平狄克微观经济学Monopolistic Competition and Oligopoly参考.ppt

Chapter 12 Chapter 12 Monopolistic Competition and Oligopoly Topics to be Discussed Monopolistic Competition Oligopoly Price Competition Competition Versus Collusion: The Prisoners’ Dilemma Implications of the Prisoners’ Dilemma for Oligopolistic Pricing Cartels Monopolistic Competition Characteristics Many firms Free entry and exit Differentiated product Monopolistic Competition The amount of monopoly power depends on the degree of differentiation Examples of this very common market structure include: Toothpaste Soap Cold remedies Monopolistic Competition Toothpaste Crest and monopoly power Procter Gamble is the sole producer of Crest Consumers can have a preference for Crest – taste, reputation, decay-preventing efficacy The greater the preference (differentiation) the higher the price Monopolistic Competition Two important characteristics Differentiated but highly substitutable products Free entry and exit A Monopolistically CompetitiveFirm in the Short and Long Run A Monopolistically CompetitiveFirm in the Short and Long Run Short run Downward sloping demand – differentiated product Demand is relatively elastic – good substitutes MR P Profits are maximized when MR = MC This firm is making economic profits A Monopolistically CompetitiveFirm in the Short and Long Run Long run Profits will attract new firms to the industry (no barriers to entry) The old firm’s demand will decrease to DLR Firm’s output and price will fall Industry output will rise No economic profit (P = AC) P MC ? some monopoly power Monopolistically and Perfectly Competitive Equilibrium (LR) Monopolistic Competition and Economic Efficiency The monopoly power yields a higher price than perfect competition. If price was lowered to the point where MC = D, consumer surplus would increase by the yellow triangle – deadweight loss. With no economic profits in the long run, the firm is still not producing at minimum AC and excess capacity exists. Monopolistic Competition and Economic Efficiency