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Superio                                  25Monopolistic Competition                                                   rCha...
FOUR MARKET MODELS                            Monopolistic Competition:Monopolistic CompetitionCharacteristicsPrice and Ou...
CHARACTERISTICSMonopolistic CompetitionCharacteristics                           Relatively Large NumberPrice and Output i...
CHARACTERISTICSMonopolistic CompetitionCharacteristics                             Differentiated ProductsPrice and Output...
PRICE AND OUTPUT INMonopolistic Competition                     MONOPOLISTIC COMPETITION                                  ...
PRICE AND OUTPUT INMonopolistic Competition                     MONOPOLISTIC COMPETITION                                  ...
PRICE AND OUTPUT INMonopolistic Competition                     MONOPOLISTIC COMPETITIONCharacteristics                   ...
PRICE AND OUTPUT INMonopolistic Competition                     MONOPOLISTIC COMPETITIONCharacteristics                   ...
PRICE AND OUTPUT INMonopolistic Competition                     MONOPOLISTIC COMPETITION                                  ...
MONOPOLISTIC COMPETITIONMonopolistic CompetitionCharacteristics                               AND EFFICIENCY              ...
MONOPOLISTIC COMPETITIONMonopolistic Competition                                AND EFFICIENCYCharacteristics             ...
MONOPOLISTIC COMPETITIONMonopolistic CompetitionCharacteristics                               AND EFFICIENCY              ...
FOUR MARKET MODELS                            Oligopoly:Monopolistic CompetitionCharacteristics                           ...
OLIGOPOLIES AND MERGERS                           MergersMonopolistic CompetitionCharacteristicsPrice and Output in Monopo...
OLIGOPOLIES AND MERGERS                           Herfindahl IndexMonopolistic CompetitionCharacteristics                 ...
OLIGOPOLIES AND MERGERSMonopolistic CompetitionCharacteristics                           Mutual InterdependencePrice and O...
OLIGOPOLY BEHAVIOR                                   A Game-Theory OverviewMonopolistic CompetitionCharacteristicsPrice an...
OLIGOPOLY BEHAVIOR                                   A Game-Theory OverviewMonopolistic CompetitionCharacteristicsPrice an...
OLIGOPOLY BEHAVIOR                                   A Game-Theory OverviewMonopolistic CompetitionCharacteristicsPrice an...
OLIGOPOLY BEHAVIOR                                   A Game-Theory OverviewMonopolistic CompetitionCharacteristicsPrice an...
OLIGOPOLY BEHAVIOR                                   A Game-Theory OverviewMonopolistic CompetitionCharacteristicsPrice an...
OLIGOPOLY BEHAVIOR                                   A Game-Theory OverviewMonopolistic CompetitionCharacteristicsPrice an...
OLIGOPOLY BEHAVIOR                                   A Game-Theory OverviewMonopolistic CompetitionCharacteristicsPrice an...
THREE OLIGOPOLY MODELSMonopolistic CompetitionCharacteristics             No Standard Model due to...                     ...
KINKED DEMAND THEORY:Monopolistic Competition               NONCOLLUSIVE OLIGOPOLYCharacteristicsPrice and Output in Monop...
KINKED DEMAND THEORY:Monopolistic Competition               NONCOLLUSIVE OLIGOPOLYCharacteristicsPrice and Output in Monop...
KINKED DEMAND THEORY:Monopolistic Competition               NONCOLLUSIVE OLIGOPOLYCharacteristicsPrice and Output in Monop...
KINKED DEMAND THEORY:Monopolistic Competition               NONCOLLUSIVE OLIGOPOLYCharacteristicsPrice and Output in Monop...
KINKED DEMAND THEORY:Monopolistic Competition               NONCOLLUSIVE OLIGOPOLYCharacteristicsPrice and Output in Monop...
KINKED DEMAND THEORY:Monopolistic Competition               NONCOLLUSIVE OLIGOPOLYCharacteristicsPrice and Output in Monop...
