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Fernando & YvonnQuijano
Prepared by:
MonopolisticCompetition
and Oligopoly
12
C H A
P
T E
R
Copyright © 2009 Pearson Education, Inc. Pubishing as Prentice Ha ! "icroecono#ics ! Pindyc$%Rubin&ed, 'e.
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C h a p t e r 1 2 : M o n o p
o l i s t i c C o m p e t i t i o n
a n d O l i g o p o l y
2 of 35Copyright © 2009 Pearson Education, Inc. Pubishing as Prentice Ha ! "icroecono#ics ! Pindyc$%Rubin&ed, 'e.
CHAPT! 12 O"T#$%
(2.( "onopoistic Co#petition
(2.2 )igopoy
(2.* Price Co#petition
(2.+ Co#petition ersus Cousion-The Prisoners /ie##a
(2. I#pications o& the Prisoners /ie##a &or
)igopoistic Pricing
(2.1 Cartes
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C h a p t e r 1 2 : M o n o p
o l i s t i c C o m p e t i t i o n
a n d O l i g o p o l y
3 of 35Copyright © 2009 Pearson Education, Inc. Pubishing as Prentice Ha ! "icroecono#ics ! Pindyc$%Rubin&ed, 'e.
Monopolistic Competition and Oligopoly
●monopolistic competition "ar$et in hich &ir#s canenter &reey, each producing its on brand or ersion o& adi&&erentiated product.
●oligopoly "ar$et in hich ony a &e &ir#s co#peteith one another, and entry by ne &ir#s is i#peded.
●cartel "ar$et in hich so#e or a &ir#s e3picitycoude, coordinating prices and output ees to
#a3i#i4e 5oint pro&its.
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C h a p t e r 1 2 : M o n o p
o l i s t i c C o m p e t i t i o n
a n d O l i g o p o l y
& of 35Copyright © 2009 Pearson Education, Inc. Pubishing as Prentice Ha ! "icroecono#ics ! Pindyc$%Rubin&ed, 'e.
")6)P)7I8TIC C)"PETITI)6(2.(
The "a$ings o& "onopoistic Co#petition
A #onopoisticay co#petitie #ar$et has to $ey characteristics-
(. ir#s co#pete by seing di&&erentiated products that are highysubstitutabe &or one another but not per&ect substitutes. In other
ords, the cross:price easticities o& de#and are arge but notin&inite.
2. There is free entry and exit: it is reatiey easy &or ne &ir#s toenter the #ar$et ith their on brands and &or e3isting &ir#s toeae i& their products beco#e unpro&itabe.
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C h a p t e r 1 2 : M o n o p
o l i s t i c C o m p e t i t i o n
a n d O l i g o p o l y
5 of 35Copyright © 2009 Pearson Education, Inc. Pubishing as Prentice Ha ! "icroecono#ics ! Pindyc$%Rubin&ed, 'e.
")6)P)7I8TIC C)"PETITI)6(2.(
E;uiibriu# in the 8hort Run and the 7ong Run
<ecause the &ir# is theony producer o& itsbrand, it &aces a
donard:sopingde#and cure.
Price e3ceeds #arginacost and the &ir# has#onopoy poer.
In the short run,described in part =a>,
price aso e3ceedsaerage cost, and the&ir# earns pro&itsshon by the yeo:shaded rectange.
A MonopolisticallyCompetiti'e (irm in the)hort and #ong !*n
(ig*re 12+1
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C h a p t e r 1 2 : M o n o p
o l i s t i c C o m p e t i t i o n
a n d O l i g o p o l y
, of 35Copyright © 2009 Pearson Education, Inc. Pubishing as Prentice Ha ! "icroecono#ics ! Pindyc$%Rubin&ed, 'e.
")6)P)7I8TIC C)"PETITI)6(2.(
E;uiibriu# in the 8hort Run and the 7ong Run
In the ong run, thesepro&its attract ne &ir#sith co#peting brands.
