Post on 15-Jan-2016
description
Market
Structures
Market
Structures
The Degree of CompetitionThe Degree of Competition
• Classifying markets– number of firms
– freedom of entry to industry
– nature of product
– nature of demand curve
• The four market structures– perfect competition
– monopoly
– monopolistic competition
– oligopoly
• Classifying markets– number of firms
– freedom of entry to industry
– nature of product
– nature of demand curve
• The four market structures– perfect competition
– monopoly
– monopolistic competition
– oligopoly
Features of the four market structuresFeatures of the four market structures
Features of the four market structuresFeatures of the four market structures
Features of the four market structuresFeatures of the four market structures
Features of the four market structuresFeatures of the four market structures
Features of the four market structuresFeatures of the four market structures
Features of the four market structuresFeatures of the four market structures
The Degree of CompetitionThe Degree of Competition
• Classifying markets– number of firms– freedom of entry to industry– nature of product– nature of demand curve
• The four market structures– perfect competition– monopoly– monopolistic competition– oligopoly
• Structure conduct performance
• Classifying markets– number of firms– freedom of entry to industry– nature of product– nature of demand curve
• The four market structures– perfect competition– monopoly– monopolistic competition– oligopoly
• Structure conduct performance
Perfect CompetitionPerfect Competition
• Assumptions
– firms are price takers
– freedom of entry
– identical products
– perfect knowledge
• Short-run equilibrium of the firm
– price, output and profit
• Assumptions
– firms are price takers
– freedom of entry
– identical products
– perfect knowledge
• Short-run equilibrium of the firm
– price, output and profit
O
£
(b) Firm
Q (thousands)
O
(a) Industry
P
Q (millions)
S
D
Pe
MC
ARD = AR
= MR
Qe
AC
AC
Short-run equilibrium of industry and firm under perfect competition
Short-run equilibrium of industry and firm under perfect competition
Qe
P1
D1 = AR1
= MR1
AR1
O O
(a) Industry
P £
Q (millions)
S
D
(b) Firm
MC AC
AC
Q (thousands)
Loss minimising under perfect competitionLoss minimising under perfect competition
Perfect CompetitionPerfect Competition
• Assumptions– firms are price takers
– freedom of entry
– identical products
– perfect knowledge
• Short-run equilibrium of the firm– price, output and profit
• The short-run supply curve of the firm
• Assumptions– firms are price takers
– freedom of entry
– identical products
– perfect knowledge
• Short-run equilibrium of the firm– price, output and profit
• The short-run supply curve of the firm
O O
(a) Industry
P £
P1
Q (millions)
S
D1
(b) Firm
D1 = MR1
MC
P2
D2 = MR2
D2
P3
D3 = MR3
D3
Q (thousands)
Deriving the short-run supply curveDeriving the short-run supply curve
a
b
c
= S
Perfect CompetitionPerfect Competition
• Long-run equilibrium of the firm
– all supernormal profits competed away
– LRAC = AC = MC = MR = AR
• Long-run equilibrium of the firm
– all supernormal profits competed away
– LRAC = AC = MC = MR = AR
O O
(a) Industry
P £
Q (millions)
S1
D
(b) Firm
LRAC
PL
P1
QL
Se
AR1 D1
ARL DL
Q (thousands)
Long-run equilibrium under perfect competitionLong-run equilibrium under perfect competition
New firms enterSupernormal profitsProfits return
to normal
£
Q O
(SR)AC
(SR)MC
LRAC
AR = MR
DL
LRAC = (SR)AC = (SR)MC = MR = AR
Long-run equilibrium of the firm under perfect competitionLong-run equilibrium of the firm under perfect competition
Perfect CompetitionPerfect Competition
• Incompatibility of economies of scale with perfect competition
• Benefits of perfect competition
– price equals marginal cost
– prices kept low
– firms must be efficient to survive
• Incompatibility of economies of scale with perfect competition
• Benefits of perfect competition
– price equals marginal cost
– prices kept low
– firms must be efficient to survive
