Cost-plus pricing: Simplistic strategy that guarantees that price is higher than the estimated average cost
Studies of pricing behavior suggest that many managers who use cost-plus pricing do not price optimally.
Definition of Markup: Markup = (Price – Cost)/Cost where Cost here is cost per unit
The short-run equilibrium in monopolistic competition is Identical to short-run equilibrium under monopoly
As entry and exit of firms from the product group shifts individual firms’ demand curves, long-run equilibrium occurs where profit is equal to zero.
The presentation describes various market structures and their characteristics; Perfect competition, Monopoly and Imperfect competition markets Monopolistic competition, Oligopoly, Duopoly
FellowBuddy.com is an innovative platform that brings students together to share notes, exam papers, study guides, project reports and presentation for upcoming exams.
We connect Students who have an understanding of course material with Students who need help.
Benefits:-
# Students can catch up on notes they missed because of an absence.
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# Students can earn better grades, save time and study effectively
Our Vision & Mission – Simplifying Students Life
Our Belief – “The great breakthrough in your life comes when you realize it, that you can learn anything you need to learn; to accomplish any goal that you have set for yourself. This means there are no limits on what you can be, have or do.”
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Students should be able to:
Carry out diagrammatic analysis of the market structure in both the short and long run
Understand the importance of advertising and differentiation for the model of monopolistic competition and be able to contrast this with other market structures.
Students should be able to explain and evaluate the efficiency of monopolistic competition
Cost-plus pricing: Simplistic strategy that guarantees that price is higher than the estimated average cost
Studies of pricing behavior suggest that many managers who use cost-plus pricing do not price optimally.
Definition of Markup: Markup = (Price – Cost)/Cost where Cost here is cost per unit
The short-run equilibrium in monopolistic competition is Identical to short-run equilibrium under monopoly
As entry and exit of firms from the product group shifts individual firms’ demand curves, long-run equilibrium occurs where profit is equal to zero.
The presentation describes various market structures and their characteristics; Perfect competition, Monopoly and Imperfect competition markets Monopolistic competition, Oligopoly, Duopoly
FellowBuddy.com is an innovative platform that brings students together to share notes, exam papers, study guides, project reports and presentation for upcoming exams.
We connect Students who have an understanding of course material with Students who need help.
Benefits:-
# Students can catch up on notes they missed because of an absence.
# Underachievers can find peer developed notes that break down lecture and study material in a way that they can understand
# Students can earn better grades, save time and study effectively
Our Vision & Mission – Simplifying Students Life
Our Belief – “The great breakthrough in your life comes when you realize it, that you can learn anything you need to learn; to accomplish any goal that you have set for yourself. This means there are no limits on what you can be, have or do.”
Like Us - https://www.facebook.com/FellowBuddycom
Students should be able to:
Carry out diagrammatic analysis of the market structure in both the short and long run
Understand the importance of advertising and differentiation for the model of monopolistic competition and be able to contrast this with other market structures.
Students should be able to explain and evaluate the efficiency of monopolistic competition
A market can be defined as a group of firms willing and able to sell a similar product or service to the same potential buyers.
Imperfect competition covers all situations where there is neither pure competition nor pure monopoly.
Perfect competition and pure monopoly are very unlikely to be found in the real world.
In the real world, it is the imperfect competition lying between perfect competition and pure monopoly.
The fundamental distinguishing characteristic of imperfect competition is that average revenue curve slopes downwards throughout its length, but it slopes downwards at different rates in different categories of imperfect competition.
Monopoly refers to the market situation where there is a
Single seller selling a product which has no close substitutes.
Monopolies are characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the existence of a high monopoly price well above the firm's marginal cost that leads to a high monopoly profit
The word “oligopoly” comes from the Greek “oligos” meaning "little or small” and “polein” meaning “to sell.” When “oligos” is used in the plural, it means “few” ,few firms or few sellers.
DEFINATION:
Oligopoly is that form of market where there are few firms and there is natural interdependence among the firms regarding price and output policy.
how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
Resume
• Real GDP growth slowed down due to problems with access to electricity caused by the destruction of manoeuvrable electricity generation by Russian drones and missiles.
• Exports and imports continued growing due to better logistics through the Ukrainian sea corridor and road. Polish farmers and drivers stopped blocking borders at the end of April.
