Tài liệu Microeconomics for MBAs 43 ppt

Chapter 12 Monopoly Power and Pricing Decisions must be because Microsoft has placed a value on not having the Netscape icon on the desktop that is higher than Netscape’s value of having it there. If the reverse were true (Netscape valued the desktop space more highly than Microsoft), then Netscape would have bought a place on the desktop for its icon long ago. If the Justice Department gets its way and Microsoft is forced to have a Navigator icon on the desktop, Coase’s central point still holds. The value Microsoft places on not having the Navigator icon on the desktop should still be higher than the value Netscape places on having the icon there. As a consequence, once the dust from the trial settles, Microsoft should quickly pay Netscape to remove its icon. The only meaningful lasting change would be that some of Microsoft’s wealth is transferred to Netscape. The Justice Department may reason that this outcome represents “justice,” given Microsoft’s alleged monopoly power to dictate market outcomes, including use of the desktop. While the monopoly claim is surely disputable, all that needs to be pointed out here is that the ruling does nothing to thwart Microsoft’s supposed monopoly powers. It means, however, that Netscape, which invested nothing to develop the Windows operating system network and desktop, will have gotten Microsoft’s property for nothing. It also means that Microsoft will be forced to use whatever market power, as well as its expertise in developing and promoting programs, to buy back its property, in the process possibly hiking its prices (albeit marginally) in order to pad the pockets of Netscape’s owners. It is hard for us to see how such an outcome constitutes “justice” or protects consumers. Concluding Comments The consequences of monopoly are higher prices and lower production levels than are possible under perfect competition. Monopoly power can also result in inefficiency in production, for the monopolistic firm does not produce to the point where its marginal cost equals the consumer’s marginal benefit. Consumers might prefer that more resources be used in the production of a monopolized good and might be willing to pay a price that exceeds the cost of production for additional units of the good. However, the profit-maximizing monopolist stops short of that point. The new “network economy” often times turns much economic analysis on its head. This is especially true when it comes to discussions of “monopoly power.” A market for a network good might tend toward a single seller. At the same time, that single seller may have no, or very little, control over market price, mainly because of the network effect. And a firm producing a network good can easily justify selling the good at zero (or below-zero) prices. The next chapter examines the two remaining market structures, monopolistic competition and oligopoly. Much of the analysis in this chapter is applicable to those market structures, for each has a degree of monopoly power. The power of the monopolistic competitor and the oligopolist is circumscribed by the existence of other firms in the industry, however, and by the fact that other firms may enter the market. Chapter 12 Monopoly Power and Pricing Decisions Review Questions 1. Many magazines offer multiyear subscriptions at a lower rate than one-year subscriptions. Explain the logic of such a scheme. Why might it be considered evidence of monopoly power on the part of the magazines? 2. Explain why a monopolized industry will tend to produce less than a competitive industry. 3. “If a monopoly retains its market power over the long long-run, it must be protected by barriers to entry.” Explain. List some restrictions on the mobility of resources that might help a firm retain monopoly power. 4. Why, from an economic point of view, should antitrust action not be taken against all monopolies? 5. Given the information in the table below, complete the monopolist’s marginal cost and marginal revenue schedules. Graph the demand, marginal cost, and marginal revenue curves, and find the profit-maximizing point of production. Assuming this monopolistic firm faces fixed costs of $10, and must charge the same price for all units sold, how much profit does it make? Quantity Total Produced Variable Marginal Marginal and Sold Price Cost Cost Revenue 1 $12 $ 5 2 11 9 3 10 14 4 9 20 5 8 28 6 7 38 6. On the graph developed for question 5, identify the output and profits of a monopolist capable of perfect price discrimination. 7. Suppose a monopoly capable of imperfect price discrimination divides its market into two segments, as shown in graphs (a) and (b). In graph (c), draw the monopolist’s combined marginal revenue curve. Then, using the monopolist’s marginal cost curve, as shown in graph (c), determine the monopolist’s profit-maximizing output level. Indicate the quantity and price of the product sold in each market segment. 