KINKED DEMAND THEORY:Monopolistic Competition               NONCOLLUSIVE OLIGOPOLYCharacteristicsPrice and Output in Monop...
KINKED DEMAND THEORY:Monopolistic Competition               NONCOLLUSIVE OLIGOPOLYCharacteristics                         ...
KINKED DEMAND THEORY:Monopolistic Competition               NONCOLLUSIVE OLIGOPOLYCharacteristicsPrice and Output in Monop...
CARTELS AND OTHER COLLUSION                             Oligopoly is conducive toMonopolistic CompetitionCharacteristicsPr...
CARTELS AND OTHER COLLUSIONMonopolistic CompetitionCharacteristics                                                      Co...
CARTELS AND OTHER COLLUSIONMonopolistic CompetitionCharacteristics                            Overt CollusionPrice and Out...
CARTELS AND OTHER COLLUSIONMonopolistic CompetitionCharacteristics             Obstacles to CollusionPrice and Output in M...
PRICE LEADERSHIP MODELMonopolistic CompetitionCharacteristics                             Leadership TacticsPrice and Outp...
OLIGOPOLY AND ADVERTISING                             Less Easily DuplicatedMonopolistic CompetitionCharacteristicsPrice a...
OLIGOPOLY AND EFFICIENCY                             Productive EfficiencyMonopolistic CompetitionCharacteristicsPrice and...
OLIGOPOLY AND EFFICIENCY                             Productive EfficiencyMonopolistic CompetitionCharacteristicsPrice and...
monopolistic competition          interindustry competition product differentiation           import competition          ...
Monopolistic CompetitionCharacteristics                                Next...                            Technology,Price...
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Transcript of "Mono comp __oligopoly___game_theory"

  1. 1. Superio 25Monopolistic Competition rCharacteristics Cheese CHAPTERPrice and Output in Monopolistic CompetitionMonopolistic Competition and EfficiencyOligopolyOligopolies and MergersThree Oligopoly ModelsKinked-Demand TheoryCartels and CollusionPrice LeadershipOligopoly and EfficiencyKey Terms Monopolistic Previous Next Competition and Oligopoly Slide Slide End Show 25 - 1 Copyright McGraw-Hill/Irwin, 2002
  2. 2. FOUR MARKET MODELS Monopolistic Competition:Monopolistic CompetitionCharacteristicsPrice and Output in Monopolistic Competition • Relatively LargeMonopolistic Competition and EfficiencyOligopoly Number of SellersOligopolies and MergersThree Oligopoly ModelsKinked-Demand TheoryCartels and CollusionPrice Leadership • Differentiated Products • Easy Entry and ExitOligopoly and EfficiencyKey Terms Pure Monopolistic Pure Competition Competition Oligopoly Monopoly Previous Next Slide Slide End Market Structure Continuum Show 25 - 2 Copyright McGraw-Hill/Irwin, 2002
  3. 3. CHARACTERISTICSMonopolistic CompetitionCharacteristics Relatively Large NumberPrice and Output in Monopolistic Competition of SellersMonopolistic Competition and EfficiencyOligopolyOligopolies and MergersThree Oligopoly ModelsKinked-Demand Theory •Small Market Shares •No CollusionCartels and CollusionPrice LeadershipOligopoly and EfficiencyKey Terms •Independent Action Previous Next Slide Slide End Show 25 - 3 Copyright McGraw-Hill/Irwin, 2002