• In April, both the Tax and Customs Services over-executed the revenue plan. Moreover, the NBU transferred twice the planned profit to the budget.
• The European side approved the Ukraine Plan, which the government adopted to determine indicators for the Ukraine Facility. That approval will allow Ukraine to receive a EUR 1.9 bn loan from the EU in May. At the same time, the EU provided Ukraine with a EUR 1.5 bn loan in April, as the government fulfilled five indicators under the Ukraine Plan.
• The USA has finally approved an aid package for Ukraine, which includes USD 7.8 bn of budget support; however, the conditions and timing of the assistance are still unknown.
• As in March, annual consumer inflation amounted to 3.2% yoy in April.
• At the April monetary policy meeting, the NBU again reduced the key policy rate from 14.5% to 13.5% per annum.
• Over the past four weeks, the hryvnia exchange rate has stabilized in the UAH 39-40 per USD range.
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
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What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
But you can still easily sell pi coins, by reselling it to exchanges/crypto whales interested in holding thousands of pi coins before the mainnet launch.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
Tele-gram.
@Pi_vendor_247
USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
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USDA loans are an excellent option for those looking to buy a home in California's rural and suburban areas. With no down payment and flexible requirements, these loans make homeownership more attainable for many families. Explore your eligibility today and take the first step toward owning your dream home.
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
2. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Market Structure
• Market structure – identifies how a market
is made up in terms of:
– The number of firms in the industry
– The nature of the product produced
– The degree of monopoly power each firm has
– The degree to which the firm can influence price
– Profit levels
– Firms’ behaviour – pricing strategies, non-price
competition, output levels
– The extent of barriers to entry
– The impact on efficiency
5. http://www.bized.co.uk
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Market Structure
Perfect
Competition
Pure
Monopoly
Monopolistic Competition Oligopoly Duopoly Monopoly
The further right on the scale, the greater the degree
of monopoly power exercised by the firm.
6. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Market Structure
• Importance:
• Degree of competition affects
the consumer – will it benefit
the consumer or not?
• Impacts on the performance
and behaviour of the
company/companies involved
7. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Market Structure
• Models – a word of warning!
– Market structure deals with a number of economic
‘models’
– These models are a representation of reality to help
us to understand what may be happening in real life
– There are extremes to the model that are unlikely
to occur in reality
– They still have value as they enable us to draw
comparisons and contrasts with what is observed
in reality
– Models help therefore in analysing and evaluating –
they offer a benchmark
8. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Market Structure
• Characteristics of each model:
– Number and size of firms that make up
the industry
– Control over price or output
– Freedom of entry and exit from the industry
– Nature of the product – degree of
homogeneity (similarity) of the products in
the industry (extent to which products can
be regarded as substitutes for each other)
– Diagrammatic representation – the shape
of the demand curve, etc.
9. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Market Structure
Characteristics: Look at these everyday products – what type of
market structure are the producers of these products operating
in?
Remember to
think about the
nature of the
product, entry and
exit, behaviour of
the firms, number
and size of the
firms in the
industry.
You might even
have to ask what
the industry is??Canon SLR CameraBananas
Mercedes CLK Coupe
Vodka
Electric
Guitar –
Jazz Body
10. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Perfect Competition
• One extreme of the market structure spectrum
• Characteristics:
– Large number of firms
– Products are homogenous (identical) – consumer
has no reason to express a preference for any firm
– Freedom of entry and exit into and out
of the industry
– Firms are price takers – have no control
over the price they charge for their product
– Each producer supplies a very small proportion
of total industry output
– Consumers and producers have perfect knowledge
about the market
11. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Perfect Competition
Diagrammatic representation
Cost/Revenue
Output/Sales
The industry price is
determined by the demand
and supply of the industry
as a whole. The firm is a
very small supplier within
the industry and has no
control over price. They will
sell each extra unit for the
same price. Price therefore
= MR and AR
P = MR = AR
MC
The MC is the cost of
producing additional
(marginal) units of output. It
falls at first (due to the law of
diminishing returns) then rises
as output rises.
AC
The average cost curve is the
standard ‘U’ – shaped curve.
MC cuts the AC curve at its
lowest point because of the
mathematical relationship
between marginal and average
values.
Q1
Given the assumption of profit
maximisation, the firm produces
at an output where MC = MR
(Q1). This output level is a
fraction of the total industry
supply.