MonopolyMonopoly
• Defining monopoly• Barriers to entry
– economies of scale– economies of scope– product differentiation and brand loyalty– lower costs for an established firm– ownership/control of key factors– ownership/control over outlets– legal protection– mergers and takeovers– aggressive tactics– intimidation
• Defining monopoly• Barriers to entry
– economies of scale– economies of scope– product differentiation and brand loyalty– lower costs for an established firm– ownership/control of key factors– ownership/control over outlets– legal protection– mergers and takeovers– aggressive tactics– intimidation
MonopolyMonopoly
• The monopolist’s demand curve
– downward sloping
– MR below AR
• Equilibrium price and output
– Equilibrium output, where MC = MR
• The monopolist’s demand curve
– downward sloping
– MR below AR
• Equilibrium price and output
– Equilibrium output, where MC = MR
Profit maximising under monopolyProfit maximising under monopoly
MR
£
Q O
MC
Qm
MonopolyMonopoly
• The monopolist’s demand curve
– downward sloping
– MR below AR
• Equilibrium price and output
– Equilibrium output, where MC = MR
– Equilibrium price, found from demand curve
• The monopolist’s demand curve
– downward sloping
– MR below AR
• Equilibrium price and output
– Equilibrium output, where MC = MR
– Equilibrium price, found from demand curve
£
Q O
MC
AC
Qm
MR
AR
AC
Profit maximising under monopolyProfit maximising under monopoly
AR
MonopolyMonopoly
• The monopolist’s demand curve
– downward sloping
– MR below AR
• Equilibrium price and output
– Equilibrium output, where MC = MR
– Equilibrium price, found from demand curve
• Profit
– Measuring profit
• The monopolist’s demand curve
– downward sloping
– MR below AR
• Equilibrium price and output
– Equilibrium output, where MC = MR
– Equilibrium price, found from demand curve
• Profit
– Measuring profit
£
Q O
MC
AC
Qm
MR
AR
AC
Profit maximising under monopolyProfit maximising under monopoly
AR
Total profit
MonopolyMonopoly
• The monopolist’s demand curve– downward sloping
– MR below AR
• Equilibrium price and output– Equilibrium output, where MC = MR
– Equilibrium price, found from demand curve
• Profit– Measuring profit
– Supernormal profit can persist in long run
• The monopolist’s demand curve– downward sloping
– MR below AR
• Equilibrium price and output– Equilibrium output, where MC = MR
– Equilibrium price, found from demand curve
• Profit– Measuring profit
– Supernormal profit can persist in long run
MonopolyMonopoly
• Disadvantages of monopoly– high prices / low output: short run
• Disadvantages of monopoly– high prices / low output: short run
AR = D
MC
MR
£
Q O Q1
P1
Monopoly
Equilibrium of industry under perfect competition and monopoly: with the same MC curve
Equilibrium of industry under perfect competition and monopoly: with the same MC curve
£
Q O
MC ( = supply under perfect competition)
Q1
MR
P1
P2
Q2
AR = D
Comparison withPerfect competition
Equilibrium of industry under perfect competition and monopoly: with the same MC curve
Equilibrium of industry under perfect competition and monopoly: with the same MC curve
MonopolyMonopoly
• Disadvantages of monopoly– high prices / low output: short run
– high prices / low output: long run
• Disadvantages of monopoly– high prices / low output: short run
– high prices / low output: long run
MonopolyMonopoly
• Disadvantages of monopoly– high prices / low output: short run
– high prices / low output: long run
– lack of incentive to innovate
• Disadvantages of monopoly– high prices / low output: short run
– high prices / low output: long run
– lack of incentive to innovate
MonopolyMonopoly
• Disadvantages of monopoly– high prices / low output: short run
– high prices / low output: long run
– lack of incentive to innovate
– X-inefficiency
• Disadvantages of monopoly– high prices / low output: short run
– high prices / low output: long run
– lack of incentive to innovate
– X-inefficiency
MonopolyMonopoly
• Disadvantages of monopoly– high prices / low output: short run
