P1 P2
Monopolistic competition Features:there are many buyers and sellers,entry and exit are easy,and firms take other firms's prices as given,products are differentiated. ■Products differentiations(产品差别)are ones that products have differing characteristics such as quality,location,advertising and so on.it leads to a downward slope in each seller's demand curve. In the short-run equilibrium,firms usually get profits,but in the long-run equilibrium,they just get zero profit. 8 2023/7117 Economics
8 2023/7/17 Economics Monopolistic competition ◼ Features:there are many buyers and sellers,entry and exit are easy,and firms take other firms’s prices as given,products are differentiated. ◼ Products differentiations(产品差别) are ones that products have differing characteristics such as quality, location,advertising and so on.it leads to a downward slope in each seller’s demand curve. ◼ In the short-run equilibrium,firms usually get profits,but in the long-run equilibrium,they just get zero profit
Figure 10-2 Short-run equilibrium PRC SMC SAC P* AC* H d(AR) MR Q* 9 2023/7117 Economics
9 2023/7/17 Economics Figure 10-2 Short-run equilibrium O Q P R C d(AR) MR SAC SMC E Q* P* F AC* H
Figure 10-3 Long-run equilibrium PRC LMC LAC P* E d(AR) MR Q* 10 2023/7117 Economics
10 2023/7/17 Economics Figure 10-3 Long-run equilibrium O Q P R C d(AR) MR LMC LAC E Q* P* F