8. If a buyers fear that a “network firm” will become a true monopolist in the future, what does that fear do to the firm’s current pricing policies? 9. What is the impact of antitrust enforcement in a market for a network good? Chapter 12 Monopoly Power and Pricing Decisions Appendix: Marginal Revenue Curve, A Graphical Derivation Demand curves can be linear or nonlinear. Once we have learned how to derive the MR curve for the linear demand curve, we can readily adapt the procedure to derive the MR curve for the nonlinear demand curve. Linear Demand The graphic derivation of the marginal revenue curve corresponding to a linear demand curve is easy to present. From our examination of marginal revenue in an earlier chapter, we know that ( ) E 1 1PMR −= where P is the price and E is the absolute value of the price elasticity of demand. Because the price elasticity of demand is infinite at the point of intersection of the demand curve and the vertical price axis, we know that 1/E = 0 at the vertical intercept and MR = P. We have now established one point on the MR curve. Since the MR curve for a linear demand curve is also linear, 38 we need to determine only one additional point to construct the MR curve. The second point can be easily determined by setting Equation (9-1) equal to 0 and solving for E, which gives us 1E 0 E 1 1 0 E 1 1P = =− =      − Thus, when MR = 0, E = 1. Recall from an earlier chapter that the price elasticity of demand is equal to 1 at the midpoint of a linear demand curve. The point on the horizontal axis corresponding to E = 1 on the demand curve will be one-half the distance between the origin and the horizontal intersection of the demand curve. Since MR = 0 38 This result can be shown with the aid of calculus. Given the linear demand curve P = a - bQ Total revenue is TR = PQ = (a - bQ) Q = aQ - bQ 2 And marginal revenue is bQ2a dQ dTR −= Thus, the MR curve is linear, intersects the vertical axis at a (the demand curve's intercept), and has an absolute slope two times that of the demand curve. Chapter 12 Monopoly Power and Pricing Decisions when E = 1, the second point on the MR curve will lie one-half the distance between the origin and the horizontal intercept of the demand curve. Our conclusions concerning the shape and the location of the MR curve are illustrated in Figure 12.12. The linear demand curve intersects the vertical price axis at point P, and this point is also the vertical intercept of the MR curve. Halfway down the demand curve, E = 1 at point B, which corresponds to Q 1 on the horizontal axis. Point Q 1 , in turn, is midway between the origin and Q 2 , which is the horizontal intercept of the demand curve. The MR curve is the heavy dashed line connecting point P and Q 1 in Figure 12.13. Since the MR curve and the demand curve have the same vertical intercept and the horizontal intercept of the MR curve is one-half that of the demand curve, it follows that the slope of the MR curve will be two times the slope of the demand curve. 39 The fact that the slope of the MR curve is twice the slope of the demand curve provides us with an alternative method for graphically determining the marginal revenue at any level of output. To illustrate this method, suppose that we wish to determine MR at output Q 0 , which corresponds to point C on the demand curve in Figure 12.13. We accomplish this simply by drawing a horizontal line from point C to point D on the vertical axis. Bisecting the line DC gives us point F. A straight line drawn from the vertical intercept through point F has exactly twice the slope of the demand curve and is therefore the MR curve. The intersection of the MR curve with dashed line CQ 0 at point G gives us the value of the marginal revenue (read off the horizontal axis) corresponding to point C. Although this technique is somewhat laborious, it is useful in graphing the MR curve corresponding to a nonlinear demand curve. _________________________________ Figure 12.13 Construction of the Linear Marginal Revenue Curve The marginal revenue curve always starts the intersection of the vertical axis and any demand curve. However, for a linear demand curve, the marginal revenue curve must slope downward under the demand curve, splitting the horizontal distance between the vertical axis and every point on the demand curve. The marginal revenue curve must cut the horizontal axis at the point below the middle of the linear demand curve, or where the elasticity coefficient equals 1. __________________________________ 39 From the figure, we know that the slope of the demand curve is P/Q 2 and the slope of the MR curve is P/Q 1 . Since Q 1 = 1/2 Q 2 , the slope of the MR curve is therefore P/1/2 Q 2 or 2P/Q 2 , which is twice the slope of the demand curve. See also footnote above. Chapter 12 Monopoly Power and Pricing Decisions