微觀經(jīng)濟(jì)學(xué)（平狄克、魯賓費(fèi)爾德）第六版課后答案-微觀經(jīng)濟(jì)學(xué) 英文原版-CH12-PINDYCK

1、Chapter 12Monopolistic Competition and OligopolyTopics to be DiscussedMonopolistic CompetitionOligopolyPrice CompetitionCompetition Versus Collusion: The Prisoners DilemmaImplications of the Prisoners Dilemma for Oligopolistic PricingCartels2Monopolistic CompetitionCharacteristicsMany firmsFree entr

2、y and exitDifferentiated product3Monopolistic CompetitionThe amount of monopoly power depends on the degree of differentiationExamples of this very common market structure include:ToothpasteSoapCold remedies4Monopolistic CompetitionToothpaste Crest and monopoly powerProcter & Gamble is the sole prod

3、ucer of CrestConsumers can have a preference for Crest taste, reputation, decay-preventing efficacyThe greater the preference (differentiation) the higher the price5Monopolistic CompetitionTwo important characteristicsDifferentiated but highly substitutable productsFree entry and exit6A Monopolistic

4、ally CompetitiveFirm in the Short and Long RunQuantity$/QQuantity$/QMCACMCACDSRMRSRDLRMRLRQSRPSRQLRPLRShort RunLong Run7A Monopolistically CompetitiveFirm in the Short and Long RunShort runDownward sloping demand differentiated productDemand is relatively elastic good substitutesMR MC some monopoly

5、power9Deadweight lossMCACMonopolistically and Perfectly Competitive Equilibrium (LR)$/QQuantity$/QD = MRQCPCMCACDLRMRLRQMCPQuantityPerfect CompetitionMonopolistic Competition10Monopolistic Competition and Economic EfficiencyThe monopoly power yields a higher price than perfect competition. If price

6、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.11Monopolistic Competition and Economic EfficiencyFirm faces downward slopi

7、ng demand so zero profit point is to the left of minimum average costExcess capacity is inefficient because average cost would be lower with fewer firmsInefficiencies would make consumers worse off12Monopolistic CompetitionIf inefficiency is bad for consumers, should monopolistic competition be regu

8、lated?Market power is relatively small. Usually there are enough firms to compete with enough substitutability between firms deadweight loss small.Inefficiency is balanced by benefit of increased product diversity may easily outweigh deadweight loss.13The Market for Colas and CoffeeEach market has m

9、uch differentiation in products and tries to gain consumers through that differentiation Coke vs. PepsiMaxwell House vs. FolgersHow much monopoly power do each of these producers have?How elastic is demand for each brand?14Elasticities of Demand forBrands of Colas and Coffee15The Market for Colas an

10、d CoffeeThe demand for Royal Crown is more price inelastic than for CokeThere is significant monopoly power in these two marketsThe greater the elasticity, the less monopoly power and vice versa16Oligopoly CharacteristicsSmall number of firmsProduct differentiation may or may not existBarriers to en

11、tryScale economiesPatentsTechnologyName recognitionStrategic action17OligopolyExamplesAutomobilesSteelAluminumPetrochemicalsElectrical equipment18OligopolyManagement ChallengesStrategic actions to deter entryThreaten to decrease price against new competitors by keeping excess capacityRival behaviorB

12、ecause only a few firms, each must consider how its actions will affect its rivals and in turn how their rivals will react19Oligopoly EquilibriumIf one firm decides to cut their price, they must consider what the other firms in the industry will doCould cut price some, the same amount, or more than

13、firmCould lead to price war and drastic fall in profits for allActions and reactions are dynamic, evolving over time20Oligopoly EquilibriumDefining EquilibriumFirms are doing the best they can and have no incentive to change their output or priceAll firms assume competitors are taking rival decision

14、s into accountNash EquilibriumEach firm is doing the best it can given what its competitors are doingWe will focus on duopolyMarkets in which two firms compete21OligopolyThe Cournot ModelOligopoly model in which firms produce a homogeneous good, each firm treats the output of its competitors as fixe

15、d, and all firms decide simultaneously how much to produceFirm will adjust its output based on what it thinks the other firm will produce22MC150MR1(75)D1(75)12.5If Firm 1 thinks Firm 2 will produce 75 units, its demand curve is shifted to the left by this amount. Firm 1s Output DecisionQ1P1D1(0)MR1(