  4. 4. CHARACTERISTICSMonopolistic CompetitionCharacteristics Differentiated ProductsPrice and Output in Monopolistic Competition • Product AttributesMonopolistic Competition and EfficiencyOligopolyOligopolies and MergersThree Oligopoly ModelsKinked-Demand Theory • ServiceCartels and CollusionPrice Leadership • Location • Brand Names andOligopoly and EfficiencyKey Terms Packaging • Some Control Over Price Previous Next Slide End Slide Role of Advertising Show 25 - 4 Copyright McGraw-Hill/Irwin, 2002
  5. 5. PRICE AND OUTPUT INMonopolistic Competition MONOPOLISTIC COMPETITION Expect New Competitors MCCharacteristicsPrice and Output in Monopolistic CompetitionMonopolistic Competition and EfficiencyOligopoly ATCOligopolies and MergersThree Oligopoly Models Price and CostsKinked-Demand TheoryCartels and Collusion P1Price LeadershipOligopoly and Efficiency A1Key Terms Economic Profits D Previous Slide Next Slide MR End Show Q1 25 - 5 Quantity Copyright McGraw-Hill/Irwin, 2002
  6. 6. PRICE AND OUTPUT INMonopolistic Competition MONOPOLISTIC COMPETITION Expect New Competitors MCCharacteristicsPrice and Output in Monopolistic CompetitionMonopolistic Competition and EfficiencyOligopoly ATCOligopolies and MergersThree Oligopoly Models New competition drives down the Price and CostsKinked-Demand TheoryCartels and CollusionPrice Leadership price level – leading to economic P 1Oligopoly and EfficiencyKey Terms A 1 losses in the short run Economic Profits D Previous Slide Next Slide MR End Show Q1 25 - 6 Quantity Copyright McGraw-Hill/Irwin, 2002
  7. 7. PRICE AND OUTPUT INMonopolistic Competition MONOPOLISTIC COMPETITIONCharacteristics MCPrice and Output in Monopolistic CompetitionMonopolistic Competition and EfficiencyOligopoly ATCOligopolies and MergersThree Oligopoly Models A2 Price and CostsKinked-Demand Theory P2Cartels and CollusionPrice LeadershipOligopoly and EfficiencyKey Terms Economic Losses D Previous Slide Next Slide MR End Show Q2 25 - 7 Quantity Copyright McGraw-Hill/Irwin, 2002
  8. 8. PRICE AND OUTPUT INMonopolistic Competition MONOPOLISTIC COMPETITIONCharacteristics MCPrice and Output in Monopolistic CompetitionMonopolistic Competition and EfficiencyOligopoly ATCOligopolies and Mergers A With economic losses, firms willThree Oligopoly Models 2 Price and CostsKinked-Demand Theory P 2 exit the market – Stability occursCartels and CollusionPrice Leadership when economic profits are zero EconomicOligopoly and EfficiencyKey Terms Losses D Previous Slide Next Slide MR End Show Q2 25 - 8 Quantity Copyright McGraw-Hill/Irwin, 2002
  9. 9. PRICE AND OUTPUT INMonopolistic Competition MONOPOLISTIC COMPETITION Long-Run Equilibrium MCCharacteristicsPrice and Output in Monopolistic CompetitionMonopolistic Competition and Efficiency NormalOligopolyOligopolies and Mergers Profit ATCThree Oligopoly Models Only Price and CostsKinked-Demand Theory P3Cartels and CollusionPrice Leadership = A3Oligopoly and EfficiencyKey Terms D Previous Slide Next Slide MR End Show Q3 25 - 9 Quantity Copyright McGraw-Hill/Irwin, 2002
  10. 10. MONOPOLISTIC COMPETITIONMonopolistic CompetitionCharacteristics AND EFFICIENCY • Not Productively EfficientPrice and Output in Monopolistic CompetitionMonopolistic Competition and EfficiencyOligopoly ≠ Minimum ATCOligopolies and MergersThree Oligopoly ModelsKinked-Demand TheoryCartels and CollusionPrice LeadershipOligopoly and Efficiency • Not Allocatively EfficientKey Terms Price ≠ MC Previous Slide Next Slide • Excess Capacity End Show 25 - 10 Graphically… Copyright McGraw-Hill/Irwin, 2002