At this output the firm
is making normal profit.
This is a long run
equilibrium position.
12. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Perfect Competition
Diagrammatic representation
Cost/Revenue
Output/Sales
P = MR = AR
MC
AC
Q1
Now assume a firm makes
some form of modification to
its product or gains some form
of cost advantage (say a new
production method). What
would happen?
AC1
MC1
AC1
Abnormal profit
Q2
Because the model assumes
perfect knowledge, the firm
gains the advantage for only a
short time before others copy
the idea or are attracted to the
industry by the existence of
abnormal profit. If new firms
enter the industry, supply will
increase, price will fall and the
firm will be left making normal
profit once again.
P1 = MR1 = AR1
The lower AC and MC would
imply that the firm is now
earning abnormal profit
(AR>AC) represented by the
grey area.
Average and Marginal costs
could be expected to be lower
but price, in the short run,
remains the same.
13. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Monopolistic or Imperfect
Competition
• Where the conditions of perfect
competition do not hold, ‘imperfect
competition’ will exist
• Varying degrees of imperfection give
rise to varying market structures
• Monopolistic competition is one of these
– not to be confused with monopoly!
14. http://www.bized.co.uk
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Monopolistic or Imperfect
Competition
• Characteristics:
– Large number of firms in the industry
– May have some element of control over
price due to the fact that they are able to
differentiate their product in some way from
their rivals – products are therefore close,
but not perfect, substitutes
– Entry and exit from the industry is relatively
easy – few barriers to entry and exit
– Consumer and producer knowledge
imperfect
15. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Monopolistic or Imperfect
Competition
Implications for the diagram:
Cost/Revenue
Output / Sales
MC
AC
Marginal Cost and
Average Cost will be the
same shape. However,
because the products
are differentiated in
some way, the firm will
only be able to sell extra
output by lowering
price.
D (AR)
The demand curve facing
the firm will be downward
sloping and represents the
AR earned from sales.
MR
Since the additional
revenue received from
each unit sold falls, the
MR curve lies under the
AR curve.
We assume that the firm
produces where MR = MC
(profit maximising output).
At this output level, AR>AC
and the firm makes
abnormal profit (the grey
shaded area).
Q1
£1.00
£0.60
Abnormal Profit
If the firm produces Q1 and
sells each unit for £1.00 on
average with the cost (on
average) for each unit being
60p, the firm will make 40p x
Q1 in abnormal profit.
This is a short run equilibrium
position for a firm in a
monopolistic market
structure.
16. http://www.bized.co.uk
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Monopolistic or Imperfect
Competition
Implications for the diagram:
Cost/Revenue
Output / Sales
MC
AC
D (AR)MR
Q1
Because there is relative
freedom of entry and exit
into the market, new
firms will enter
encouraged by the
existence of abnormal
profits. New entrants will
increase supply causing
price to fall. As price falls,
the AR and MR curves
shift inwards as revenue
from each sale is now
less.
AR1
MR1
17. http://www.bized.co.uk
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Monopolistic or Imperfect
Competition
Implications for the diagram:
Cost/Revenue
Output / Sales
MC
AC
D (AR)MR
Q1
AR1
MR1
Notice that the existence
of more substitutes makes
the new AR (D) curve
more price elastic. The
firm reduces output to a
point where MC = MR
(Q2). At this output AR =
AC and the firm will make
normal profit.
Q2
AR = AC
18. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Monopolistic or Imperfect
Competition
Implications for the diagram:
Cost/Revenue
Output / Sales
MC
AC
AR1
MR1
This is the long run
equilibrium position
of a firm in monopolistic
competition.
Q2
AR = AC
19. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Monopolistic or Imperfect
Competition
• Some important points about
monopolistic competition:
– May reflect a wide range of markets
– Not just one point on a scale –
reflects many degrees
of ‘imperfection’
– Examples?
21. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Monopolistic or Imperfect
Competition
• In each case there are many firms
in the industry
• Each can try to differentiate its product
in some way
• Entry and exit to the industry is relatively free
• Consumers and producers do not have perfect
knowledge of the market – the market may
indeed be relatively localised. Can you imagine
trying to search out the details, prices,
reliability, quality of service, etc for every
plumber in the UK in the event of an
emergency??
22. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Oligopoly
• Competition between the few
– May be a large number of firms in the
industry but the industry is dominated
by a small number of very large producers
• Concentration Ratio – the proportion
of total market sales (share) held by
the top 3,4,5, etc firms:
– A 4 firm concentration ratio of 75% means
the top 4 firms account for 75% of all
the sales in the industry
23. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Oligopoly
• Example:
• Music sales –
The music industry has
a 5-firm concentration
ratio of 75%.
Independents make up
25% of the market but
there could be many
thousands of firms that
make up this
‘independents’ group.
An oligopolistic market
structure therefore
may have many firms
in the industry but it is
dominated by a few
large sellers.
Market Share of the Music Industry 2002. Source IFPI: http://www.ifpi.org/site-content/press/20030909.html
24. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Oligopoly
• Features of an oligopolistic market
structure:
– Price may be relatively stable across the industry –
kinked demand curve?
– Potential for collusion
– Behaviour of firms affected by what they believe their rivals
might do – interdependence of firms
– Goods could be homogenous or highly differentiated
– Branding and brand loyalty may be a potent source of competitive
advantage
– Non-price competition may be prevalent
– Game theory can be used to explain some behaviour
– AC curve may be saucer shaped – minimum efficient scale
could occur over large range of output
– High barriers to entry
25. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Oligopoly
The kinked demand curve - an explanation for price stability?Price
Quantity
D = elastic
D = Inelastic
£5
100
Kinked D Curve
The principle of the kinked demand
curve rests on the principle
that:
a. If a firm raises its price, its
rivals will not follow suit
b. If a firm lowers its price, its
rivals will all do the same
Assume the firm is charging a price of
£5 and producing an output of 100.
If it chose to raise price above £5, its
rivals would not follow suit and the firm
effectively faces an elastic demand
curve for its product (consumers would
buy from the cheaper rivals). The %
change in demand would be greater
than the % change in price and TR
would fall.
Total Revenue A
Total
Revenue B
If the firm seeks to lower its price to
gain a competitive advantage, its rivals
will follow suit. Any gains it makes will
quickly be lost and the % change in
demand will be smaller than the %
reduction in price – total revenue
would again fall as the firm now faces
a relatively inelastic demand curve.
Total Revenue B
Total Revenue A
The firm therefore, effectively faces
a ‘kinked demand curve’ forcing it to
maintain a stable or rigid pricing
structure. Oligopolistic firms may
overcome this by engaging in non-
price competition.
26. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Duopoly
• Market structure where the industry is
dominated by two large producers
– Collusion may be a possible feature
– Price leadership by the larger of the two firms may
exist – the smaller firm follows the price lead
of the larger one
– Highly interdependent
– High barriers to entry
– Cournot Model – French economist – analysed
duopoly – suggested long run equilibrium would see
equal market share and normal profit made
– In reality, local duopolies may exist
27. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Monopoly
• Pure monopoly – where only
one producer exists in the industry
• In reality, rarely exists – always
some form of substitute available!
• Monopoly exists, therefore,
where one firm dominates the market
• Firms may be investigated for examples
of monopoly power when market share
exceeds 25%
• Use term ‘monopoly power’ with care!
28. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Monopoly
• Monopoly power – refers to cases where firms
influence the market in some way through
their behaviour – determined by the degree
of concentration in the industry
– Influencing prices
– Influencing output
– Erecting barriers to entry
– Pricing strategies to prevent or stifle competition
– May not pursue profit maximisation – encourages
unwanted entrants to the market
– Sometimes seen as a case of market failure
29. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Monopoly
• Origins of monopoly:
– Through growth of the firm
– Through amalgamation, merger
or takeover
– Through acquiring patent or license
– Through legal means – Royal charter,
nationalisation, wholly owned plc
30. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Monopoly
• Summary of characteristics of firms
exercising monopoly power:
– Price – could be deemed too high, may be
set to destroy competition (destroyer or
predatory pricing), price discrimination
possible.