The &ir#s #ar$et share&as, and its de#andcure shi&ts donard.
In ong:run e;uiibriu#,described in part =b>,price e;uas aeragecost, so the &ir# earns
4ero pro&it een thoughit has #onopoy poer.
A MonopolisticallyCompetiti'e (irm in the)hort and #ong !*n
(ig*re 12+1 -contin*ed.
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C h a p t e r 1 2 : M o n o p
o l i s t i c C o m p e t i t i o n
a n d O l i g o p o l y
/ of 35Copyright © 2009 Pearson Education, Inc. Pubishing as Prentice Ha ! "icroecono#ics ! Pindyc$%Rubin&ed, 'e.
")6)P)7I8TIC C)"PETITI)6(2.(
"onopoistic Co#petition and Econo#ic E&&iciency
?nder per&ectco#petition, pricee;uas #argina cost.
The de#and cure&acing the &ir# ishori4onta, so the 4ero:pro&it point occurs atthe point o& #ini#u#aerage cost.
Comparison ofMonopolisticallyCompetiti'e 0*ilibri*mand Perfectly Competiti'e0*ilibri*m
(ig*re 12+2
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C h a p t e r 1 2 : M o n o p
o l i s t i c C o m p e t i t i o n
a n d O l i g o p o l y
of 35Copyright © 2009 Pearson Education, Inc. Pubishing as Prentice Ha ! "icroecono#ics ! Pindyc$%Rubin&ed, 'e.
")6)P)7I8TIC C)"PETITI)6(2.(
"onopoistic Co#petition and Econo#ic E&&iciency
?nder #onopoisticco#petition, pricee3ceeds #argina cost.
Thus there is adeadeight oss, asshon by the yeo:shaded area.
The de#and cure is
donard:soping, sothe 4ero:pro&it point isto the e&t o& the point o&#ini#u# aerage cost.
Comparison ofMonopolisticallyCompetiti'e 0*ilibri*mand Perfectly Competiti'e0*ilibri*m
(ig*re 12+2 -contin*ed.
In both types o& #ar$ets, entry occurs unti pro&its aredrien to 4ero.
In eauating #onopoistic co#petition, theseine&&iciencies #ust be baanced against the gains toconsu#ers &ro# product diersity.
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of 35Copyright © 2009 Pearson Education, Inc. Pubishing as Prentice Ha ! "icroecono#ics ! Pindyc$%Rubin&ed, 'e.
")6)P)7I8TIC C)"PETITI)6(2.(
TA# 12+1 lasticities of 4emand for rands of Colas and Coffee
<rand Easticity o& /e#and
Coas Roya Cron @2.+
Co$e @.2 to @.'
round co&&ee ogers @1.+
"a3e House @B.2
Choc$ u o6uts @*.1
ith the e3ception o& Roya Cron and Choc$ u o 6uts,a the coas and co&&ees are ;uite price eastic. itheasticities on the order o& D+ to DB, each brand has onyi#ited #onopoy poer. This is typica o& #onopoisticco#petition.
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)7I)P)7(2.2
The "a$ings o& "onopoistic Co#petition
In oigopoistic #ar$ets, the products #ay or #ay not be
di&&erentiated.
hat #atters is that ony a &e &ir#s account &or #ost or a o& tota
production.
In so#e oigopoistic #ar$ets, so#e or a &ir#s earn substantia
pro&its oer the ong run because barriers to entry #a$e it di&&icut or
i#possibe &or ne &ir#s to enter.
)igopoy is a preaent &or# o& #ar$et structure. E3a#pes o&
oigopoistic industries incude auto#obies, stee, au#inu#,petroche#icas, eectrica e;uip#ent, and co#puters.
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)7I)P)7(2.2
E;uiibriu# in an )igopoistic "ar$et
When a market is in equilibrium, firms are doing the best they can
and have no reason to change their price or output.