  11. 11. MONOPOLISTIC COMPETITIONMonopolistic Competition AND EFFICIENCYCharacteristics Long-Run Equilibrium MCPrice and Output in Monopolistic CompetitionMonopolistic Competition and Efficiency Price is NotOligopolyOligopolies and Mergers = Minimum ATCThree Oligopoly Models ATC Price and CostsKinked-Demand Theory P3Cartels and CollusionPrice Leadership = A3Oligopoly and EfficiencyKey Terms Price ≠ MC D Previous Slide Next Slide MR End Show Q3 25 - 11 Quantity Copyright McGraw-Hill/Irwin, 2002
  12. 12. MONOPOLISTIC COMPETITIONMonopolistic CompetitionCharacteristics AND EFFICIENCY Product VarietyPrice and Output in Monopolistic CompetitionMonopolistic Competition and EfficiencyOligopolyOligopolies and MergersThree Oligopoly ModelsKinked-Demand Theory • Benefits of Product VarietyCartels and CollusionPrice LeadershipOligopoly and Efficiency • Nonprice CompetitionKey Terms • Advertising Role • Trial & Error Search for Previous Next Maximum Profits Slide Slide End Show 25 - 12 Copyright McGraw-Hill/Irwin, 2002
  13. 13. FOUR MARKET MODELS Oligopoly:Monopolistic CompetitionCharacteristics • A Few Large ProducersPrice and Output in Monopolistic CompetitionMonopolistic Competition and Efficiency • Homogeneous orOligopolyOligopolies and MergersThree Oligopoly ModelsKinked-Demand TheoryCartels and Collusion Differentiated ProductsPrice LeadershipOligopoly and Efficiency • Control Over Price, ButKey Terms Mutual Interdependence • Entry Barriers Pure Monopolistic Pure Previous Next Competition Competition Oligopoly Monopoly Slide Slide End Show 25 - 13 Market Structure Continuum Copyright McGraw-Hill/Irwin, 2002
  14. 14. OLIGOPOLIES AND MERGERS MergersMonopolistic CompetitionCharacteristicsPrice and Output in Monopolistic Competition Measures of IndustryMonopolistic Competition and EfficiencyOligopoly ConcentrationOligopolies and MergersThree Oligopoly ModelsKinked-Demand TheoryCartels and CollusionPrice Leadership • Concentration RatioOligopoly and EfficiencyKey Terms • Localized Markets • Interindustry Competition Previous Next • World Trade Slide End Slide •Import Competition Show 25 - 14 Copyright McGraw-Hill/Irwin, 2002
  15. 15. OLIGOPOLIES AND MERGERS Herfindahl IndexMonopolistic CompetitionCharacteristics Sum of the squared percentagePrice and Output in Monopolistic CompetitionMonopolistic Competition and EfficiencyOligopolyOligopolies and Mergers marketThree Oligopoly Models shares for all firms in the industry –Kinked-Demand TheoryCartels and Collusion Places greater weight upon the largerPrice LeadershipOligopoly and Efficiency firms (%s1)2 + (%s2)2 + (%s3)2 + … + (%sn)2Key Terms A greater Herfindahl Index indicates a greater concentration Previous Next of market power in the industry Slide Slide End (Pure competition is near zero) Show 25 - 15 Copyright McGraw-Hill/Irwin, 2002
  16. 16. OLIGOPOLIES AND MERGERSMonopolistic CompetitionCharacteristics Mutual InterdependencePrice and Output in Monopolistic Competition Game-Theory ModelMonopolistic Competition and EfficiencyOligopolyOligopolies and MergersThree Oligopoly ModelsKinked-Demand Theory Collusive Tendencies •CollusionCartels and CollusionPrice LeadershipOligopoly and Efficiency Incentive to CheatKey Terms Introduction to Game Previous Slide End Next Slide Theory… Show 25 - 16 Copyright McGraw-Hill/Irwin, 2002
