40 terms

econ chap 23

one difference between mono comp and pure comp is that:
there is some control over price in mon comp
basic features of mono comp
easy entry, many firms, differentiated products
demand curve for a monopolistically comp firm has a
neg slop and marginal revenue curve has neg slope
demand curve faced by mono comp firm
is more elastic that monopolist's demand curve
in mono comp, a firm has a limited degree of 'price-making' ability meaning
the firm will produce at min ATC
suppose some firms exit an industry (mono comp) demand curve of firm will
shift to right
not true for mono comp industry
the portion of the MC curve above AVC curve is the short-run supply curve for firm
long-run equilibrium in a mono comp industry
p > min ATC
long-run equilibrium, a profit-max firm in mono comp will produce the quantity of output where
mono comp is characterized by excess capacity b/c
firms produce at an output level less than the least-cost output
mon compe there is an underallocation of resources at the profit max level output meaning
price is greater than MC
compared to pure comp, mono compe
provides greater product differentiation at the cost of some excess capacity
compared to a purely comp firm in long-run equilibrium, the mono competitor has a
higher price and lower output
the stronger the product differentiation...
the less elastic the demand curve, and production will take place further to the left of min ATC
oligop market is consistent with
all firms making econ profit, a small number of firms in industry, and the existence of barriers to entry
low concentration radio means...
each firm accounts for a small market share of the industry
the herfindahl index is a measure of
market power in an industry
in a duopoly, if one firm increases its prices, then the other firm can
keep its price constant and thus increase its market share
prediction of kinked demand curve model is
price stability in oligopolies
kinked demand model of noncollusive oligop assumes that
rivals will ignore price increases and match price cuts
in kinked demand model, there will be vertical break in the firm's
marginal revenue curve
if output is set at the kink of kinked demand model
there are several prices at which MR = MC
major reason that firms form a cartel is to
maximize joint profits
a cartel is formed among the major firms in an industry that maximizes join profits of the firms, each firm
has the incentive to cheat by cutting its price
price leadership represents a situation where oligop firms
tacitly collude
in an oligop market there is likely to be
neither allocative nor productive effieciency
in the long run an oligop
may be able to earn positive econ profits
aspects of product differentiation
product attributes, service, location, brand name and packaging, and some control over price
mono comp
relatively large number of sellers, differentiated product, easy entry and exit, nonprice competition
mono comp efficiency
neither productive or allocative efficiency
excess capacity
gap b/n the min ATC output and the profit max output
benefits of product variety
creates tradeoff b/n consumer choice and productive efficiency; stronger pdiff, the greater the excess capacity and greater productive inefficiency; greater pdiff, the more likely firms will satisfy great diversiyt of consumer tastes
few large produces of a homo or differentiated product; have considerable control over price (mutual interdependence)
measures of industry concentration
concentration radio and herfindahl index
short comings of concentration radio
1) localized markets (pertain to nation as whole)
2) interindustry competition (comp b/n 2 products associated w/ different industries)
3) world trade (doesn't account for import compet of foreign suppliers)
profit matrix
the payoff each firm would result in from each combination of strategies
kinked-demand theory
noncollusive; match price decreases, ignore price increases
obstacles to collusion
1) demand and cost differences (when oligops face different prices and costs it is difficult for them to agree on a price)
2) number of firms (the large the # of firms the more difficult it is to create a cartel)
3) cheating
4) recession (enemy to collusion since slumping market costs increase ATC)
5) potential entry
6) legal obstacles: antitrust law
price leadership model
where 'dominant' firm initiates price changes and all other firms follow
leadership tactics
infrequent price changes
limit pricing