16、0)Firm 1 and market demand curve, D1(0), if Firm 2 produces nothing.D1(50)MR1(50)25If Firm 1 thinks Firm 2 will produce 50 units, its demand curve is shifted to the left by this amount. 23OligopolyThe Reaction CurveThe relationship between a firms profit-maximizing output and the amount it thinks it

17、s competitor will produceA firms profit-maximizing output is a decreasing schedule of the expected output of Firm 224Firm 2s ReactionCurve Q*2(Q1)Firm 2s reaction curve shows how much itwill produce as a function of how much it thinks Firm 1 will produce. Reaction Curves and Cournot EquilibriumQ2Q12

18、55075100255075100Firm 1s ReactionCurve Q*1(Q2)xxxxFirm 1s reaction curve shows how much itwill produce as a function of how much it thinks Firm 2 will produce. The xs correspond to the previous model.25Firm 2s ReactionCurve Q*2(Q1)Reaction Curves and Cournot EquilibriumQ2Q1255075100255075100Firm 1s

19、ReactionCurve Q*1(Q2)xxxxIn Cournot equilibrium, eachfirm correctly assumes howmuch its competitors willproduce and therebymaximizes its own profits.CournotEquilibrium26Cournot EquilibriumEach firms reaction curve tells it how much to produce given the output of its competitorEquilibrium in the Cour

20、not model, in which each firm correctly assumes how much its competitor will produce and sets its own production level accordingly27OligopolyCournot equilibrium is an example of a Nash equilibrium (Cournot-Nash Equilibrium)The Cournot equilibrium says nothing about the dynamics of the adjustment pro

21、cessSince both firms adjust their output, neither output would be fixed28The Linear Demand CurveAn Example of the Cournot EquilibriumTwo firms face linear market demand curveWe can compare competitive equilibrium and the equilibrium resulting from collusionMarket demand is P = 30 - Q Q is total prod

22、uction of both firms: Q = Q1 + Q2Both firms have MC1 = MC2 = 029Oligopoly ExampleFirm 1s Reaction Curve MR = MC30Oligopoly ExampleAn Example of the Cournot Equilibrium31Oligopoly ExampleAn Example of the Cournot Equilibrium32Duopoly ExampleQ1Q2Firm 2sReaction Curve3015Firm 1sReaction Curve15301010Co

23、urnot EquilibriumThe demand curve is P = 30 - Q andboth firms have 0 marginal cost.33Oligopoly ExampleProfit Maximization with Collusion34Profit Maximization w/ CollusionContract CurveQ1 + Q2 = 15Shows all pairs of output Q1 and Q2 that maximize total profitsQ1 = Q2 = 7.5Less output and higher profi

24、ts than the Cournot equilibrium35Firm 1sReaction CurveFirm 2sReaction CurveDuopoly ExampleQ1Q230301010Cournot EquilibriumCollusionCurve7.57.5Collusive EquilibriumFor the firm, collusion is the bestoutcome followed by the CournotEquilibrium and then the competitive equilibrium1515Competitive Equilibr

25、ium (P = MC; Profit = 0)36First Mover Advantage The Stackelberg ModelOligopoly model in which one firm sets its output before other firms doAssumptionsOne firm can set output firstMC = 0Market demand is P = 30 - Q where Q is total outputFirm 1 sets output first and Firm 2 then makes an output decisi

26、on seeing Firm 1s output37First Mover Advantage The Stackelberg ModelFirm 1Must consider the reaction of Firm 2Firm 2Takes Firm 1s output as fixed and therefore determines output with the Cournot reaction curve: Q2 = 15 - (Q1)38First Mover Advantage The Stackelberg ModelFirm 1Choose Q1 so that:Firm

27、1 knows Firm 2 will choose output based on its reaction curve. We can use Firm 2s reaction curve as Q2 .39First Mover Advantage The Stackelberg ModelUsing Firm 2s Reaction Curve for Q2:40First Mover Advantage The Stackelberg ModelConclusionGoing first gives Firm 1 the advantageFirm 1s output is twic

28、e as large as Firm 2sFirm 1s profit is twice as large as Firm 2sGoing first allows Firm 1 to produce a large quantity. Firm 2 must take that into account and produce less unless it wants to reduce profits for everyone.41Price CompetitionCompetition in an oligopolistic industry may occur with price i

29、nstead of outputThe Bertrand Model is usedOligopoly model in which firms produce a homogeneous good, each firm treats the price of its competitors as fixed, and all firms decide simultaneously what price to charge42Price Competition Bertrand ModelAssumptionsHomogenous goodMarket demand is P = 30 - Q