  17. 17. OLIGOPOLY BEHAVIOR A Game-Theory OverviewMonopolistic CompetitionCharacteristicsPrice and Output in Monopolistic CompetitionMonopolistic Competition and Efficiency RareAir’s Price StrategyOligopoly High LowOligopolies and Mergers A BThree Oligopoly Models $12 $15 Uptown’s Price StrategyKinked-Demand TheoryCartels and CollusionPrice Leadership HighOligopoly and EfficiencyKey Terms $12 $6 C $6 D $8 Previous Next Low Slide Slide $15 $8 End Show 25 - 17 Copyright McGraw-Hill/Irwin, 2002
  18. 18. OLIGOPOLY BEHAVIOR A Game-Theory OverviewMonopolistic CompetitionCharacteristicsPrice and Output in Monopolistic CompetitionMonopolistic Competition and Efficiency RareAir’s Price StrategyOligopoly High LowOligopolies and Mergers A BThree Oligopoly Models $12 $15 Greatest Uptown’s Price StrategyKinked-Demand TheoryCartels and Collusion CombinedPrice Leadership High ProfitOligopoly and EfficiencyKey Terms $12 $6 C $6 D $8 Previous Next Low Slide Slide $15 $8 End Show 25 - 18 Copyright McGraw-Hill/Irwin, 2002
  19. 19. OLIGOPOLY BEHAVIOR A Game-Theory OverviewMonopolistic CompetitionCharacteristicsPrice and Output in Monopolistic CompetitionMonopolistic Competition and Efficiency RareAir’s Price StrategyOligopoly High LowOligopolies and Mergers A BThree Oligopoly Models $12 $15 Uptown’s Price StrategyKinked-Demand Theory IndependentCartels and Collusion ActionsPrice Leadership High StimulateOligopoly and EfficiencyKey Terms $12 $6 Response C $6 D $8 Previous Next Low Slide Slide $15 $8 End Show 25 - 19 Copyright McGraw-Hill/Irwin, 2002
  20. 20. OLIGOPOLY BEHAVIOR A Game-Theory OverviewMonopolistic CompetitionCharacteristicsPrice and Output in Monopolistic CompetitionMonopolistic Competition and Efficiency RareAir’s Price StrategyOligopoly High LowOligopolies and Mergers A BThree Oligopoly Models $12 $15 Uptown’s Price StrategyKinked-Demand Theory IndependentCartels and Collusion ActionsPrice Leadership High StimulateOligopoly and EfficiencyKey Terms $12 $6 Response Gravitating C $6 D $8 to the Low Worst Case Previous Next Slide Slide $15 $8 End Show 25 - 20 Copyright McGraw-Hill/Irwin, 2002
  21. 21. OLIGOPOLY BEHAVIOR A Game-Theory OverviewMonopolistic CompetitionCharacteristicsPrice and Output in Monopolistic CompetitionMonopolistic Competition and Efficiency RareAir’s Price StrategyOligopoly High LowOligopolies and Mergers Collusion A BThree Oligopoly Models $12 $15 Uptown’s Price StrategyKinked-Demand TheoryCartels and Collusion Invites aPrice Leadership High DifferentOligopoly and Efficiency $12 $6 SolutionKey Terms C $6 D $8 Previous Next Low Slide Slide $15 $8 End Show 25 - 21 Copyright McGraw-Hill/Irwin, 2002
  22. 22. OLIGOPOLY BEHAVIOR A Game-Theory OverviewMonopolistic CompetitionCharacteristicsPrice and Output in Monopolistic CompetitionMonopolistic Competition and Efficiency RareAir’s Price StrategyOligopoly High LowOligopolies and Mergers Collusion A BThree Oligopoly Models $12 $15 Uptown’s Price StrategyKinked-Demand TheoryCartels and Collusion Invites aPrice Leadership High DifferentOligopoly and Efficiency $12 $6 SolutionKey Terms C $6 D $8 Previous Next Low Slide Slide $15 $8 End Show 25 - 22 Copyright McGraw-Hill/Irwin, 2002