– high prices / low output: long run
– lack of incentive to innovate
– X-inefficiency
• Advantages of monopoly
• Disadvantages of monopoly– high prices / low output: short run
– high prices / low output: long run
– lack of incentive to innovate
– X-inefficiency
• Advantages of monopoly
MonopolyMonopoly
• Disadvantages of monopoly– high prices / low output: short run
– high prices / low output: long run
– lack of incentive to innovate
– X-inefficiency
• Advantages of monopoly– economies of scale
• Disadvantages of monopoly– high prices / low output: short run
– high prices / low output: long run
– lack of incentive to innovate
– X-inefficiency
• Advantages of monopoly– economies of scale
£
Q O Q1
MR
P1
MCmonopoly
AR = D
Equilibrium of industry under perfect competition and monopoly: with different MC curves
Equilibrium of industry under perfect competition and monopoly: with different MC curves
£
Q O
MC ( = supply)perfect competition
Q1
MR
P1
P2
Q2
MCmonopoly
AR = D
x
Q3
P3
Equilibrium of industry under perfect competition and monopoly: with different MC curves
Equilibrium of industry under perfect competition and monopoly: with different MC curves
MonopolyMonopoly
• Disadvantages of monopoly– high prices / low output: short run
– high prices / low output: long run
– lack of incentive to innovate
– X-inefficiency
• Advantages of monopoly– economies of scale
– profits can be used for investment
• Disadvantages of monopoly– high prices / low output: short run
– high prices / low output: long run
– lack of incentive to innovate
– X-inefficiency
• Advantages of monopoly– economies of scale
– profits can be used for investment
MonopolyMonopoly
• Disadvantages of monopoly– high prices / low output: short run
– high prices / low output: long run
– lack of incentive to innovate
– X-inefficiency
• Advantages of monopoly– economies of scale
– profits can be used for investment
– high profits encourage risk taking
• Disadvantages of monopoly– high prices / low output: short run
– high prices / low output: long run
– lack of incentive to innovate
– X-inefficiency
• Advantages of monopoly– economies of scale
– profits can be used for investment
– high profits encourage risk taking
MonopolyMonopoly
• Contestable markets
– importance of potential competition
– a perfectly contestable market
– contestable markets and natural monopolies
– importance of costless exit
• Contestable markets and the public interest
• Contestable markets
– importance of potential competition
– a perfectly contestable market
– contestable markets and natural monopolies
– importance of costless exit
• Contestable markets and the public interest
Monopolistic CompetitionMonopolistic Competition
• Assumptions of monopolistic competition
• Equilibrium of the firm
– short run
• Assumptions of monopolistic competition
• Equilibrium of the firm
– short run
£
Q O Qs
AR D
MC
AC
MR
Short-run equilibrium of the firmunder monopolistic competitionShort-run equilibrium of the firmunder monopolistic competition
Ps
ACs
Monopolistic CompetitionMonopolistic Competition
• Assumptions of monopolistic competition
• Equilibrium of the firm
– short run
– long run
• Assumptions of monopolistic competition
• Equilibrium of the firm
– short run
– long run
Long-run equilibrium of the firmunder monopolistic competitionLong-run equilibrium of the firmunder monopolistic competition
ARL DL
MRL
£
Q O QL
PL
LRAC
LRMC
Monopolistic CompetitionMonopolistic Competition
• Assumptions of monopolistic competition
• Equilibrium of the firm
– short run
– long run
– underutilisation of capacity in the long run
• Assumptions of monopolistic competition
• Equilibrium of the firm
– short run
– long run
– underutilisation of capacity in the long run
Q2
P2 DL under perfect
competition
Long run equilibrium of the firm under perfect andmonopolistic competition
Long run equilibrium of the firm under perfect andmonopolistic competition
£
QO
P1
LRAC
DL under monopolistic
competition
Q1