30、 where Q = Q1 + Q2MC1 = MC2 = $3Can show the Cournot equilibrium if Q1 = Q2 = 9 and market price is $12, giving each firm a profit of $81.43Price Competition Bertrand ModelAssume here that the firms compete with price, not quantitySince good is homogeneous, consumers will buy from lowest price selle

31、rIf firms charge different prices, consumers buy from lowest priced firm onlyIf firms charge same price, consumers are indifferent who they buy from44Price Competition Bertrand ModelNash equilibrium is competitive output since have incentive to cut pricesBoth firms set price equal to MCP = MC; P1 =

32、P2 = $3Q = 27; Q1 & Q2 = 13.5Both firms earn zero profit45Price Competition Bertrand ModelWhy not charge a different price? If charge more, sell nothingIf charge less, lose money on each unit soldThe Bertrand model demonstrates the importance of the strategic variable Price versus output46Bertrand M

33、odel CriticismsWhen firms produce a homogenous good, it is more natural to compete by setting quantities rather than pricesEven if the firms do set prices and choose the same price, what share of total sales will go to each one?It may not be equally divided47Price Competition Differentiated Products

34、 Market shares are now determined not just by prices, but by differences in the design, performance, and durability of each firms productIn these markets, more likely to compete using price instead of quantity48Price Competition Differentiated ProductsExampleDuopoly with fixed costs of $20 but zero

35、variable costsFirms face the same demand curvesFirm 1s demand: Q1 = 12 - 2P1 + P2Firm 2s demand: Q2 = 12 - 2P1 + P2Quantity that each firm can sell decreases when it raises its own price but increases when its competitor charges a higher price49Price Competition Differentiated ProductsFirms set pric

36、es at the same time50Price Competition Differentiated ProductsIf P2 is fixed:51Nash Equilibrium in PricesWhat if both firms collude?They both decide to charge the same price that maximizes both of their profitsFirms will charge $6 and will be better off colluding since they will earn a profit of $16

37、52Firm 1s Reaction CurveNash Equilibrium in PricesP1P2Firm 2s Reaction Curve$4$4Nash Equilibrium$6$6Collusive EquilibriumEquilibrium at price of $4 and profits of $1253Nash Equilibrium in PricesIf Firm 1 sets price first and then Firm 2 makes pricing decision:Firm 1 would be at a distinct disadvanta

38、ge by moving firstThe firm that moves second has an opportunity to undercut slightly and capture a larger market share54A Pricing Problem: Procter & GambleProcter & Gamble, Kao Soap, Ltd., and Unilever, Ltd. were entering the market for Gypsy Moth TapeAll three would be choosing their prices at the

39、same timeEach firm was using same technology so had same production costsFC = $480,000/month & VC = $1/unit55A Pricing Problem: Procter & GambleProcter & Gamble had to consider competitors prices when setting their priceP&Gs demand curve was:Q = 3,375P-3.5(PU)0.25(PK)0.25Where P, PU, PK are P&Gs, Un

40、ilevers, and Kaos prices respectively56A Pricing Problem: Procter & GambleWhat price should P&G choose and what is the expected profit?Can calculate profits by taking different possibilities of prices you and the other companies could chargeNash equilibrium is at $1.40 the point where competitors ar

41、e doing the best they can as well57P&Gs Profit (in thousands of $ per month)58A Pricing Problem for Procter & GambleCollusion with competitors will give larger profitsIf all agree to charge $1.50, each earn profit of $20,000Collusion agreements are hard to enforce59Competition Versus Collusion:The P

42、risoners DilemmaNash equilibrium is a noncooperative equilibrium: each firm makes decision that gives greatest profit, given actions of competitorsAlthough collusion is illegal, why dont firms cooperate without explicitly colluding?Why not set profit maximizing collusion price and hope others follow

43、?60Competition Versus Collusion:The Prisoners DilemmaCompetitor is not likely to followCompetitor can do better by choosing a lower price, even if they know you will set the collusive level priceWe can use example from before to better understand the firms choices61Competition Versus Collusion:The P

44、risoners DilemmaAssume:62Competition Versus Collusion:The Prisoners DilemmaPossible Pricing Outcomes:63Payoff Matrix for Pricing GameFirm 2Firm 1Charge $4Charge $6Charge $4Charge $6$12, $12$20, $4$16, $16$4, $2064Competition Versus Collusion:The Prisoners DilemmaWe can now answer the question of why