%ash 0*ilibri*m E;uiibriu# in oigopoy #ar$ets #eans that
each &ir# i ant to do the best it can given what its competitorsare doing, and these competitors will do the best they can given
what that firm is doing.
● %ash e0*ilibri*m 8et o& strategies or actions in hich
each &ir# does the best it can gien its co#petitors actions.
● d*opoly "ar$et in hich to &ir#s co#pete ith each other.
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)7I)P)7(2.2
The Cournot "ode
● Co*rnot model )igopoy #ode in hich &ir#s produce aho#ogeneous good, each &ir# treats the output o& its co#petitors as&i3ed, and a &ir#s decide si#utaneousy ho #uch to produce.
ir# (s pro&it:#a3i#i4ing output depends onho #uch it thin$s that ir# 2 i produce.
I& it thin$s ir# 2 i produce nothing, itsde#and cure, abeed D(=0>, is the #ar$et
de#and cure. The corresponding #arginareenue cure, abeed "R(=0>, intersects
ir# (s #argina cost cure "C( at an output
o& 0 units.
I& ir# ( thin$s that ir# 2 i produce 0units, its de#and cure, D(=0>, is shi&ted to
the e&t by this a#ount. Pro&it #a3i#i4ationno i#pies an output o& 2 units.
inay, i& ir# ( thin$s that ir# 2 iproduce ' units, ir# ( i produce ony(2. units.
(irm 16s O*tp*t 4ecision
(ig*re 12+3
5
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)7I)P)7(2.2
The Cournot "ode
● reaction c*r'e Reationship beteen a &ir#s pro&it:#a3i#i4ing
output and the a#ount it thin$s its co#petitor i produce.
● Co*rnot e0*ilibri*m E;uiibriu# in the Cournot #ode in hicheach &ir# correcty assu#es ho #uch its co#petitor i produceand sets its on production ee accordingy.
ir# (s reaction cure shosho #uch it i produce as a
&unction o& ho #uch it thin$sir# 2 i produce.
ir# 2s reaction cure shos itsoutput as a &unction o& ho #uchit thin$s ir# ( i produce.
In Cournot e;uiibriu#, each &ir#correcty assu#es the a#ount
that its co#petitor i produceand thereby #a3i#i4es its onpro&its. There&ore, neither &ir#i #oe &ro# this e;uiibriu#.
!eaction C*r'esand Co*rnot 0*ilibri*m
(ig*re 12+&
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)7I)P)7(2.2
The 7inear /e#and CureFAn E3a#pe
/uopoists &ace the &ooing #ar$et de#and cureP G *0 @
Aso, "C( G "C2 G 0
Tota reenue &or &ir# (- ! ( G P( G =*0 @>(
then "R( G ! (%( G *0 @ 2( @2
8etting "R( G 0 =the &ir#s #argina cost> and soing &or (, e &ind
"irm #$s reaction curve:
<y the sa#e cacuation, "irm %$s reaction curve:
&ournot equilibrium:
'otal quantity produced:
1 2115-2
(12.1)Q Q=
2 2
115-2
(12.2)Q Q=
1 210Q Q= =
1 220Q Q Q= = =
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)7I)P)7(2.2
The 7inear /e#and CureFAn E3a#pe
I& the to &ir#s coude, then the tota pro&it:#a3i#i4ing ;uantity canbe obtained as &oos-
Tota reenue &or the to &ir#s- ! G P G =*0 @> ( )* @ 2, then"R G ! % G *0 @ 2
8etting "R G 0 =the &ir#s #argina cost> e &ind that tota pro&it is#a3i#i4ed at G (.
Then, ( 2 G ( is the collusion curve.
I& the &ir#s agree to share pro&its e;uay, each i produce ha& o&the tota output-( G 2 G '.
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)7I)P)7(2.2
The 7inear /e#and CureFAn E3a#pe
The de#and cure is P G*0 D , and both &ir#shae 4ero #argina cost.In Cournot e;uiibriu#,each &ir# produces (0.