– Efficiency – could be inefficient due to lack
of competition (X- inefficiency) or…
• could be higher due to availability of high profits
31. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Monopoly
• Innovation - could be high because
of the promise of high profits, Possibly
encourages high investment in research
and development (R&D)
• Collusion – possible to maintain
monopoly power of key firms
in industry
• High levels of branding, advertising
and non-price competition
32. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Monopoly
• Problems with models – a reminder:
– Often difficult to distinguish between a monopoly
and an oligopoly – both may exhibit behaviour
that reflects monopoly power
– Monopolies and oligopolies do not necessarily aim
for traditional assumption of profit maximisation
– Degree of contestability of the market may influence
behaviour
– Monopolies not always ‘bad’ – may be desirable
in some cases but may need strong regulation
– Monopolies do not have to be big – could exist locally
33. http://www.bized.co.uk
Copyright 2006 – Biz/ed
Monopoly
Costs / Revenue
Output / Sales
AC
MC
ARMR
AR (D) curve for a monopolist
likely to be relatively price
inelastic. Output assumed to
be at profit maximising output
(note caution here – not all
monopolists may aim
for profit maximisation!)
Q1
£7.00
£3.00
Monopoly
Profit
Given the barriers to entry,
the monopolist will be able to
exploit abnormal profits in the
long run as entry to the
market is restricted.
This is both the short run and
long run equilibrium position
for a monopoly
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Monopoly
Costs / Revenue
Output / Sales
AC
MC
AR
MR
Welfare
implications of
monopolies
A look back at the diagram for
perfect competition will reveal
that in equilibrium, price will be
equal to the MC of production.
We can look therefore at a
comparison of the differences
between price and output in a
competitive situation compared
to a monopoly.
Q1
£3
The price in a competitive
market would be £3 with
output levels at Q1.
Q2
£7
The monopoly price would be
£7 per unit with output levels
lower at Q2.
On the face of it, consumers
face higher prices and less
choice in monopoly conditions
compared to more competitive
environments.
Loss of consumer
surplus
The higher price and lower
output means that consumer
surplus is reduced, indicated by
the grey shaded area.
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Monopoly
Costs / Revenue
Output / Sales
AC
MC
AR
MR
Welfare
implications of
monopolies
Q1
£3
Q2
£7
The monopolist will be
affected by a loss of producer
surplus shown by the grey
triangle but……..
The monopolist will benefit
from additional producer
surplus equal to the grey
shaded rectangle.
Gain in producer
surplus
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Monopoly
Costs / Revenue
Output / Sales
AC
MC
AR
MR
Welfare
implications of
monopolies
Q1
£3
Q2
£7
The value of the grey shaded
triangle represents the total
welfare loss to society –
sometimes referred to as
the ‘deadweight welfare loss’.
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Contestable Markets
• Theory developed by William J. Baumol,
John Panzar and Robert Willig (1982)
• Helped to fill important gaps in market
structure theory
• Perfectly contestable market – the
pure form – not common in reality but a
benchmark to explain firms’ behaviours
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Contestable Markets
• Key characteristics:
– Firms’ behaviour influenced by the threat
of new entrants to the industry
– No barriers to entry or exit
– No sunk costs
– Firms may deliberately limit profits made
to discourage new entrants – entry limit
pricing
– Firms may attempt to erect artificial
barriers to entry – e.g…
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Contestable Markets
• Over capacity – provides the
opportunity to flood the market
and drive down price in the event
of a threat of entry
• Aggressive marketing and branding
strategies to ‘tighten’ up the market
• Potential for predatory
or destroyer pricing
• Find ways of reducing costs and
increasing efficiency to gain competitive
advantage
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Contestable Markets
• ‘Hit and Run’ tactics – enter the
industry, take the profit and get
out quickly (possible because of
the freedom of entry and exit)
• Cream-skimming – identifying
parts of the market that are high
in value added and exploiting
those markets
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Contestable Markets
• Examples of markets exhibiting
contestability characteristics:
– Financial services
– Airlines – especially flights
on domestic routes
– Computer industry – ISPs, software,
web development
– Energy supplies
– The postal service?
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Market Structures
• Final reminders:
• Models can be used as a comparison – they are not
necessarily meant to BE reality!
• When looking at real world examples, focus on the behaviour
of the firm in relation to what the model predicts would
happen – that gives the basis for analysis and evaluation of
the real world situation.
• Regulation – or the threat of regulation may well affect
the way a firm behaves.
• Remember that these models are based on certain
assumptions – in the real world some of these assumptions
may not be valid, this allows us to draw comparisons and
contrasts.
• The way that governments deal with firms may be based on a
general assumption that more competition is better than less!