Nonlinear Demand When the demand curve is nonlinear, such as curve DD in Figure 12.14, the MR curve is constructed using a variation of the technique we have just learned. Essentially, we determine the marginal revenues corresponding to several points on the demand curve and then connect these points with a smooth curve to obtain the MR curve. A line originating on the vertical axis at point V 1 is drawn tangent to point A on the demand curve in Figure 12.14. If we assume that this tangent line is a linear demand curve, then the marginal revenue of this demand curve at point A is identical to the marginal revenue of the nonlinear demand curve at point A, because the slopes of the two demand curves are equal at point A and have the same corresponding price P 1 and quantity Q 1 . Therefore, to determine the marginal revenue graphically, we simply draw a straight line from V 1 that bisects line P 1 A. This line intersects line AQ 1 at point B, giving us the marginal revenue that corresponds to point A on the demand curve. ________________________________________ Figure 12.14 Construction of the Nonlinear Marginal Revenue Curve The marginal revenue curve for a nonlinear demand curve is obtained by imagining linear demand curves tangent to every point on the nonlinear demand curve and finding the midpoint between the vertical axis and the imagined linear demand curves. ________________________________________ Point B is the only point on the MR curve associated with the nonlinear demand curve DD. To construct this MR curve, we must determine the marginal revenues that correspond to additional points on curve DD. Points D and F on the MR curve are determined for points C and E on curve DD by repeating the steps we followed to locate point B. The construction lines required to obtain points D and F are drawn in the figure, and you should verify that these points have been correctly determined. Once a sufficient number of points on the MR curve have been located, a smooth curve drawn through these points is the graphically constructed MR curve associated with the nonlinear demand curve. Figure 12.14 shows that this MR curve is also nonlinear and lies below the demand curve. CHAPTER 13 Imperfect Competition and Firm Strategy Differences in tastes, desires, incomes and locations of buyers, and differences in the use which they wish to make of commodities all indicate the need for variety and the necessity of substituting for the concept of a “competitive ideal,” an ideal involving both monopoly and competition. Edward Chamberlin e have so far considered two distinctly different market structures: perfect competition, characterized by producers that cannot influence price at all because of extreme competition; and pure monopoly, in which there is only one producer of a product with no close substitutes and whose market is protected by prohibitively high barriers to entry. Needless to say, most markets are not well described by either of those theoretical structures. Even in the short run, producers typically compete with several or many other producers of similar, if not identical, products. General Motors Corporation competes with Ford Motor Company, Chrysler Corporation, and a large number of foreign producers. McDonald’s Corporation competes with Burger King Corporation, Hardees, and a lot of other burger franchises, as well as with Pizza Hut, Popeye’s Fried Chicken, and Long John Silver’s. People’s Drug stores compete directly with other drug chains and locally owned drugstores, and indirectly with department and discount stores that sell the same non-drug products. In the long run, all these firms must compete with new companies that surmount the imperfect barriers to entry into their markets. In short, most companies competing in the imperfect markets can cause producers to be more efficient in their use of resources than under pure monopoly, although less efficient than in perfect competition. One word of caution, however: The study of so-called real-world market structures can be frustrating. Although models may incorporate more or less realistic assumptions about the behavior of real-world firms, the theories developed from them are conjectural. At best, they allow economists to speculate on what may happen under certain conditions. Real-world markets are imperfect, complex phenomena that often do not lend themselves to hard- and-fast conclusions. Monopolistic Competition As we have noted in our study of demand, the greater the number and variety of substitutes for a good, the greater the elasticity of demand for that good—that is, the more consumers will respond to a change in price. By definition, a monopolistically competitive market like the fast-food industry produces a number of different products, W Chapter 13 Imperfect Competition and Firm Strategy 2 most of which can substitute for each other. If Burger Bippy raises