The cousion cure shosco#binations o& ( and 2
that #a3i#i4e total pro&its.
I& the &ir#s coude andshare pro&its e;uay, eachi produce '..
Aso shon is theco#petitie e;uiibriu#, inhich price e;uas#argina cost and pro&it is4ero.
4*opoly 7ample
(ig*re 12+5
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)7I)P)7(2.2
irst "oer AdantageFThe 8tac$eberg "ode
● )tac8elberg model )igopoy #ode in hich one &ir# sets its
output be&ore other &ir#s do.
+uppose "irm # sets its output first and then "irm %, after observing
"irm #$s output, makes its output decision. In setting output, ir# (#ust there&ore consider ho ir# 2 i react.
P G *0 @
Aso, "C( G "C2 G 0
"irm %$s reaction curve:
ir# (s reenue-
And "R( G ! (%( G ( @ (
8etting "R( G 0 gies ( G (, and 2 G '.
e concude that ir# ( produces tice as #uch as ir# 2 and#a$es tice as #uch pro&it. oing first gives "irm # an advantage.
21 1 1 1 2 1
30 (12.3) R PQ Q Q Q Q= = − −
2 2
115
2 (12.2)Q Q= −
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PRICE C)"PETITI)6(2.*
Price Co#petition ith Ho#ogeneousProductsFThe <ertrand "ode
● ertrand model )igopoy #ode in hich &ir#s produce aho#ogeneous good, each &ir# treats the price o& its co#petitorsas &i3ed, and a &ir#s decide si#utaneousy hat price tocharge.
P G *0 @
"C( G "C2 G J*
(G 2 G 9, and in Cournot e;uiibriu#, the #ar$et price is J(2,
so that each &ir# #a$es a pro&it o& JB(.
6ash e;uiibriu# in the <ertrand #ode resuts in both &ir#ssetting price e;ua to #argina cost- P (GP 2GJ*. Then industry
output is 2' units, o& hich each &ir# produces (*. units, andboth &ir#s earn 4ero pro&it.
In the Cournot #ode, because each &ir# produces ony 9 units,the #ar$et price is J(2. 6o the #ar$et price is J*. In theCournot #ode, each &ir# #ade a pro&itK in the <ertrand #ode,the &ir#s price at #argina cost and #a$e no pro&it.
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PRICE C)"PETITI)6(2.*
Price Co#petition ith /i&&erentiated Products
8uppose each o& to duopoists has &i3ed costs o& J20 but 4eroariabe costs, and that they &ace the sa#e de#and cures-
"irm #$s demand:
"irm %$s demand:
Choosing Prices
ir# (s pro&it-
ir# (s pro&it #a3i#i4ing price-
"irm #$s reaction curve:
"irm %$s reaction curve:
1 1 212 2 (12.5a)Q P P = − +
2 2 112 2 (12.5b)Q P P = − +
1 2134
P P = +
21 1 1 1 1 1 2
π 20 12 2 20 PQ P P P P = − = − + −
1 1 1 2π / 12 4 0 P P P ∆ ∆ = − + =
2 1
13
4 P P = +
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PRICE C)"PETITI)6(2.*
Price Co#petition ith /i&&erentiated Products
Here to &ir#s se a di&&erentiatedproduct, and each &ir#s de#anddepends both on its on price and on itsco#petitors price. The to &ir#s choosetheir prices at the sa#e ti#e, each
ta$ing its co#petitors price as gien.
ir# (s reaction cure gies its pro&it:#a3i#i4ing price as a &unction o& theprice that ir# 2 sets, and si#iary &orir# 2.
The 6ash e;uiibriu# is at theintersection o& the to reaction cures-hen each &ir# charges a price o& J+, itis doing the best it can gien itsco#petitors price and has no incentieto change price.
