monopolistic competition & oligopoly principles of microeconomics boris nikolaev
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Monopolistic Competition & Oligopoly Principles of Microeconomics Boris Nikolaev. Monopolistic Competition. This model was developed independently in the 1930’s by Edward Chamberlin and Joan Robinson . Many sellers Each seller has a small market share - PowerPoint PPT PresentationTRANSCRIPT
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Monopolistic Competition & Oligopoly
Principles of Microeconomics
Boris Nikolaev
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Monopolistic Competition• This model was developed independently in the 1930’s by
Edward Chamberlin and Joan Robinson.
1. Many sellers
2. Each seller has a small market share
3. Product differentiation some market power some control over price
4. Free or almost free entry
5. Non-price competition (advertising)
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Examples• Banks (?)• Sporting Goods• Radio Stations (?)• Fish and Seafood• Clothing • Jewelry• Computers • Fast Foods [mac ad]• Apparel Stores • Canned Goods • Convenience Stores
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Short-Run (profit)
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Short-run (loss)Notice that as before when ATC > p the firm is making a loss.
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Long Run
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Efficiency
• Robinson vs Chamberlin• Are chain stores good?
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Product Differentiation
The firm controls (1) price (2) product quality (3) advertisement.
1. Quality [advertisement vs reality] [Mc Donald’s reply]
2. Location / hours of availability
3. Brand names and packaging [Nike] [reebok][reebok 2][Asics]
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Non-Price Competition
• Advertising creates intangible (perceived) value.[watch here] [ads]
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Brand NamesTop 10 Brands [see here] mentioned on Twitter [see here]
What top brands spend on advertisement • Microsoft – more than 20 percent of their annual revenue or $11.5 billion• Coca-Cola – more than $2.5 billion• Yahoo – more than 20 percent of their annual revenue or $1.3 billion• eBay – 14 percent to 15 percent of its revenue – which was $871 million, much of
that to advertise on Google• Google – In the millions rather than billions of dollars – with $188 million• Starbucks – $95 million
Big Pharma Spends More On Advertising Than Research And Development, Study Finds [source]
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Is advertising good or bad?
• Galbraith vs Hayek
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OligopolyCharacteristics (e.g. TV – Comcast, Viacom, Time Warner, Disney, Fox)
1. A few large sellers (in the case of two duopoly)
2. Homogeneous (e.g. bananas) or differentiated product (e.g. coffee)
3. Market power
4. Mutual interdependence
5. Barriers to entry
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Examples• Airlines• Auto Industry• Steel/ Cement• Tobacco• Soft Drinks• Beer• Movie• TV (Media)• Book Publishing• Coffee/ Bananas• Cell Phones• Air Defense• Banking• Cereal• Oil
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Duopoly
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The Prisoner’s dilemma
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CartelsExamples• OPEC• DeBeers• Caviar• NCAA• [milk]• [gas]
Problems
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Pseudo-variety• Technique oligopolies use to capture bigger share of the market.
The way it works: flood the shelves with similar (quality) products but trivially differentiated.
• It gives the illusion of variety; yet, it makes real competition harder as new companies now compete with more products as theirs is less noticeable on the shelf. [Bud Ad] [ Bud Ad 2]
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Is small beautiful…
• Or is bigger better?