Monopolistic CompetitionMonopolistic Competition
• Assumptions of monopolistic competition
• Equilibrium of the firm– short run
– long run
– underutilisation of capacity in the long run
• Non-price competition
• Assumptions of monopolistic competition
• Equilibrium of the firm– short run
– long run
– underutilisation of capacity in the long run
• Non-price competition
Monopolistic CompetitionMonopolistic Competition
• Assumptions of monopolistic competition
• Equilibrium of the firm– short run
– long run
– underutilisation of capacity in the long run
• Non-price competition
• The public interest
• Assumptions of monopolistic competition
• Equilibrium of the firm– short run
– long run
– underutilisation of capacity in the long run
• Non-price competition
• The public interest
Monopolistic CompetitionMonopolistic Competition
• Assumptions of monopolistic competition
• Equilibrium of the firm– short run
– long run
– underutilisation of capacity in the long run
• Non-price competition
• The public interest– comparison with perfect competition
• Assumptions of monopolistic competition
• Equilibrium of the firm– short run
– long run
– underutilisation of capacity in the long run
• Non-price competition
• The public interest– comparison with perfect competition
Monopolistic CompetitionMonopolistic Competition
• Assumptions of monopolistic competition
• Equilibrium of the firm– short run
– long run
– underutilisation of capacity in the long run
• Non-price competition
• The public interest– comparison with perfect competition
– comparison with monopoly
• Assumptions of monopolistic competition
• Equilibrium of the firm– short run
– long run
– underutilisation of capacity in the long run
• Non-price competition
• The public interest– comparison with perfect competition
– comparison with monopoly
OligopolyOligopoly
• Key features of oligopoly
– barriers to entry
– interdependence of firms
• Competition versus collusion
• Collusive oligopoly: cartels
– equilibrium of the industry
• Key features of oligopoly
– barriers to entry
– interdependence of firms
• Competition versus collusion
• Collusive oligopoly: cartels
– equilibrium of the industry
£
Q O
Industry D AR
Profit-maximising cartelProfit-maximising cartel
Profit-maximising cartelProfit-maximising cartel£
Q O
Industry D AR
Industry MC
Industry MR
Q1
P1
OligopolyOligopoly
• Key features of oligopoly
– barriers to entry
– interdependence of firms
• Competition versus collusion
• Collusive oligopoly: cartels
– equilibrium of the industry
– allocating and enforcing quotas
• Key features of oligopoly
– barriers to entry
– interdependence of firms
• Competition versus collusion
• Collusive oligopoly: cartels
– equilibrium of the industry
– allocating and enforcing quotas
0
5
10
15
20
25
30
35
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02
$ per barrel Actual price
Yom KippurWar: Arab oil
embargo
First oil fromNorth Sea
Revolutionin Iran
Iraq invadesIran OPEC’s first
quotas
Cease-fire inIran-Iraq war Recession
in Far East
Iraq invadesKuwait
New OPECquotas
World-widerecovery
World-wideslowdown
Impendingwar
with Iraq
Oil pricesOil prices
0
5
10
15
20
25
30
35
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02
$ per barrel Actual priceCost in 1973 prices
Yom KippurWar: Arab oil
embargo
First oil fromNorth Sea
Revolutionin Iran
Iraq invadesIran OPEC’s first
quotas
Cease-fire inIran-Iraq war Recession
in Far East
Iraq invadesKuwait
New OPECquotas
World-widerecovery
World-wideslowdown
Impendingwar
with Iraq
Oil pricesOil prices
OligopolyOligopoly
• Tacit collusion
– price leadership: dominant firm
• Tacit collusion
– price leadership: dominant firm
£
Q O
MR leader
AR D leader
AR D market
Price leader aiming to maximise profits for a given market sharePrice leader aiming to maximise profits for a given market share
Assume constantmarket share
for leader
£
Q O
AR D market
MC
MR leader
PL
QT
AR D leader
QL
l t
Price leader aiming to maximise profits for a given market sharePrice leader aiming to maximise profits for a given market share
