This document discusses market pricing decisions and market structures using Porter's model. It covers the key market structures of perfect competition, monopoly, monopolistic competition, and oligopoly. For each structure, it examines how firms make output and pricing decisions based on factors like demand elasticity, costs, and competitors' actions. It also analyzes the implications of each market structure for public interest, including impacts on prices, output, innovation, and resource allocation. Non-price competition strategies like advertising and product development are also briefly discussed.

6. A Model to Start Analysis

8. Since market price will settle at the point where only normal profits are earned  output will settle where price= Marginal Cost = Average Cost = Marginal Revenue AC P* Output MC D=MR=AR q*

9. Industry Demand Increase and The Long-Run Industry Supply Curve S 1 S 2 D 1 D 2 Long-run S P Q a) Constant industry costs a b c

10. Industry Demand Increase and The Long-Run Industry Supply Curve continued S 1 S 2 D 1 D 2 Long-run S P Q b) Increasing industry costs: external diseconomies of scale a b c

11. Industry Demand Increase and The Long-Run Industry Supply Curve continued S 1 S 2 D 1 D 2 Long-run Supply P Q c) Decreasing industry costs: external economies of scale a b c

18. Graph- Reflect on the slide P 1 Q 1 MC AC D = AR MR

22. Graph-Reflect and think Output D MR AC MC F

29. Kinked demand for a firm under oligopoly Q O P 1 Q 1 D so demand in response to a price reduction is likely to be relatively inelastic The firm may expect rivals to respond if it reduces its price, as this will be seen as an aggressive move … but for a price increase rivals are less likely to react, so demand may be relatively elastic above P 1 Demand curve kinked at current price:

30. Stable price under conditions of a kinked demand curve Q O P 1 Q 1 D  AR a MR When Q < Q 1, the MR curve corresponds to the shallow part of the AR curve

31. Stable price under conditions of a kinked demand curve continued Q O P 1 Q 1 MR a b D  AR At Q > Q 1 , the MR curve will correspond to the steep part of the AR curve Note the cap between points a and b

33. Stable price under conditions of a kinked demand curve continued Q O P 1 Q 1 MC 2 MC 1 MR a b D  AR

35. Prisoner’s Dilemma: Payoff Matrix Kannan’s strategies Confess Deny Confess Deny Arasi’s strategies 3 years 3 years 2 years 2 years 10 years 10 years 1 year 1 year

37. Duopoly Payoff Matrix: The equilibrium is a Nash equilibrium in which both firms cheat Company A’s strategies Cheat Comply Company B’s strategies nil Cheat Comply Nil -Rs1.0m -Rs1.0m +Rs4.5m +Rs4.5m +Rs2m +Rs2m

42. The Porter Competitive Framework Intra-Market Rivalry Potential Entrants Customers Substitute Markets Suppliers Threat of new entrants Bargaining power of buyers Bargaining power of suppliers Threat of substitute products or services