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Hen 368 lecture 9 structure, conduct, performance, and market analysis
 

Hen 368 lecture 9 structure, conduct, performance, and market analysis

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    Hen 368 lecture 9 structure, conduct, performance, and market analysis Hen 368 lecture 9 structure, conduct, performance, and market analysis Presentation Transcript

    • Health EconomicsLecture 9Structure, Conduct,Performance, and MarketAnalysis
    • ObjectivesSCP ParadigmPerfect CompetitionMonopolyBrand CompetitionOligopoly
    • Structure, Conduct, andPerformance
    • Basic ConditionsSupplyTechnologyUnionizationLegal EnvironmentEconomies of ScaleDemandPrice ElasticityDemand Conditions
    • Market ConditionsNumber, type, size distribution ofsellers and payersType of ProductBarriers to EntryInformation Asymmetry
    • ObjectivesProfit MaximizationQuantity MaximizationQuality MaximizationDiscretionary SpendingOther
    • Public PolicyTaxes and SubsidiesAntitrust RegulationsPrice RegulationsCertificate of Need LawsPeer Review Organizations
    • ConductPrice BehaviorProduct PromotionResearch and Development
    • PerformanceProduction and AllocationEfficiencyEquityTechnological Progress
    • Market StructuresPerfect CompetitionMonopolyMonopolistic CompetitionOligopoly
    • PerfectCompetitionMonopolisticCompetitionOligopoly MonopolyNumber ofFirmsMany Many Few OneType of Product Identical Different Similar UniqueEase of Entry Easy Easy Substantial BlockedDemand D = MR DynamicGameTheoryD > MRExamplesCommoditiesRiceApplesCell Phones UtilitiesGovernmentMarket Structure and Power0% 100%
    • Perfect CompetitionMany SellersMany BuyersNo barriersSame productTiny share
    • Q$Perfect CompetitionDemand=MRPriceMarginalCostsQProductivelyEfficientAverageCostsProfit
    • MonopolyOnly One SellerNo Close SubstitutesBarrier to Entry
    • Barriers to EntryGovernment ProtectionKey ResourceNetwork ExternalitiesEconomies of Scale
    • PatentsCopyrights20YearsLifetime plus 70Years
    • FranchiseExclusive Legal Provider
    • New Drugs10Years of Testingbefore Approval10Years of Monopoly
    • Network ExternalitiesThe more who use itThe more valuable itbecomes
    • Natural MonopolyOne firm can supplyentire market at a loweraverage cost than two ormore firms
    • Natural MonopolyThe more I makethe lower my costsLarge Fixed Costs
    • Is competitionalways good?Sometimes it can lead tohigher prices
    • MonopolyOutput and PriceLower Price:Good: Sell MoreBad: Less Revenue Per Unit
    • QPPerfect CompetitionMarginal CostMC Average CostATCTotal Cost$QuantityProfitDemand=MRTotal Revenue
    • DemandMR=Perfect CompetitionMonopoly
    • Perfect CompetitionPerfect CompetitionPerfect Competition MonopolyMonopolyQ D TR MR D TR MR12345Monopoly:To get more Quantity must lower price$3 $3 $3 $5 $5 $5$3 $6 $3 $4 $8 $3$3 $9 $3 $3 $9 $1$3 $12 $3 $2 $8 -$1$3 $15 $3 $1 $5 -$3
    • Demand MR=Perfect CompetitionMonopoly
    • MonopolyPrice1 3$5$3$4$2$1$02 4 5Price Qty TR MR$5$3$4$2$113245Qty$5$8$9$8$5$5$3$1-$1-$3LoseGainLose-$2-$1-$3-$4Gain$3$4$2$1Lose GainLose GainLoseGain DemandMarginal Revenue MR
    • Marginal CostMCQPMarginal Revenue MRMonopolyAverage CostATCCost$QProfitDemandDeadweightLossConsumerSurplus1. MR=MC?2.TR= P x Q3.TC=ATC x Q4. Profit =TR-TCor (P-ATC) x Q
    • AntitrustLawsCollusionFelony
    • MonopolisticCompetitionBrands competing with eachother.Differentiating productsPay more for more choices
    • Q$DMR=MonopolyPerfect Competition
    • Q$Monopolistic CompetitionDMRShort RunLong RunSteep DemandDemand Flattens
    • Q$Short RunLong RunDMRMCATCProfitProfits disappearin the long rundue tocompetitionHigh PriceLarge QuantityLower PriceLower QuantityQSQPPSLLDemand FlattensProfitMonopolistic Competition
    • DMRMCCompetition flattensthe Demand Curveand squeezes profits.Profits
    • Q$Market CompetitionShort RunDemandShort RunMarginal RevenueLong RunDemandLong RunMarginalRevenueMarginalCostsAverageTotalCostsQSRPSRQLRPLR