  23. 23. OLIGOPOLY BEHAVIOR A Game-Theory OverviewMonopolistic CompetitionCharacteristicsPrice and Output in Monopolistic CompetitionMonopolistic Competition and Efficiency RareAir’s Price StrategyOligopoly High LowOligopolies and Mergers Collusion A BThree Oligopoly Models $12 $15 Uptown’s Price StrategyKinked-Demand TheoryCartels and Collusion Invites aPrice Leadership High DifferentOligopoly and Efficiency $12 $6 SolutionKey Terms But, the incentive C $6 D $8 to cheat Previous Next Low is very Slide Slide $15 $8 real End Show 25 - 23 Copyright McGraw-Hill/Irwin, 2002
  24. 24. THREE OLIGOPOLY MODELSMonopolistic CompetitionCharacteristics No Standard Model due to... Diversity of OligopoliesPrice and Output in Monopolistic CompetitionMonopolistic Competition and EfficiencyOligopolyOligopolies and MergersThree Oligopoly Models Complications of InterdependenceKinked-Demand TheoryCartels and CollusionPrice Leadership Alternative Models:Oligopoly and EfficiencyKey Terms 1 - Kinked Demand Curve Previous Next 2 - Collusive Pricing 3 - Price Leadership Slide Slide End Show 25 - 24 Copyright McGraw-Hill/Irwin, 2002
  25. 25. KINKED DEMAND THEORY:Monopolistic Competition NONCOLLUSIVE OLIGOPOLYCharacteristicsPrice and Output in Monopolistic CompetitionMonopolistic Competition and Efficiency The firm’s demand andOligopoly marginal revenue curvesOligopolies and MergersThree Oligopoly ModelsKinked-Demand TheoryCartels and Collusion PricePrice LeadershipOligopoly and EfficiencyKey Terms Previous Next Slide Slide D1 End Show 25 - 25 Quantity MR1 Copyright McGraw-Hill/Irwin, 2002
  26. 26. KINKED DEMAND THEORY:Monopolistic Competition NONCOLLUSIVE OLIGOPOLYCharacteristicsPrice and Output in Monopolistic CompetitionMonopolistic Competition and Efficiency The rival’s demand andOligopoly marginal revenue curvesOligopolies and MergersThree Oligopoly ModelsKinked-Demand TheoryCartels and Collusion PricePrice LeadershipOligopoly and EfficiencyKey Terms D2 Previous Next MR2 Slide Slide D1 End Show 25 - 26 Quantity MR1 Copyright McGraw-Hill/Irwin, 2002
  27. 27. KINKED DEMAND THEORY:Monopolistic Competition NONCOLLUSIVE OLIGOPOLYCharacteristicsPrice and Output in Monopolistic Competition Rivals tend toMonopolistic Competition and EfficiencyOligopoly follow a price cutOligopolies and MergersThree Oligopoly ModelsKinked-Demand TheoryCartels and Collusion PricePrice LeadershipOligopoly and EfficiencyKey Terms D2 Previous Next MR2 Slide Slide D1 End Show 25 - 27 Quantity MR1 Copyright McGraw-Hill/Irwin, 2002
  28. 28. KINKED DEMAND THEORY:Monopolistic Competition NONCOLLUSIVE OLIGOPOLYCharacteristicsPrice and Output in Monopolistic Competition Rivals tend toMonopolistic Competition and EfficiencyOligopoly follow a price cutOligopolies and MergersThree Oligopoly Models or ignore aKinked-Demand Theory price increaseCartels and Collusion PricePrice LeadershipOligopoly and EfficiencyKey Terms D2 Previous Next MR2 Slide Slide D1 End Show 25 - 28 Quantity MR1 Copyright McGraw-Hill/Irwin, 2002
  29. 29. KINKED DEMAND THEORY:Monopolistic Competition NONCOLLUSIVE OLIGOPOLYCharacteristicsPrice and Output in Monopolistic CompetitionMonopolistic Competition and Efficiency Effectively creatingOligopoly a kinked demand curveOligopolies and MergersThree Oligopoly ModelsKinked-Demand TheoryCartels and Collusion PricePrice LeadershipOligopoly and EfficiencyKey Terms D2 Previous Next MR2 Slide Slide D1 End Show 25 - 29 Quantity MR1 Copyright McGraw-Hill/Irwin, 2002
