微观经济理论英文版课件：ch14 TRADITIONAL MODELS OF IMPERFECT COMPETITION

1、Chapter 14TRADITIONAL MODELS OF IMPERFECT COMPETITIONCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.1Pricing Under Homogeneous OligopolyWe will assume that the market is perfectly competitive on the demand sidethere are many buyers, each of whom is a price taker

2、We will assume that the good obeys the law of one pricethis assumption will be relaxed when product differentiation is discussed2Pricing Under Homogeneous OligopolyWe will assume that there is a relatively small number of identical firms (n)we will initially start with n fixed, but later allow n to

3、vary through entry and exit in response to firms profitabilityThe output of each firm is qi (i=1,n)symmetry in costs across firms will usually require that these outputs are equal3Pricing Under Homogeneous OligopolyThe inverse demand function for the good shows the price that buyers are willing to p

4、ay for any particular level of industry outputP = f(Q) = f(q1+q2+qn)Each firms goal is to maximize profitsi = f(Q)qi Ci(qi)i = f(q1+q2+qn)qi Ci4Oligopoly Pricing ModelsThe quasi-competitive model assumes price-taking behavior by all firmsP is treated as fixedThe cartel model assumes that firms can c

5、ollude perfectly in choosing industry output and P5Oligopoly Pricing ModelsThe Cournot model assumes that firm i treats firm js output as fixed in its decisionsqj/qi = 0The conjectural variations model assumes that firm js output will respond to variations in firm is outputqj/qi 06Quasi-Competitive

6、ModelEach firm is assumed to be a price takerThe first-order condition for profit-maximization isi /qi = P (Ci /qi) = 0P = MCi (qi) (i=1,n)Along with market demand, these n supply equations will ensure that this market ends up at the short-run competitive solution7Quasi-Competitive ModelQuantityPric

7、eMCDMRQCPCIf each firm acts as a price taker, P = MCi so QC output is produced and sold at a price of PC 8Cartel ModelThe assumption of price-taking behavior may be inappropriate in oligopolistic industrieseach firm can recognize that its output decision will affect priceAn alternative assumption wo

8、uld be that firms act as a group and coordinate their decisions so as to achieve monopoly profits9Cartel ModelIn this case, the cartel acts as a multiplant monopoly and chooses qi for each firm so as to maximize total industry profits = PQ C1(q1) + C2(q2) + Cn(qn)10Cartel ModelThe first-order condit

9、ions for a maximum are thatThis implies thatMR(Q) = MCi(qi)At the profit-maximizing point, marginal revenue will be equal to each firms marginal cost11Cartel ModelQuantityPriceMCDMRQMPMIf the firms form a group and act as a monopoly, MR = MCi so QM output is produced and sold at a price of PM 12Cart

10、el ModelThere are three problems with the cartel solutionthese monopolistic decisions may be illegalit requires that the directors of the cartel know the market demand function and each firms marginal cost functionthe solution may be unstableeach firm has an incentive to expand output because P MCi1

11、3Cournot ModelEach firm recognizes that its own decisions about qi affect priceP/qi 0However, each firm believes that its decisions do not affect those of any other firmqj /qi = 0 for all j i14Cournot ModelThe first-order conditions for a profit maximization areThe firm maximizes profit where MRi =

12、MCithe firm assumes that changes in qi affect its total revenue only through their direct effect on market price15Cournot ModelEach firms output will exceed the cartel outputthe firm-specific marginal revenue is larger than the market-marginal revenueEach firms output will fall short of the competit

13、ive outputqi P/qi AC, 0dmrSince 0, firms will enter and the demand facing the firm will shift leftEntry will end when = 0Firms will exhibit excess capacity = qm - qqm59Monopolistic CompetitionThe zero-profit equilibrium model just shown was developed by Chamberlin who termed it monopolistic competit

14、ioneach firm produces a slightly differentiated product and entry is costlessSuppose that there are n firms in a market and that each firm has the total cost scheduleci = 9 + 4qi60Monopolistic CompetitionEach firm also faces a demand curve for its product of the form:We will define an equilibrium fo

15、r this industry to be a situation in which prices must be equalpi = pj for all i and j61Monopolistic CompetitionTo find the equilibrium n, we must examine each firms profit-maximizing choice of piBecausei = piqi ci the first-order condition for a maximum is62Monopolistic CompetitionThis means that A