Aso shon is the cousie e;uiibriu#- I&the &ir#s cooperatiey set price, they ichoose J1.
%ash 0*ilibri*m in Prices
(ig*re 12+,
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PRICE C)"PETITI)6(2.*
PLs de#and cure &or #onthy saes-
Assu#ing that PLs co#petitors &ace the sa#e de#and conditions, with what price
should you enter the market, and how much profit should you expect to earnM
TA# +1 P96s Profit -in tho*sands of dollars per month.
P9 6sPrice -;.
Competitor6s -0*al. Prices -;.
(.(0 (.20 (.*0 (.+0 (.0 (.10 (.'0 (.B0
(.(0 @221 @2( @20+ @(9+ @(B* @('+ @(1 @(
(.20 @(01 @B9 @'* @B @+* @2B @( @2
(.*0 @1 @*' @(9 2 ( *( +' 12
(.+0 @++ @2 @1 (2 29 +1 12 'B
(.0 @2 @*2 @( * 20 *+ 2 1B
(.10 @'0 @( @*+ @(B @( (+ *0 ++
(.'0 @9* @'1 @9 @++ @2B @(* ( (
(.B0 @((B @(02 @B' @'2 @' @++ @*0 @('
3.5 .25 .253375 ( ) ( )U K
Q P P P −=
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C)"PETITI)6 NER8?8 C)77?8I)6-THE PRI8)6ER8 /I7E""A
(2.+
In our e3a#pe, there are to &ir#s,
each o& hich has &i3ed costs o& J20and 4ero ariabe costs. They &ace thesa#e de#and cures-
"irm #$s demand:
"irm %$s demand:
e &ound that in 6ash e;uiibriu# each&ir# i charge a price o& J+ and earn apro&it o& J(2, hereas i& the &ir#scoude, they i charge a price o& J1and earn a pro&it o& J(1.
<ut i& ir# ( charges J1 and ir# 2
charges ony J+, ir# 2s pro&it iincrease to J20. And it i do so at thee3pense o& ir# (s pro&it, hich i &ato J+.
1 1 212 2Q P P = − +
2 2 112 2Q P P = − +
2 2 2π 20 (4)[(12 (2)(4) 6] 20 $20 P Q= − = − + − =
1 1 1π 20 (6)[12 (2)(6) 4] 20 $4 PQ= − = − + − =
TA# 12+3 Payoff Matri7 for Pricing ame
(irm 2
Charge ;& Charge ;,
(irm 1Charge J+ J(2, J(2 J20, J+
Charge J1 J+, J20 J(1, J(1
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C)"PETITI)6 NER8?8 C)77?8I)6-THE PRI8)6ER8 /I7E""A
(2.+
TA# 12+& Payoff Matri7 for Prisoners6 4ilemma
Prisoner
Confess 4on6t confess
Prisoner ACon&ess @, @ @(, @(0
/ont con&ess @(0, @( @2, @2
● noncooperati'e game a#e in hich negotiation anden&orce#ent o& binding contracts are not possibe.
● prisoners6 dilemma a#e theory e3a#pe in hich toprisoners #ust decide separatey hether to con&ess to a cri#eKi& a prisoner con&esses, he i receie a ighter sentence andhis acco#pice i receie a heaier one, but i& neithercon&esses, sentences i be ighter than i& both con&ess.
● payoff matri7 Tabe shoing pro&it =or payo&&> to each &ir#gien its decision and the decision o& its co#petitor.
Payoff Matri7
The Prisoners6 4ilemma
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e argued that PL shoud e3pect its co#petitors to charge a price o& J(.+0 andshoud do the sa#e. <ut PL oud be better o&& i& it and its competitors a chargeda price o& J(.0.
TA# 12+5 Payoff Matri7 for Pricing Problem
"nile'er and <AO
Charge ;1+& Charge ;1+5
P9Charge J(.+0 J(2, J(2 J29, J((
Charge J(.0 J*, J2( J20, J20
8o hy dont they charge J(.0M <ecause these &ir#s are in a prisoners die##a. 6o#atter hat ?nieer and Oao do, PL #a$es #ore #oney by charging J(.+0.