  30. 30. KINKED DEMAND THEORY:Monopolistic Competition NONCOLLUSIVE OLIGOPOLYCharacteristicsPrice and Output in Monopolistic CompetitionMonopolistic Competition and Efficiency Effectively creatingOligopoly a kinked demand curveOligopolies and MergersThree Oligopoly ModelsKinked-Demand TheoryCartels and Collusion PricePrice LeadershipOligopoly and EfficiencyKey Terms Previous Next Slide Slide D End Show 25 - 30 Quantity Copyright McGraw-Hill/Irwin, 2002
  31. 31. KINKED DEMAND THEORY:Monopolistic Competition NONCOLLUSIVE OLIGOPOLYCharacteristicsPrice and Output in Monopolistic CompetitionMonopolistic Competition and Efficiency Effectively creatingOligopoly a kinked demand curveOligopolies and MergersThree Oligopoly ModelsKinked-Demand Theory MC1Cartels and Collusion PricePrice LeadershipOligopoly and EfficiencyKey Terms MC2 Previous Next Slide Slide D End Show 25 - 31 Quantity MR Copyright McGraw-Hill/Irwin, 2002
  32. 32. KINKED DEMAND THEORY:Monopolistic Competition NONCOLLUSIVE OLIGOPOLYCharacteristics Profit maximizationPrice and Output in Monopolistic CompetitionMonopolistic Competition and EfficiencyOligopoly MR = MC occursOligopolies and MergersThree Oligopoly Models at the kinkKinked-Demand Theory MC1Cartels and Collusion PricePrice LeadershipOligopoly and EfficiencyKey Terms MC2 Previous Next Slide Slide D End Show 25 - 32 Quantity MR Copyright McGraw-Hill/Irwin, 2002
  33. 33. KINKED DEMAND THEORY:Monopolistic Competition NONCOLLUSIVE OLIGOPOLYCharacteristicsPrice and Output in Monopolistic CompetitionMonopolistic Competition and Efficiency This behavior can setOligopolyOligopolies and Mergers off a price warThree Oligopoly ModelsKinked-Demand Theory MC1Cartels and Collusion PricePrice LeadershipOligopoly and EfficiencyKey Terms MC2 Previous Next Slide Slide D End Show 25 - 33 Quantity MR Copyright McGraw-Hill/Irwin, 2002
  34. 34. CARTELS AND OTHER COLLUSION Oligopoly is conducive toMonopolistic CompetitionCharacteristicsPrice and Output in Monopolistic Competition collusionMonopolistic Competition and EfficiencyOligopolyOligopolies and MergersThree Oligopoly ModelsKinked-Demand Theory If a few firms face identical or highly similar demandCartels and CollusionPrice LeadershipOligopoly and EfficiencyKey Terms and costs... They will tend to seek joint Previous Slide Next Slide profit maximization... End Show 25 - 34 Graphically… Copyright McGraw-Hill/Irwin, 2002
  35. 35. CARTELS AND OTHER COLLUSIONMonopolistic CompetitionCharacteristics Colluding Oligopolists WillPrice and Output in Monopolistic Competition Split the Monopoly Profits EconomicMonopolistic Competition and EfficiencyOligopoly ProfitOligopolies and Mergers Price and costsThree Oligopoly ModelsKinked-Demand Theory MCCartels and CollusionPrice Leadership P0Oligopoly and EfficiencyKey Terms A0 ATC D Previous Next MR = MC Slide Slide MR End Show Q0 25 - 35 Copyright McGraw-Hill/Irwin, 2002
  36. 36. CARTELS AND OTHER COLLUSIONMonopolistic CompetitionCharacteristics Overt CollusionPrice and Output in Monopolistic CompetitionMonopolistic Competition and EfficiencyOligopolyOligopolies and Mergers •Cartel •OPECThree Oligopoly ModelsKinked-Demand TheoryCartels and Collusion Covert CollusionPrice LeadershipOligopoly and EfficiencyKey Terms •Recent Examples Previous Next •Tacit Understandings Slide Slide End Show 25 - 36 Copyright McGraw-Hill/Irwin, 2002
