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Counter PartsOligopoly
Deep, Johanne, Sami
Nature of Our Market
Between Free Competition and Monopoly
Free Competition
Characteristics: • Many firms competing
• Demand is perfectly elastic
• Firms are competing at the same price
Free Competition
Free Competition
Free Competition
Free Competition
Free Competition
Free Competition
Free Competition
Free Competition
Free Competition
Monopoly
Characteristics: • One firm that dominates the market
• Demand is almost perfectly inelastic
• Ability to change the price to anything
Monopoly
Monopoly
Monopoly
Monopoly
Monopoly
Monopoly
Monopoly
Monopoly
Monopoly
Nature of Our Market
Characteristics: • Dominated by few producers
• Demand is in between elastic and inelastic
• High level market concentration
Oligopoly
Oligopoly
Oligpoly
Oligopoly
Oligopoly
Oligopoly
Oligopoly
Oligopoly
Oligopoly
Oligopoly
Types of Oligopolies
• Perfect oligopoly: Few firms produce an identical
product• Imperfect oligopoly: Few firms differentiate in their
products • Duopoly: Only two firms in the industry
• Collusive & Non-Collusive: Joining or not joining with
rivals
Nature of Our Market
Characteristics: • Product Branding: Selling differentiated product, to
appear as if there are unique features • Entry Barriers: Prevents dilution of competition,
maintains supernormal profits • Interdependent Decision Making: Know reactions of
rivals (the happenings of a rival affect your firm)• • Non-price Competition: Competitive strategies other
than reducing prices
Entry Barriers
• Barriers to Entry: Obstacles that keep a firm from entering the market
• Very High
• Huge firms able to heighten it through advertising
and branding • Allows firms to make supernormal profits
• Entering firms don't have scale benefits, High efficent
firms left with little competitiors•
Non- Price Competition
• Quality and Innovation: Differentiating its product creating demand more inelastic for each product
• With more differentiation, there is more control over
prices • Enchancing Perceived value: Improving how
consumers look at a product. Ex. packaging, design, brand image.
Kinked Demand Curve
Kinked Demand Curve
Kinked Demand Curve
Kinked Demand Curve
Kinked Demand Curve
Kinked Demand Curve
Kinked Demand Curve
Kinked Demand Curve
Kinked Demand Curve
Kinked Demand Curve
Kinked Demand Curve
Kinked Demand Curve
Kinked Demand Curve
Kinked Demand Curve
Kinked Demand Curve
• Demand curve - elastic and inelastic
• Firms do not move from price to price
• Increase in price, no one follows - fall in revenue
• Reduce in price, everyone follows - fall in revenue
• Two MR curves are needed for two demand curves
• MC Curves in inelastic demand - no price change
• MC Curves in elastic demand - P & Q changes.
Determining Costs
• Find where MR=MC • Go straight to the y-axis (Price)
• Cost of product determined
Determining Costs
Determining Revenue
• Revenue depends on price and elasticity of demand • Bigger market = more revenue
• Quantity x Price at MR=MC
• (Kinked Curve) Change in price decreases revenue
Determining Profit
• To maximize profit, go to point MR=MC • Price determined on demand curve
• Unit cost on the total cost curve
• Equate price and marginal cost
• (Mutual interdependence) Firm's profit depends on price and
sales of rivals
Positives
• Price set by Markets • Firms are in competition with each other
• Scale Benefits
• Ability of Merging
Negatives
• High costs = Lowering potential output • Interdependant on each firm
• Collusion - Usually setting Prices
Why Are We Succesful?
• Products highly demanded
• Ability to control output and price
• High Entry Barriers - Lower Competition
• Few Firms - Influential
Summary
• Between free competition and monopoly • Few large firms
• Large barriers for entry
• More on non-price, interdependant on other firms
• Theory - use of the kinked curve (once price is set)
• An inefficent market structure