its prices, then, consumers can move to another restaurant that offers similar food and service. Because of consumer ignorance and loyalty to the Big Bippy, however, Burger Bippy is unlikely to lose all its customers by raising its prices. It has some monopoly power. Therefore, it can charge slightly more than the ideal competitive price, determined by the intersection of the marginal cost and demand curves. Burger Bippy cannot raise its prices too much, however, without substantially reducing its sales. The degree to which monopolistically competitive prices can stray from the competitive ideal depends on • the number of other competitors • the ease with which competing firms can expand their businesses to accommodate new customers (the cost of expansion) • the ease with which new firms can enter the market (the cost of entry) • the ability of firms to differentiate their products, by location or by either real or imagined characteristics (the cost differentiation) • public awareness of price differences (the cost of gaining information on price differences) Given even limited competition, the firm should face a relatively elastic demand curve— certainly more elastic than the monopolist’s. Monopolistic Competition in the Short Run In the short run, a monopolistically competitive firm may deviate little from the price- quantity combination produced under perfect competition. The demand curve for fast- food hamburgers in Figure 13.1 is highly, although not perfectly, elastic. Following the same rule as the perfect competitor and pure monopolist, the monopolistically competitive burger maker produces where MC = MR. Because the firm’s demand curve slopes downward, its marginal revenue curve slopes downward too, like the pure monopolist’s. The firm maximizes profits at M mc and charges P mc , a price only slightly higher than the price that would be achieved under perfect competition (P c ). (Remember, the perfect competitor faces a horizontal, or perfectly elastic, demand curve, which is also its marginal revenue curve. It produces at the intersection of the marginal cost and marginal revenue curves.) The quantity sold with monopolistic competition is also only slightly below the quantity that would be sold under perfect competition, Q c . Market inefficiency, indicated by the shaded triangular area, is not excessive. The firm’s short-run profits may be slight or substantial, depending on demand for its product and the number of producers in the market. In our example, profit is the area bounded by ATC 1 P mc ab, found by subtracting total cost (0ATC 1 bQ mc ) from total revenues (0P mc aQ mc ), as with monopolies. Chapter 13 Imperfect Competition and Firm Strategy 3 __________________________________________ FIGURE 13.1 Monopolistic Competition in the Short Run Like all profit-maximizing firms, the monopolistic competitor will equate marginal revenue with marginal cost. It will produce Q mc units and charge price P mc , only slightly higher than the price under perfect competition. (The perfect competitor’s combined demand and marginal revenue curve would be horizontal at price P c .) The monopolistic competitor makes a short-run economic profit equal to the area ATC 1 P mc ab. The inefficiency of its slightly restricted production level is represented by the shaded triangular area. Monopolistic Competition in the Long Run Because the barriers to entry into monopolistic competition are not excessively costly to surmount, substantial short-run profits will attract other producers into the market. When the market is divided up among more competitors, the individual firm’s demand curve will shift downward, reflecting each competitor’s smaller market share. As a result, the marginal revenue curve will shift downward as well. The demand curve will also become more elastic, reflecting the greater number of potential substitutes in the market. (These changes are shown in Figure 13.2.) The results of the increased competition are: • The quantity produced falls from Q mc2 to Q mc1 . • The price falls from P mc2 to P mc1 . Profits are eliminated when the price no longer exceeds the firm’s average total cost. (As long as economic profit exists, new firms will continue to enter the market. Eventually the price will fall enough to eliminate economic profit.) 1 Notice that the firm is not producing and pricing its product at the minimum of its average total cost curve, as the perfect competitor would (nor did it in the short run). 2 In this sense the firm is producing below capacity, by Q m – Q mc2 units. 