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Class mkt structures i

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  • Transcript

    • 1. Market Structures
    • 2. Alternative Market Structures
      • Classifying markets (by degree of competition)
        • number of firms
        • freedom of entry to industry
          • free, restricted or blocked?
        • nature of product
          • homogeneous or differentiated?
        • nature of demand curve
          • degree of control the firm has over price
    • 3. Alternative Market Structures
      • The four market structures
        • perfect competition
        • monopoly
        • monopolistic competition
        • oligopoly
    • 4. Features of the four market structures
    • 5. Perfect Competition
      • Assumptions
        • firms are price takers
        • freedom of entry of firms to industry
        • identical products
        • perfect knowledge
      • Distinction between short and long run
        • normal profits
        • supernormal profits
    • 6. Perfect Competition
      • Short-run equilibrium of the firm
        • Price
          • given by market demand and supply
        • Output
          • where P = MC
        • Profit
          • ( AR – AC ) × Q
          • possible supernormal profits
    • 7. Short-run equilibrium of industry and firm under perfect competition O £ (b) Firm Q (thousands) O (a) Industry P Q (millions) Q e S D P e MC AR D = AR = MR AC AC
    • 8. Perfect Competition
      • The long run
        • long-run equilibrium of the firm
          • all supernormal profits competed away
    • 9. Long-run equilibrium under perfect competition O O P £ Q (millions) Q L Q (thousands) New firms enter Supernormal profits Profits return to normal (a) Industry (b) Firm S 1 D LRAC P L P 1 S e AR 1 D 1 AR L D L
    • 10. Perfect Competition
      • The long run
        • long-run equilibrium of the firm
          • all supernormal profits competed away
          • LRAC = AC = MC = MR = AR
    • 11. Long-run equilibrium of the firm under perfect competition £ Q O (SR)AC (SR)MC LRAC AR = MR D L LRAC = (SR)AC = (SR)MC = MR = AR
    • 12. Monopoly
      • Defining monopoly
        • importance of market power
        • concentration ratios
    • 13. Concentration ratios in the UK
    • 14. Monopoly
      • Barriers to entry
        • economies of scale
        • product differentiation and brand loyalty
        • lower costs for an established firm
        • ownership/control of key factors or outlets
        • legal protection
        • mergers and takeovers
        • aggressive tactics
    • 15. Monopoly
      • The monopolist's demand curve
        • downward sloping
        • MR below AR
        • AR curve is the demand curve for the monopolist
    • 16. AR and MR curves for a monopoly Q (units) 1 2 3 4 5 6 7 P =AR (£) 8 7 6 5 4 3 2 AR AR, MR (£) Quantity
    • 17. AR and MR curves for a monopoly Q (units) 1 2 3 4 5 6 7 P =AR (£) 8 7 6 5 4 3 2 TR (£) 8 14 18 20 20 18 14 MR (£) 6 4 2 0 -2 -4 MR AR, MR (£) Quantity AR
    • 18. Sources of Monopoly
      • Elasticity of demand
      • Number of firms in the market
      • Interaction among the firms
    • 19. Price Discrimination
      • Price discrimination involves exploiting demand characteristics that allow the same product to be sold at various prices unrelated to the cost of supply.
      • In practice a single consumer may be charged different prices for different units of a good bought or different consumers may be charged different prices for the same product or service.
    • 20. Types of Price Discrimination
      • First Degree
        • First-degree price discrimination occurs where a firm charges a different price for each unit sold.
        • the supplier is able to charge each customer according to his willingness or ability to pay.
        • Examples include doctors, lawyers, barbers.
        • Also used in auctions
    • 21.
      • Second Degree
        • Second-degree price discrimination occurs where the monopolist charges different prices for different quantities, or blocks, of the same product.
        • The consumer is charged a price that varies with consumption in which initial units incur a higher price than later units
        • Examples include utility industries like electricity, water supply
        • Principle often works in case of quantity discounts
    • 22.
      • Third Degree
        • Third-degree price discrimination occurs where the monopolist is able to separate the market demand into two or more groups of customers and then charge each group a different price for the same product
        • Condition for market separation is the absence of arbitrage opportunities
        • Examples include railways and airlines
    • 23. Two part pricing
      • Combination of a fixed rate and a variable rate
      • Fixed charge is designed to recover fixed costs and the variable element is intended to reflect more closely the marginal cost of consumption
      • This encourages additional consumption, particularly in industries with high fixed cost, declining average costs and excess capacity
      • Examples include telephones, internet service providers, electricity, amusement parks, pubs, sports clubs etc
    • 24. Peak Load pricing
      • Price structures may be constructed to reflect the variations in costs or to limit investment in capacity.
      • Applied when demand varies significantly by time of the day, the week or the year and costs of supply vary with the level of demand
      • Examples include electricity, off season pricing in airlines, road transport etc, shopping malls
    • 25. Coupons and Rebates
    • 26. Monopoly
      • Equilibrium price and output
        • MC = MR
    • 27. Profit maximising under monopoly £ Q O Q m MR MC
    • 28. Monopoly
      • Equilibrium price and output
        • MC = MR
        • measuring level of supernormal profit
    • 29. Profit maximising under monopoly £ Q O Q m MR MC
    • 30. Profit maximising under monopoly £ Q O MC Q m MR AC AR AC AR
    • 31. Profit maximising under monopoly £ Q O MC AC Q m MR AR AR AC Total profit