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 Differ...
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 Quant...
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$2...
Marginal CostMCQPMarginal Revenue MRMonopolyAverage CostATCCost$QProfitDemandDeadweightLossConsumerSurplus1. MR=MC?2.TR= P ...
AntitrustLawsCollusionFelony
MonopolisticCompetitionBrands competing with eachother.Differentiating productsPay more for more choices
Q$DMR=MonopolyPerfect Competition
Q$Monopolistic CompetitionDMRShort RunLong RunSteep DemandDemand Flattens
Q$Short RunLong RunDMRMCATCProfitProfits disappearin the long rundue tocompetitionHigh PriceLarge QuantityLower PriceLower Q...
DMRMCCompetition flattensthe Demand Curveand squeezes profits.Profits
Q$Market CompetitionShort RunDemandShort RunMarginal RevenueLong RunDemandLong RunMarginalRevenueMarginalCostsAverageTotal...
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Hen 368 lecture 9 structure, conduct, performance, and market analysis

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

  1. 1. Health EconomicsLecture 9Structure, Conduct,Performance, and MarketAnalysis
  2. 2. ObjectivesSCP ParadigmPerfect CompetitionMonopolyBrand CompetitionOligopoly
  3. 3. Structure, Conduct, andPerformance
  4. 4. Basic ConditionsSupplyTechnologyUnionizationLegal EnvironmentEconomies of ScaleDemandPrice ElasticityDemand Conditions
  5. 5. Market ConditionsNumber, type, size distribution ofsellers and payersType of ProductBarriers to EntryInformation Asymmetry
  6. 6. ObjectivesProfit MaximizationQuantity MaximizationQuality MaximizationDiscretionary SpendingOther
  7. 7. Public PolicyTaxes and SubsidiesAntitrust RegulationsPrice RegulationsCertificate of Need LawsPeer Review Organizations
  8. 8. ConductPrice BehaviorProduct PromotionResearch and Development
  9. 9. PerformanceProduction and AllocationEfficiencyEquityTechnological Progress
  10. 10. Market StructuresPerfect CompetitionMonopolyMonopolistic CompetitionOligopoly
  11. 11. 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%
  12. 12. Perfect CompetitionMany SellersMany BuyersNo barriersSame productTiny share
  13. 13. Q$Perfect CompetitionDemand=MRPriceMarginalCostsQProductivelyEfficientAverageCostsProfit
  14. 14. MonopolyOnly One SellerNo Close SubstitutesBarrier to Entry
  15. 15. Barriers to EntryGovernment ProtectionKey ResourceNetwork ExternalitiesEconomies of Scale
  16. 16. PatentsCopyrights20YearsLifetime plus 70Years
  17. 17. FranchiseExclusive Legal Provider
  18. 18. New Drugs10Years of Testingbefore Approval10Years of Monopoly
  19. 19. Network ExternalitiesThe more who use itThe more valuable itbecomes
  20. 20. Natural MonopolyOne firm can supplyentire market at a loweraverage cost than two ormore firms
  21. 21. Natural MonopolyThe more I makethe lower my costsLarge Fixed Costs
  22. 22. Is competitionalways good?Sometimes it can lead tohigher prices
  23. 23. MonopolyOutput and PriceLower Price:Good: Sell MoreBad: Less Revenue Per Unit
  24. 24. QPPerfect CompetitionMarginal CostMC Average CostATCTotal Cost$QuantityProfitDemand=MRTotal Revenue
  25. 25. DemandMR=Perfect CompetitionMonopoly
  26. 26. 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
  27. 27. Demand MR=Perfect CompetitionMonopoly
  28. 28. 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$1Lose GainLose GainLoseGain DemandMarginal Revenue MR
  29. 29. Marginal CostMCQPMarginal Revenue MRMonopolyAverage CostATCCost$QProfitDemandDeadweightLossConsumerSurplus1. MR=MC?2.TR= P x Q3.TC=ATC x Q4. Profit =TR-TCor (P-ATC) x Q
  30. 30. AntitrustLawsCollusionFelony
  31. 31. MonopolisticCompetitionBrands competing with eachother.Differentiating productsPay more for more choices
  32. 32. Q$DMR=MonopolyPerfect Competition
  33. 33. Q$Monopolistic CompetitionDMRShort RunLong RunSteep DemandDemand Flattens
  34. 34. Q$Short RunLong RunDMRMCATCProfitProfits disappearin the long rundue tocompetitionHigh PriceLarge QuantityLower PriceLower QuantityQSQPPSLLDemand FlattensProfitMonopolistic Competition
  35. 35. DMRMCCompetition flattensthe Demand Curveand squeezes profits.Profits
  36. 36. Q$Market CompetitionShort RunDemandShort RunMarginal RevenueLong RunDemandLong RunMarginalRevenueMarginalCostsAverageTotalCostsQSRPSRQLRPLR

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