Overview

PERFECT COMPETITION Ideal: use to compare Horizontal Demand Curve Large no. sellers buyers Homogeneous Perfect Knowledge Perfect Mobility of FOP None, freedom

MONOPOLISTIC OLIGOPOLY COMPETITION Niche: monopoly for own good Interdependence Imperfect competition Differented Good downward sloping DD Large no. of small firms Differentiated, highly substitutes Partial Information Not influenced by rivals Freedom Small no. of large firms Homogenous/Differentiated Imperfect but enough to be mutually interdependent Natural or Created (Advs)

MONOPOLY Other end: used to compare Single domineering Firm

(A) Characteristics 1. Number 2. Product 3. Information 4. Others 5. Barriers to Entry

Firm=Industry= one seller Unique, no close substitutes Imperfect Can determine P or Q Natural/ Created

(B) Strategies/ Behaviors of Firms 1. Price Discrimination Price taker 2. Price Competition 3. Non-Price Competition 4. Collusion Price taker Homogenous Product

Limited market power and ability Do not engage in Compete over highly substitutable goods. Advertisement -

Existence of Market Power- 1st degree/2nd degree/3rd degree Success depends on meeting conditions Kinked DD- Price No competition/ collusion Rigidity/War Contestable markets theoryMay compete if threatened Advertising/Differentiate Product-physical or image Possible-formal or tacit

(C) Performances of Firms 1. Quantity 2. Price 3. Profits Price Taker LR: Normal

MC= MR For given Q, price taker LR: Normal

Cartel: Joint monopoly Price leadership: Competition: Kinked DD Price and Q and kink, profits depend

MC=MR For given Q, what P market takes SR: Sub N/Normal/Super- N LR: Normal/Super- N

(D) Evaluation 1. Equity 2. Dynamic Efficiency 3. Consumer Choice 4. Others 5. Allocative Efficiency 6. Productive Efficiency 7. Realistic?

Uncertain No incentive Homogenous

Super N profits for firm in SR Super-N to innovate/differentiate

SR and LR: P=MC LR: Produce at min ATC No too stringent, Ideal only

No: Super-N exploits consumer; Yes: Price Discrimination Non-price Competition: Super-N for R&D, R&D, Advertisements Advertisements Yes, welfare gain. But advertising/branding wasteful? No choice In SR, might not be at min ATC Stability+ Rationalism, rivals Stability, rationalization, (excess capacity) reduces X-inefficiency complacency, X-inefficiency Output smaller than PC, PC>MC NO, higher P lower Output, P>MC. Less consumer surplus LR: Produce on LRAC May coincidentally obtain Natural Monopoly: Good +Real EOS Productive efficient LR:MES due to EOS on LRAC Yes, supported by real world evidence. More commonly seen in real world