C)"PETITI)6 NER8?8 C)77?8I)6-THE PRI8)6ER8 /I7E""A
(2.+
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I"P7ICATI)68 ) THE PRI8)6ER8 /I7E""A)R )7I)P)7I8TIC PRICI6
(2.
Price Rigidity
● price rigidity Characteristic o& oigopoistic #ar$ets byhich &ir#s are reuctant to change prices een i& costsor de#ands change.
● 8in8ed demand c*r'e model )igopoy #ode inhich each &ir# &aces a de#and cure $in$ed at thecurrenty preaiing price- at higher prices de#and isery eastic, hereas at oer prices it is ineastic.
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I"P7ICATI)68 ) THE PRI8)6ER8 /I7E""A)R )7I)P)7I8TIC PRICI6
(2.
Price Rigidity
Each &ir# beiees that i& it raisesits price aboe the current priceP , none o& its co#petitors i&oo suit, so it i ose #ost o&
its saes.Each &ir# aso beiees that i& itoers price, eeryone i &oosuit, and its saes i increaseony to the e3tent that #ar$etde#and increases.
As a resut, the &ir#s de#and
cure D is $in$ed at price P , andits #argina reenue cure "R isdiscontinuous at that point.
I& #argina cost increases &ro#"C to "C, the &ir# i stiproduce the sa#e output ee and charge the sa#e price P .
The <in8ed 4emand C*r'e
(ig*re 12+/
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I"P7ICATI)68 ) THE PRI8)6ER8 /I7E""A)R )7I)P)7I8TIC PRICI6
(2.
Price 8ignaing and Price 7eadership
●price signaling or# o& i#picit cousion in hich a&ir# announces a price increase in the hope that other&ir#s i &oo suit.
●price leadership Pattern o& pricing in hich one &ir#reguary announces price changes that other &ir#s then#atch.
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I"P7ICATI)68 ) THE PRI8)6ER8 /I7E""A)R )7I)P)7I8TIC PRICI6
(2.
Price 8ignaing and Price 7eadership
The interest rate that ban$s charge arge corporate cients is
caed the prime rate.
<ecause it is idey $non, it is a conenient &oca point &or
price eadership.
The pri#e rate changes ony hen #oney #ar$et conditions
cause other interest rates to rise or &a substantiay. hen that
happens, one o& the #a5or ban$s announces a change in its
rate and other ban$s ;uic$y &oo suit.
/i&&erent ban$s act as eader &ro# ti#e to ti#e, but hen oneban$ announces a change, the others &oo ithin to or three
days.
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I"P7ICATI)68 ) THE PRI8)6ER8 /I7E""A)R )7I)P)7I8TIC PRICI6
(2.
Price 8ignaing and Price 7eadership
The pri#e rate is the ratethat #a5or ban$s charge
arge corporate custo#ers&or short:ter# oans. Itchanges ony in&re;uentybecause ban$s arereuctant to undercut oneanother. hen a changedoes occur, it begins ith
one ban$, and otherban$s ;uic$y &oo suit.The corporate bond rate isthe return on ong:ter#corporate bonds. <ecausethese bonds are ideytraded, this rate &uctuatesith #ar$et conditions.
Prime !ate 'ers*s Corporateond !ate
(ig*re 12+
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I"P7ICATI)68 ) THE PRI8)6ER8 /I7E""A)R )7I)P)7I8TIC PRICI6
(2.
The /o#inant ir# "ode
D is the #ar$et de#and cure, and+" is the suppy cure =i.e., the
aggregate #argina cost cure> o&the s#aer &ringe &ir#s.
The do#inant &ir# #ust deter#ineits de#and cure DD. As the &igure
shos, this cure is 5ust thedi&&erence beteen #ar$et de#andand the suppy o& &ringe &ir#s.