1 The monopolistic competitor will still have an incentive to stay in business, however. It is economic profit, not book profit, that falls to zero. Book profit will still be large enough to cover the opportunity cost of capital plus the risk cost of doing business. Chapter 13 Imperfect Competition and Firm Strategy 4 In terms of price and quantity produced, monopolistic competition can never be as efficient as perfect competition. Perfectly competitive firms obtain their results partly because all producers are producing the same product. Consumers can choose from a great many suppliers, but they have no product options. In a monopolistically competitive market, on the other hand, consumers must buy from a limited number of producers, but they can choose from a variety of slightly different products. For example, the pen market offers consumers a choice between felt-tipped, fountain, and ballpoint pens of many different styles. This variety in goods comes at a price—the higher price illustrated in Figure 13.2. __________________________________________ FIGURE 13.2 Monopolistic Competition in the Long Run In the long run firms seeking profits will enter the monopolistically competitive market, shifting the monopolistic competitor’s demand curve down from D 1 to D 2 and making it more elastic. Equilibrium will be achieved when the firm’s demand curve becomes tangent to the downward-sloping portion of the firm’s long-run average cost curve. At that point, price (shown by the demand curve) no longer exceeds average total cost; the firm is making zero economic profit. Unlike the perfect competitor, this firm is not producing at the minimum of the long- run average total cost curve. In that sense it is underproducing, by Q m – Q mc2 units. Oligopoly In a market dominated by a few producers, where entry is difficult—that is, in an oligopoly—the demand curve facing an individual competitor will be less elastic than the monopolistic competitor’s demand curve (see Figure 13.3). If General Electric Company raises its price for light bulbs, consumers will have few alternative sources of supply. A price increase is less likely to drive away customers than it would under monopolistic competition, and the price-quantity combination achieved by the company will probably be further removed from the competitive ideal. In Figure 13.3, the oligopolist produces only Q o units for a relatively high price of P o , compared with the perfect competitor’s price-quantity combination of Q cPc . The shaded area representing inefficiency is fairly large. Exactly how the oligopolist chooses a price is not completely clear. We will examine a few of the major theories proposed. In contract, we had to examine only a 2 The perfect competitor produces at the minimum of the average total cost curve because its demand curve is horizontal—and therefore the demand curve’s point of tangency with the average total cost curve is the low point of that curve. Chapter 13 Imperfect Competition and Firm Strategy 5 single theory each for perfect competition, pure monopoly, and monopolistic competition. _________________________________________ FIGURE 13.3 The Oligopolist as Monopolist With fewer competitors than the monopolistic competitor, the oligopolist faces a less elastic demand curve, D o . Each oligopolist can afford to produce significantly less Q o and to charge significantly more than the perfect competitor, who produces Q c , at a price of P c . The shaded area representing inefficiency is larger than that of a monopolistic competitor. Theories of Price Determination Because each oligopolist is a major factor in the market, oligopolists’ pricing decisions are mutually interdependent. The price one producer asks significantly affects the others’ sales. Hence when one oligopolistic firm lowers it price, all the others can be expected to lower theirs, to prevent erosion of their market shares. The oligopolist may have to second-guess other producers’ pricing policies—how they will react to a change in price, and what that might mean for its own policy. In fact, oligopolistic pricing decisions resemble moves in a chess game. The thinking may be so complicated that no one can predict what will happen. Thus, theories of oligopolistic price determination tend to be confined almost exclusively to the short run. (In the long run, virtually anything can happen.) The Oligopolist as Monopolist Given the complexity of the pricing problem, the oligopolistic firm—particularly if it is the dominant firm in the market—may simply decide to behave like a monopolist (because it does have some monopoly power). Like a monopolist, Burger Bippy may simply equate marginal cost with marginal revenue (see Figure 13.3) and produce Q o units for price P c . Here the oligopolist’s price is significantly above the competitive price level, P c , but not as high as the price charged by a pure monopolist. (If the oligopolist . have bought a place on the desktop for its icon long ago. If the Justice Department gets its way and Microsoft is forced to have a Navigator icon on. and desktop, will have gotten Microsoft’s property for nothing. It also means that Microsoft will be forced to use whatever market power, as well as its