OligopolyOligopoly
• Tacit collusion
– price leadership: dominant firm
– price leadership: barometric
• Tacit collusion
– price leadership: dominant firm
– price leadership: barometric
OligopolyOligopoly
• Tacit collusion
– price leadership: dominant firm
– price leadership: barometric
– rules of thumb
• Tacit collusion
– price leadership: dominant firm
– price leadership: barometric
– rules of thumb
OligopolyOligopoly
• Factors favouring collusion– Few firms
– Open with each other
– Similar production methods and average costs
– Similar products
– Dominant firm
– Significant entry barriers
– Stable market
– No government measures to curb collusion
• Factors favouring collusion– Few firms
– Open with each other
– Similar production methods and average costs
– Similar products
– Dominant firm
– Significant entry barriers
– Stable market
– No government measures to curb collusion
OligopolyOligopoly
• The breakdown of collusion• Non-collusive oligopoly: game theory
– alternative strategies• maximax and maximin
– simple dominant strategy games
• The breakdown of collusion• Non-collusive oligopoly: game theory
– alternative strategies• maximax and maximin
– simple dominant strategy games
Profits for firms A and B at different pricesProfits for firms A and B at different prices
£2.00 £1.80
£2.00
£1.80
X’s price
Y’s price
A B
C D
£10m each
£8m each£12m for Y£5m for X
£5m for Y£12m for X
OligopolyOligopoly
• The breakdown of collusion• Non-collusive oligopoly: game theory
– alternative strategies• maximax and maximin
– simple dominant strategy games• Nash equilibrium
• The breakdown of collusion• Non-collusive oligopoly: game theory
– alternative strategies• maximax and maximin
– simple dominant strategy games• Nash equilibrium
Profits for firms A and B at different pricesProfits for firms A and B at different prices
£2.00 £1.80
£2.00
£1.80
X’s price
Y’s price
A B
C D
£10m each
£8m each£12m for Y£5m for X
£5m for Y£12m for X
OligopolyOligopoly
• The breakdown of collusion• Non-collusive oligopoly: game theory
– alternative strategies• maximax and maximin
– simple dominant strategy games• Nash equilibrium• the prisoners’ dilemma
• The breakdown of collusion• Non-collusive oligopoly: game theory
– alternative strategies• maximax and maximin
– simple dominant strategy games• Nash equilibrium• the prisoners’ dilemma
The prisoners' dilemmaThe prisoners' dilemma
Not confess Confess
Notconfess
Confess
Amanda's alternatives
Nigel'salternatives
A B
C D
Each gets1 year
Each gets3 years
Nigel gets3 months
Amanda gets10 years
Nigel gets10 years
Amanda gets3 months
OligopolyOligopoly
• The breakdown of collusion• Non-collusive oligopoly: game theory
– alternative strategies• maximax and maximin
– simple dominant strategy games• the prisoners’ dilemma• Nash equilibrium
– more complex non-dominant strategy games
• The breakdown of collusion• Non-collusive oligopoly: game theory
– alternative strategies• maximax and maximin
– simple dominant strategy games• the prisoners’ dilemma• Nash equilibrium
– more complex non-dominant strategy games
OligopolyOligopoly
• The breakdown of collusion• Non-collusive oligopoly: game theory
– alternative strategies• maximax and maximin
– simple dominant strategy games• the prisoners’ dilemma• Nash equilibrium
– more complex non-dominant strategy games
– the importance of threats and promises
• The breakdown of collusion• Non-collusive oligopoly: game theory
– alternative strategies• maximax and maximin
– simple dominant strategy games• the prisoners’ dilemma• Nash equilibrium
– more complex non-dominant strategy games
– the importance of threats and promises
OligopolyOligopoly
• The breakdown of collusion• Non-collusive oligopoly: game theory
– alternative strategies• maximax and maximin
– simple dominant strategy games• the prisoners’ dilemma• Nash equilibrium
– more complex non-dominant strategy games
– the importance of threats and promises– the importance of timing of decisions