  37. 37. CARTELS AND OTHER COLLUSIONMonopolistic CompetitionCharacteristics Obstacles to CollusionPrice and Output in Monopolistic Competition • Demand and CostMonopolistic Competition and EfficiencyOligopoly DifferencesOligopolies and MergersThree Oligopoly ModelsKinked-Demand TheoryCartels and CollusionPrice Leadership • Number of Firms • CheatingOligopoly and EfficiencyKey Terms • Recession Previous Slide Next Slide • Potential Entry End Show 25 - 37 • Antitrust Law Copyright McGraw-Hill/Irwin, 2002
  38. 38. PRICE LEADERSHIP MODELMonopolistic CompetitionCharacteristics Leadership TacticsPrice and Output in Monopolistic Competition •Infrequent PriceMonopolistic Competition and EfficiencyOligopolyOligopolies and Mergers ChangesThree Oligopoly ModelsKinked-Demand TheoryCartels and CollusionPrice LeadershipOligopoly and EfficiencyKey Terms •Communications •Limit Pricing Previous Next Breakdowns in Price Slide End Show Slide Leadership 25 - 38 Copyright McGraw-Hill/Irwin, 2002
  39. 39. OLIGOPOLY AND ADVERTISING Less Easily DuplicatedMonopolistic CompetitionCharacteristicsPrice and Output in Monopolistic Competition Adequate ResourcesMonopolistic Competition and EfficiencyOligopolyOligopolies and Mergers Positive Effects ofThree Oligopoly ModelsKinked-Demand TheoryCartels and Collusion AdvertisingPrice LeadershipOligopoly and EfficiencyKey Terms Potential Negative Previous Slide Next Slide Effects of Advertising End Show 25 - 39 Brand Development Copyright McGraw-Hill/Irwin, 2002
  40. 40. OLIGOPOLY AND EFFICIENCY Productive EfficiencyMonopolistic CompetitionCharacteristicsPrice and Output in Monopolistic Competition P = Minimum ATCMonopolistic Competition and EfficiencyOligopolyOligopolies and MergersThree Oligopoly ModelsKinked-Demand Theory Oligopoly: No Productive EfficiencyCartels and Collusion Allocative EfficiencyPrice LeadershipOligopoly and EfficiencyKey Terms P = MC Oligopoly: No Allocative Efficiency Previous Next Qualifications Slide Slide End Show 25 - 40 Copyright McGraw-Hill/Irwin, 2002
  41. 41. OLIGOPOLY AND EFFICIENCY Productive EfficiencyMonopolistic CompetitionCharacteristicsPrice and Output in Monopolistic Competition P = Minimum ATCMonopolistic Competition and EfficiencyOligopoly ChapterOligopolies and MergersThree Oligopoly ModelsKinked-Demand Theory Oligopoly: No Productive EfficiencyCartels and Collusion Conclusions Allocative EfficiencyPrice LeadershipOligopoly and EfficiencyKey Terms P = MC Oligopoly: No Allocative Efficiency Previous Next Qualifications Slide Slide End Show 25 - 41 Copyright McGraw-Hill/Irwin, 2002
  42. 42. monopolistic competition interindustry competition product differentiation import competition Herfindahl index nonprice competition game-theory model excess capacity collusion oligopoly kinked-demand curve homogeneous oligopoly price war differentiated oligopoly cartel mutual interdependence tacit understandings concentration ratio price leadershipCopyright McGraw-Hill/Irwin 2002 BACK END
  43. 43. Monopolistic CompetitionCharacteristics Next... Technology,Price and Output in Monopolistic CompetitionMonopolistic Competition and EfficiencyOligopolyOligopolies and Mergers R&D,Three Oligopoly ModelsKinked-Demand TheoryCartels and CollusionPrice Leadership andOligopoly and EfficiencyKey Terms Previous Slide Next Slide Efficiency End Show Chapter 26 25 - 43 Copyright McGraw-Hill/Irwin, 2002
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