45、 firm does not choose cooperative priceCooperating means both firms charging $6 instead of $4 and earning $16 instead of $12Each firm always makes more money by charging $4, no matter what its competitor doesUnless enforceable agreement to charge $6, will be better off charging $465Competition Versu

46、s Collusion:The Prisoners DilemmaAn example in game theory, called the Prisoners Dilemma, illustrates the problem oligopolistic firms faceTwo prisoners have been accused of collaborating in a crimeThey are in separate jail cells and cannot communicateEach has been asked to confess to the crime66-5,

47、-5-1, -10-2, -2-10, -1Payoff Matrix for Prisoners DilemmaPrisoner AConfessDont confessConfessDontconfessPrisoner BWould you choose to confess?67Oligopolistic MarketsConclusionsCollusion will lead to greater profitsExplicit and implicit collusion is possibleOnce collusion exists, the profit motive to

48、 break and lower price is significant68Charge $1.40Charge $1.50Charge$1.40Unilever and KaoCharge$1.50P&G$12, $12$29, $11$3, $21$20, $20Payoff Matrix for the P&G Pricing ProblemWhat price should P & G choose?69Observations of Oligopoly BehaviorIn some oligopoly markets, pricing behavior in time can c

49、reate a predictable pricing environment and implied collusion may occurIn other oligopoly markets, the firms are very aggressive and collusion is not possible70Observations of Oligopoly BehaviorIn other oligopoly markets, the firms are very aggressive and collusion is not possibleFirms are reluctant

50、 to change price because of the likely response of their competitorsIn this case, prices tend to be relatively rigid71Price RigidityFirms have strong desire for stabilityPrice rigidity characteristic of oligopolistic markets by which firms are reluctant to change prices even if costs or demands chan

51、geFear lower prices will send wrong message to competitors, leading to price warHigher prices may cause competitors to raise theirs72Price RigidityBasis of kinked demand curve model of oligopolyEach firm faces a demand curve kinked at the current prevailing price, P*Above P*, demand is very elasticI

52、f P P*, other firms will not followBelow P*, demand is very inelasticIf P P*, other firms will follow suit73Price RigidityWith a kinked demand curve, marginal revenue curve is discontinuousFirms costs can change without resulting in a change in priceKinked demand curve does not really explain oligop

53、olistic pricingDescription of price rigidity rather than an explanation of it74The Kinked Demand Curve$/QQuantityMRDIf the producer lowers price, thecompetitors will follow and the demand will be inelastic.If the producer raises price, thecompetitors will not and the demand will be elastic.75The Kin

54、ked Demand Curve$/QDP*Q*MCMCSo long as marginal cost is in the vertical region of the marginal revenue curve, price and output will remain constant. MRQuantity76Price Signaling and Price LeadershipPrice SignalingImplicit collusion in which a firm announces a price increase in the hope that other fir

55、ms will follow suitPrice LeadershipPattern of pricing in which one firm regularly announces price changes that other firms then match77Price Signaling and Price LeadershipThe Dominant Firm ModelIn some oligopolistic markets, one large firm has a major share of total sales, and a group of smaller fir

56、ms supplies the remainder of the marketThe large firm might then act as the dominant firm, setting a price that maximizes its own profits78The Dominant Firm ModelDominant firm must determine its demand curve, DDDifference between market demand and supply of fringe firmsTo maximize profits, dominant

57、firm produces QD where MRD and MCD crossAt P*, fringe firms sell QF and total quantity sold is QT = QD + QF79Price Setting by a Dominant FirmPriceQuantityDDDQDP*At this price, fringe firmssell QF, so that totalsales are QT.P1QFQTP2MCDMRDSFThe dominant firms demandcurve is the difference betweenmarke

58、t demand (D) and the supplyof the fringe firms (SF).80CartelsProducers in a cartel explicitly agree to cooperate in setting prices and outputTypically only a subset of producers are part of the cartel and others benefit from the choices of the cartelIf demand is sufficiently inelastic and cartel is

59、enforceable, prices may be well above competitive levels81CartelsExamples of successful cartelsOPECInternational Bauxite AssociationMercurio EuropeoExamples of unsuccessful cartelsCopperTinCoffeeTeaCocoa82Cartels Conditions for SuccessStable cartel organization must be formed price and quantity sett

60、led on and adhered toMembers have different costs, assessments of demand and objectivesTempting to cheat by lowering price to capture larger market share83Cartels Conditions for SuccessPotential for monopoly powerEven if cartel can succeed, there might be little room to raise prices if it faces high