• The breakdown of collusion• Non-collusive oligopoly: game theory
– alternative strategies• maximax and maximin
– simple dominant strategy games• the prisoners’ dilemma• Nash equilibrium
– more complex non-dominant strategy games
– the importance of threats and promises– the importance of timing of decisions
OligopolyOligopoly
• The breakdown of collusion• Non-collusive oligopoly: game theory
– alternative strategies• maximax and maximin
– simple dominant strategy games• the prisoners’ dilemma• Nash equilibrium
– more complex non-dominant strategy games
– the importance of threats and promises– the importance of timing of decisions
• decision trees
• The breakdown of collusion• Non-collusive oligopoly: game theory
– alternative strategies• maximax and maximin
– simple dominant strategy games• the prisoners’ dilemma• Nash equilibrium
– more complex non-dominant strategy games
– the importance of threats and promises– the importance of timing of decisions
• decision trees
Boeingdecides
500
seat
er
500 seater
500 seater
400 seater
400 seater
400 seater
A decision treeA decision tree
Boeing –£10mAirbus –£10m
(1)
Boeing +£30mAirbus +£50m
(2)
Boeing +£50mAirbus +£30m
(3)
Boeing –£10mAirbus –£10m (4)
Airbusdecides
B2
Airbusdecides
B1
A
OligopolyOligopoly
• Non-collusive oligopoly: the kinked demand curve theory
– assumptions of the model
• Non-collusive oligopoly: the kinked demand curve theory
– assumptions of the model
Kinked demand for a firm under oligopolyKinked demand for a firm under oligopoly£
QO
P1
Q1
Current priceand quantity
give one pointon demand curve
£
QO
P1
Q1
D
D
Kinked demand for a firm under oligopolyKinked demand for a firm under oligopoly
OligopolyOligopoly
• Non-collusive oligopoly: the kinked demand curve theory
– assumptions of the model
– stable prices
• Non-collusive oligopoly: the kinked demand curve theory
– assumptions of the model
– stable prices
£
QO
P1
Q1
MC2
MC1
MR
a
bD AR
Stable price under conditions of a kinked demand curveStable price under conditions of a kinked demand curve
OligopolyOligopoly
• Non-collusive oligopoly: the kinked demand curve theory
– assumptions of the model
– stable prices
– limitations of the model
• Non-collusive oligopoly: the kinked demand curve theory
– assumptions of the model
– stable prices
– limitations of the model
OligopolyOligopoly
• Non-collusive oligopoly: the kinked demand curve theory
– assumptions of the model
– stable prices
– limitations of the model
• Oligopoly and the public interest
• Non-collusive oligopoly: the kinked demand curve theory
– assumptions of the model
– stable prices
– limitations of the model
• Oligopoly and the public interest
OligopolyOligopoly
• Non-collusive oligopoly: the kinked demand curve theory
– assumptions of the model
– stable prices
– limitations of the model
• Oligopoly and the public interest
– advantages
• Non-collusive oligopoly: the kinked demand curve theory
– assumptions of the model
– stable prices
– limitations of the model
• Oligopoly and the public interest
– advantages
OligopolyOligopoly
• Non-collusive oligopoly: the kinked demand curve theory
– assumptions of the model
– stable prices
– limitations of the model
• Oligopoly and the public interest
– advantages
– disadvantages
• Non-collusive oligopoly: the kinked demand curve theory
– assumptions of the model
– stable prices
– limitations of the model
• Oligopoly and the public interest
– advantages
– disadvantages
OligopolyOligopoly
• Non-collusive oligopoly: the kinked demand curve theory
– assumptions of the model
– stable prices
– limitations of the model
• Oligopoly and the public interest
– advantages
– disadvantages
– difficulties in drawing general conclusions
• Non-collusive oligopoly: the kinked demand curve theory
– assumptions of the model
– stable prices
– limitations of the model
• Oligopoly and the public interest
– advantages
– disadvantages
– difficulties in drawing general conclusions
Price DiscriminationPrice Discrimination
• Meaning of price discrimination
– First degree
