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Lecture Element of economics - Chapter 8: Market structures. The topics discussed in this chapter are: the degree of competition, perfect competition, monopoly, monopolistic competition, oligopoly.
Market Structures The Degree of Competition • Classifying markets – number of firms – freedom of entry to industry – nature of product – nature of demand curve • The four market structures – perfect competition – monopoly – monopolistic competition – oligopoly Features of the four market structures Features of the four market structures Features of the four market structures Features of the four market structures Features of the four market structures Features of the four market structures The Degree of Competition • Classifying markets – number of firms – freedom of entry to industry – nature of product – nature of demand curve • The four market structures – perfect competition – monopoly – monopolistic competition – oligopoly • Structure conduct performance Perfect Competition • Assumptions – firms are price takers – freedom of entry – identical products – perfect knowledge • Short-run equilibrium of the firm – price, output and profit Oligopoly • The breakdown of collusion • Non-collusive oligopoly: game theory – alternative strategies • maximax and maximin – simple dominant strategy games • the prisoners’ dilemma • Nash equilibrium – more complex non-dominant strategy games – the importance of threats and promises Oligopoly • The breakdown of collusion • Non-collusive oligopoly: game theory – alternative strategies • maximax and maximin – simple dominant strategy games • the prisoners’ dilemma • Nash equilibrium – more complex non-dominant strategy games – the importance of threats and promises – the importance of timing of decisions Oligopoly • The breakdown of collusion • Non-collusive oligopoly: game theory – alternative strategies • maximax and maximin – simple dominant strategy games • the prisoners’ dilemma • Nash equilibrium – more complex non-dominant strategy games – the importance of threats and promises – the importance of timing of decisions • decision trees A decision tree B1 400 sea te 50 se at e r Airbus 00 se decides r ate Boeing decides A 40 se a te r 500 B2 Airbus decides s 400 er t a e r Boeing –£10m (1) Airbus –£10m Boeing +£30m (2) Airbus +£50m Boeing +£50m (3) Airbus +£30m sea ter Boeing –£10m (4) Airbus –£10m Oligopoly • Non-collusive oligopoly: the kinked demand curve theory – assumptions of the model Kinked demand for a firm under oligopoly £ Current price and quantity give one point on demand curve P1 O Q1 Q Kinked demand for a firm under oligopoly £ D P1 D O Q1 Q Oligopoly • Non-collusive oligopoly: the kinked demand curve theory – assumptions of the model – stable prices Stable price under conditions of a kinked demand curve £ MC2 MC1 P1 a D b O Q1 AR Q MR Oligopoly • Non-collusive oligopoly: the kinked demand curve theory – assumptions of the model – stable prices – limitations of the model Oligopoly • Non-collusive oligopoly: the kinked demand curve theory – assumptions of the model – stable prices – limitations of the model • Oligopoly and the public interest Oligopoly • Non-collusive oligopoly: the kinked demand curve theory – assumptions of the model – stable prices – limitations of the model • Oligopoly and the public interest – advantages Oligopoly • Non-collusive oligopoly: the kinked demand curve theory – assumptions of the model – stable prices – limitations of the model • Oligopoly and the public interest – advantages – disadvantages Oligopoly • Non-collusive oligopoly: the kinked demand curve theory – assumptions of the model – stable prices – limitations of the model • Oligopoly and the public interest – advantages – disadvantages – difficulties in drawing general conclusions ... Features of the four market structures Features of the four market structures Features of the four market structures Features of the four market structures Features of the four market structures. .. of the four market structures The Degree of Competition • Classifying markets – number of firms – freedom of entry to industry – nature of product – nature of demand curve • The four market structures. ..The Degree of Competition • Classifying markets – number of firms – freedom of entry to industry – nature of product – nature of demand curve • The four market structures – perfect