产业经济学英文版课件：2-The Welfare Economics of Market Power

1、2-The Welfare Economics of Market Power课后阅读：吴汉洪，产业组织理论，第二章：微观经济学若干知识的简单回顾1Profit Maximization2Perfect CompetitionThe four standard assumptions of the perfectly competitive model areEconomies of scale are small relative to the size of the market. Output is homogeneous. Information is perfect. There a

2、re no entry or exit barriers.Price takers believe or act as if they can sell or buy as much or as little as they want without affecting the price. 3EfficiencyIf markets are perfectly competitive, the allocation of resources is Pareto optimal or efficient. An efficient allocation maximizes total surp

3、lus.Total surplus=consumer surplus + producer surplus4Consumer and Producer Surplus in the Market EquilibriumProducersurplusConsumersurplusPrice0QuantityEquilibriumpriceEquilibriumquantitySupplyDemandACBDE5Example6Example7ExampleConsumer surplusPrice0QuantityDemandMarginal costMarginal revenueA8Mark

4、et PowerA firm with market power can profitably raise price above marginal cost. which depends on the extent to which consumers can substitute to other suppliers.Supply side substitution is often more relevant when products are homogeneous, whereasdemand side substitution is only applicable when pro

5、ducts are differentiated.A firm with market power is often called a price maker.9Market PowerThe exercise of market power creates an opportunity cost to society called deadweight loss(DWL). 10Example11Example12Profit-Maximizing MonopolistProfitPrice0QuantityDeadweightlossDemandMarginalrevenueConsume

6、rsurplusMarginal costA13Market PowerThe market power of a firm varies inversely with its elasticity of demand. Supply side (other producers of the same product) and demand side substitution (competing products) possibilities for consumers increase the elasticity of demand. 14Lerner index 15Market Po

7、werThe extent of the inefficiency associated with market power also depends on the time frame. In the long run, a firms elasticity of demand is likely to be larger for three reasons:Consumer ResponseNew EntrantsNew Technology16Market Power and Public PolicyDeadweight losses provide an economic rationale for state intervention. Regulation is intervention to constrain the exercise of mar