– Second degree
– Third degree (the most common form)
• Meaning of price discrimination
– First degree
– Second degree
– Third degree (the most common form)
Third-degree price discriminationThird-degree price discrimination
P
QO
P1
D
200
Revenue froma single price
O
P1
D
200
P2
150
P
Q
Increased revenuefrom price
discriminationA higher discriminatoryprice is now introduced
Third-degree price discriminationThird-degree price discrimination
Price DiscriminationPrice Discrimination
• Meaning of price discrimination
– First degree
– Second degree
– Third degree (the most common form)
• Conditions necessary for price discrimination
• Meaning of price discrimination
– First degree
– Second degree
– Third degree (the most common form)
• Conditions necessary for price discrimination
Price DiscriminationPrice Discrimination
• Meaning of price discrimination
– First degree
– Second degree
– Third degree (the most common form)
• Conditions necessary for price discrimination
• Advantages to the firm
• Meaning of price discrimination
– First degree
– Second degree
– Third degree (the most common form)
• Conditions necessary for price discrimination
• Advantages to the firm
Price DiscriminationPrice Discrimination
• Profit maximising prices and output under price discrimination
• Profit maximising prices and output under price discrimination
O O OMRX
(a) Market X
DX
Profit-maximising output underthird degree price discriminationProfit-maximising output under
third degree price discrimination
O O O
DY
MRX
MRY
(a) Market X (b) Market Y
DX
Profit-maximising output underthird degree price discriminationProfit-maximising output under
third degree price discrimination
O O OMRX
MRY MRT
(a) Market X (b) Market Y (c) Total
(markets X + Y)
DX
Profit-maximising output underthird degree price discriminationProfit-maximising output under
third degree price discrimination
DY
Profit-maximising output underthird degree price discriminationProfit-maximising output under
third degree price discrimination
O O OMRX
MRY MRT
MC
(a) Market X (b) Market Y (c) Total
(markets X + Y)
DX
DY
O O OMRX
MRY MRT
MC
(a) Market X (b) Market Y (c) Total
(markets X + Y)
DX
3000
Profit-maximising output underthird degree price discriminationProfit-maximising output under
third degree price discrimination
DY
O O O
DX
MRX
MRY MRT
MC
5
(a) Market X (b) Market Y (c) Total
(markets X + Y)
3000
Profit-maximising output underthird degree price discriminationProfit-maximising output under
third degree price discrimination
DY
O O OMRX
MRY MRT
MC
5
1000
(a) Market X (b) Market Y (c) Total
(markets X + Y)
DX
3000
Profit-maximising output underthird degree price discriminationProfit-maximising output under
third degree price discrimination
DY
O O OMRX
MRY MRT
MC
5
1000 2000
(a) Market X (b) Market Y (c) Total
(markets X + Y)
DX
3000
Profit-maximising output underthird degree price discriminationProfit-maximising output under
third degree price discrimination
DY
O O OMRX
MRY MRT
MC
5
9
1000 2000
(a) Market X (b) Market Y (c) Total
(markets X + Y)
DX
3000
Profit-maximising output underthird degree price discriminationProfit-maximising output under
third degree price discrimination
DY
O O OMRX
MRY MRT
MC
DY
5
7
1000 2000 3000
(a) Market X (b) Market Y (c) Total
(markets X + Y)
9
DX
Profit-maximising output underthird degree price discriminationProfit-maximising output under
third degree price discrimination
Price DiscriminationPrice Discrimination
• Profit maximising prices and output under price discrimination
• Price discrimination and the public interest
– competition
• Profit maximising prices and output under price discrimination
• Price discrimination and the public interest
– competition
Price DiscriminationPrice Discrimination
• Profit maximising prices and output under price discrimination
• Price discrimination and the public interest
– competition
– profits
• Profit maximising prices and output under price discrimination
• Price discrimination and the public interest
– competition
– profits