At price P (, the suppy o& &ringe &ir#s
is 5ust e;ua to #ar$et de#andK thus
the do#inant &ir# can se nothing. At a price P 2 or ess, &ringe &ir#s i
not suppy any o& the good, so thedo#inant &ir# &aces the #ar$etde#and cure.
At prices beteen P ( and P 2, the
do#inant &ir# &aces the de#and
cure DD.
Price )etting by a 4ominant (irm
(ig*re 12+
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I"P7ICATI)68 ) THE PRI8)6ER8 /I7E""A)R )7I)P)7I8TIC PRICI6
(2.
The /o#inant ir# "ode
The do#inant &ir# produces a;uantity D at the point here its
#argina reenue "RD is e;ua to its
#argina cost "C/.
The corresponding price is P .
At this price, &ringe &ir#s se
Tota saes e;ua ' .
Price )etting by a 4ominant (irm
(ig*re 12+ -contin*ed.
● dominant frm ir# ith a arge
share o& tota saes that sets price to#a3i#i4e pro&its, ta$ing into accountthe suppy response o& s#aer &ir#s.
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CARTE78(2.1Producers in a cartel e3picity agree to cooperate in setting pricesand output ees.
Anaysis o& Carte Pricing
T/ is the tota ord de#and cure&or oi, and 8c is the co#petitie=non:)PEC> suppy cure.
)PECs de#and D)PEC is the
di&&erence beteen the to.
<ecause both tota de#and andco#petitie suppy are ineastic,)PECs de#and is ineastic.
)PECs pro&it:#a3i#i4ing ;uantity
)PEC is &ound at the intersection o&its #argina reenue and #arginacost curesK at this ;uantity, )PECcharges price P .
I& )PEC producers had notcartei4ed, price oud be P c , here
)PECs de#and and #argina cost
cures intersect.
The OPC Oil Cartel
(ig*re 12+1
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CARTE78(2.1
T/ is the tota de#and &orcopper and +c is the
co#petitie =non:CIPEC>suppy.
CIPECs de#and DCIPEC is
the di&&erence beteen theto.
<oth tota de#and andco#petitie suppy arereatiey eastic, so
CIPECs de#and cure iseastic, and CIPEC hasery itte #onopoy poer.
6ote that CIPECs opti#aprice P is cose to theco#petitie price P c .
The C$PC Copper Cartel
(ig*re 12+11
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CARTE78(2.1
In intercoegiate athetics, there are #any &ir#s and consu#ers,
hich suggests that the industry is co#petitie. <ut the
persistenty high ee o& pro&its in this industry is inconsistent
ith co#petition. This pro&itabiity is the resut o& #onopoy
poer, obtained ia cartei4ation.The carte organi4ation is the 6ationa Coegiate Athetic Association =6CAA>. The
6CAA restricts co#petition in a nu#ber o& i#portant ays.
! To reduce bargaining poer by student athetes, the 6CAA creates and en&orces
rues regarding eigibiity and ter#s o& co#pensation.
! To reduce co#petition by uniersities, it i#its the nu#ber o& ga#es that can be
payed each season and the nu#ber o& tea#s that can participate in each diision.
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CARTE78(2.1
In (991, the &edera goern#ent aoed #i$ producers
in the si3 6e Engand states to cartei4e. The carteFcaed
the 6ortheast Interstate /airy Co#pactFset #ini#u# hoesae
prices &or #i$, and as e3e#pt &ro# the antitrust as. The
resut as that consu#ers in 6e Engand paid #ore &or agaon o& #i$ than consu#ers esehere in the nation.
8tudies hae suggested that the carte coering the 6e Engand states has caused
retai prices o& #i$ to rise by ony a &e cents a gaon. hy so itteM The reason is
that the 6e Engand carte is surrounded by a &ringe o& noncarte producers.