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Lecture 18 Oligopoly

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Collusive oligopoly: Chamberlin notion of conscious parallelism. 8. Micro ... some famous oligopolies. RTE breakfast cereal (Ready-To-Eat) market. Domestic ... – PowerPoint PPT presentation

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Title: Lecture 18 Oligopoly


1
Lecture 18 - Oligopoly
  • Wissinks Words

2
remarks
  • Not finished with monopoly yet.
  • Analysis of simple monopoly conduct is pretty
    straightforward once you recognize the new
    relationship between demand and marginal revenue.
  • Performance analysis of the simple monopoly is
    summed up in the dead weight loss - a measure of
    the allocative inefficiency attributable to
    simple monopoly pricing.

3
price discrimination
  • charge different prices for different units with
    out cost basis.
  • charge different prices to different people with
    out cost basis.
  • charge the same price when there are costs
    differences.

4
  • Requirements for successful price discrimination
  • some monopoly power
  • ability to prevent resale
  • specific and detailed information about demanders

5
two favorite stories
  • Arsenic Old Lace
  • Rohm and Haas plan to prevent resale in plastic
    molding powder markets.
  • I Can See Clearly Now
  • Bausch Lombs pricing and marketing strategy in
    the contact lens markets.
  • Price discrimination comes in all sorts of
    interesting shapes and sizes, once you recognize
    it.

6
onto oligopoly
  • Oligopoly is one of the most interesting and
    difficult markets to model.
  • Lots of direct and immediate interaction among
    rivals. Lots of strategic interaction.
  • Game Theory is frequently employed to model this
    interaction and predict the conduct of
    oligopolists.

7
three basic models
  • Competition in quantities Cournot-Nash
    equilibrium
  • Competition in prices Bertrand-Nash equilibrium
  • Collusive oligopoly Chamberlin notion of
    conscious parallelism

8
important and debated questions
  • Where will the price and quantity end up in
    oligopolistic markets?
  • Will there be successful collusion?
  • Will existing firms try to erect entry barriers?
    Will they succeed?
  • Will the market outcome be efficient? Equitable?

9
some famous oligopolies
  • RTE breakfast cereal (Ready-To-Eat) market
  • Domestic automobile market
  • Tobacco products market
  • Carbonated beverages market
  • Beer market
  • Retail office supply superstores market

10
cartels
  • Often look for cartel formation (or collusion) in
    oligopolistic markets.
  • A very famous cartel OPEC (organization of
    petroleum exporting countries)
  • What leads to stable collusion? Can there be
    stable collusion? Or are cartels only a flash
    in the pan?
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