16、pplying the equilibrium condition that pi = pj yields P approaches MC (4) as n gets larger 63Monopolistic CompetitionThe equilibrium n is determined by the zero-profit conditionSubstituting in the expression for pi, we find that64Monopolistic CompetitionThe final equilibrium ispi = pj = 7qi = 3i = 0

17、In this equilibrium, each firm has pi = ACi, but pi MCi = 4 Because ACi = 4 + 9/qi, each firm has diminishing AC throughout all output ranges65Monopolistic CompetitionIf each firm faces a similar demand function, this equilibrium is sustainableno firm would find it profitable to enter this industryB

18、ut what if a potential entrant adopted a large-scale production plan?the low average cost may give the potential entrant considerable leeway in pricing so as to tempt customers of existing firms to switch allegiances66Contestable Markets and Industry StructureSeveral economists have challenged that

19、this zero-profit equilibrium is sustainable in the long runthe model ignores the effects of potential entry on market equilibrium by focusing only on actual entrantsneed to distinguish between competition in the market and competition for the market67Perfectly Contestable MarketA market is perfectly

20、 contestable if entry and exit are absolutely freeno outside potential competitor can enter by cutting price and still make a profitif such profit opportunities existed, potential entrants would take advantage of them68Perfectly Contestable MarketQuantityPricedmrMCACdmrqPq*P*This market would be uns

21、ustainable in a perfectly contestable marketqBecause P MC, a potential entrant can take one zero-profit firms market away and encroach a bit on other firms markets where, at the margin, profits are attainable69Perfectly Contestable MarketTherefore, to be perfectly contestable, the market must be suc

22、h that firms earn zero profits and price at marginal costsfirms will produce at minimum average costP = AC = MCPerfect contestability guides market equilibrium to a competitive-type result70Perfectly Contestable MarketIf we let q* represent the output level for which average costs are minimized and

23、Q* represent the total market demand when price equals average cost, then the equilibrium number of firms in the industry is given byn = Q*/q*this number may be relatively small (unlike the perfectly competitive case)71Perfectly Contestable MarketQuantityPriceDAC1AC2AC3AC4q*2q*3q*Q*=4q*P*In a perfec

24、tly contestable market, equilibrium requires that P = MC = ACThe number of firms is completely determined by market demand (Q*) and by the output level that minimizes AC (q*)72Barriers to EntryIf barriers to entry prevent free entry and exit, the results of this model must be modifiedbarriers to ent

25、ry can be the same as those that lead to monopolies or can be the result of some of the features of oligopolistic marketsproduct differentiationstrategic pricing decisions73Barriers to EntryThe completely flexible type of hit-and-run behavior assumed in the contestable markets theory may be subject

26、to barriers to entrysome types of capital investments may not be reversibledemanders may not respond to price differentials quickly74A Contestable Natural MonopolySuppose that the total cost of producing electric power is given byC(Q) = 100Q + 8,000since AC declines over all output ranges, this is a

27、 natural monopolyThe demand for electricity is given byQD = 1,000 - 5P75A Contestable Natural MonopolyIf the producer behaves as a monopolist, it will maximize profits byMR = 200 - (2Q)/5 = MC = 100Qm = 250Pm = 150m = R - C = 37,500 - 33,000 = 4,500These profits will be tempting to would-be entrants

28、76A Contestable Natural MonopolyIf there are no entry barriers, a potential entrant can offer electricity customers a lower price and still cover coststhis monopoly solution might not represent a viable equilibrium77A Contestable Natural MonopolyIf electricity production is fully contestable, the on

29、ly price viable under threat of potential entry is average costQ = 1,000 - 5P = 1,000 5(AC)Q = 1,000 - 5100 + (8,000/Q)Q2 - 500Q + 40,000 = 0(Q - 400)(Q - 100) = 078A Contestable Natural MonopolyOnly Q = 400 is a sustainable entry deterrentUnder contestability, the market equilibrium isQc = 400Pc = 120Contestability increased consumer welfare from what it was under the monopoly situation79Important Points to Note:Markets with few firms offer potential profits through the formation of a monopoly cartelsuch cartels