【正文】 Differentiated Products ?Market shares are now determined not just by prices, but by differences in the design, performance, and durability of each firm’s product ?In these markets, more likely to pete using price instead of quantity 169。 Gamble had to consider petitors’ prices when setting their price ?Pamp。2020 Pearson Education, Inc. Chapter 12 64 Payoff Matrix for Pricing Game Firm 2 Firm 1 Charge $4 Charge $6 Charge $4 Charge $6 $12, $12 $20, $4 $16, $16 $4, $20 169。2020 Pearson Education, Inc. Chapter 12 77 Price Signaling and Price Leadership ?Price Signaling ?Implicit collusion in which a firm announces a price increase in the hope that other firms will follow suit ?Price Leadership ?Pattern of pricing in which one firm regularly announces price changes that other firms then match 169。2020 Pearson Education, Inc. Chapter 12 93 The Cartelization of Intercollegiate Athletics ?Although members have occasionally broken rules and regulations, has been a successful cartel ?In 1984, Supreme Court ruled that the NCAA’s monopolization of football TV contracts was illegal ?Competition led to drop in contract fees ?More college football on TV, but lower revenues to schools Chapter 13 Game Theory and Competitive Strategy 169。2020 Pearson Education, Inc. Chapter 12 89 The CIPEC Copper Cartel Price Quantity MRCIPEC TD DCIPEC SC MCCIPEC QCIPEC P* PC QC QT ?TD and SC are relatively elastic ?DCIPEC is elastic ?CIPEC has little monopoly power ?P* is closer to PC 169。2020 Pearson Education, Inc. Chapter 12 73 Price Rigidity ?Basis of kinked demand curve model of oligopoly ?Each firm faces a demand curve kinked at the current prevailing price, P* ?Above P*, demand is very elastic ? If P P*, other firms will not follow ?Below P*, demand is very inelastic ? If P P*, other firms will follow suit 169。2020 Pearson Education, Inc. Chapter 12 62 Competition Versus Collusion: The Prisoners’ Dilemma ?Assume: 16$ 6$ :C o l l u si o n12$ 4$ :mE q u i l i b ri uN ash 212 :d e mand s239。 Gamble, Kao Soap, Ltd., and Unilever, Ltd. were entering the market for Gypsy Moth Tape ?All three would be choosing their prices at the same time ?Each firm was using same technology so had same production costs ?FC = $480,000/month amp。 Q1 amp。2020 Pearson Education, Inc. Chapter 12 33 Duopoly Example Q1 Q2 Firm 2’s Reaction Curve 30 15 Firm 1’s Reaction Curve 15 30 10 10 Cournot Equilibrium The demand curve is P = 30 Q and both firms have 0 marginal cost. 169。2020 Pearson Education, Inc. Chapter 12 19 Oligopoly ?Management Challenges ?Strategic actions to deter entry ? Threaten to decrease price against new petitors by keeping excess capacity ?Rival behavior ? Because only a few firms, each must consider how its actions will affect its rivals and in turn how their rivals will react 169。2020 Pearson Education, Inc. Chapter 12 2 Topics to be Discussed ?Monopolistic Competition ?Oligopoly ?Price Competition ?Competition Versus Collusion: The Prisoners’ Dilemma ?Implications of the Prisoners’ Dilemma for Oligopolistic Pricing ?Cartels 169。2020 Pearson Education, Inc. Chapter 12 16 The Market for Colas and Coffee ?The demand for Royal Crown is more price inelastic than for Coke ?There is significant monopoly power in these two markets ?The greater the elasticity, the less monopoly power and vice versa 169。 F i r mCu r v e Re a c t i on s139。2020 Pearson Education, Inc. Chapter 12 44 Price Competition – Bertrand Model ?Assume here that the firms pete with price, not quantity ?Since good is homogeneous, consumers will buy from lowest price seller ?If firms charge different prices, consumers buy from lowest priced firm only ?If firms charge same price, consumers are indifferent who they buy from 169。2020 Pearson Education, Inc. Chapter 12 54 Nash Equilibrium in Prices ?If Firm 1 sets price first and then Firm 2 makes pricing decision: ?Firm 1 would be at a distinct disadvantage by moving first ?The firm that moves second has an opportunity to undercut slightly and capture a larger market share 169。 Gamble ?Collusion with petitors will give larger profits ?If all agree to charge $, each earn profit of $20,000 ?Collusion agreements are hard to enforce 169。2020 Pearson Education, Inc. Chapter 12 70 Observations of Oligopoly Behavior 1. In some oligopoly markets, pricing behavior in time can create a predictable pricing environment and implied collusion may occur 2. In other oligopoly markets, the firms are very aggressive and collusion is not possible 169。2020 Pearson Education, Inc. Chapter 12 86 The OPEC Oil Cartel Price Quantity MROPEC DOPEC TD SC MCOPEC TD is the total world demand curve for oil, and SC is the petitive supply. OPEC’s demand is the difference between the two. QOPEC P* OPEC’s profit maximizing quantity is found at the intersection of its MR and MC curves. At this quantity OPEC charges price P*. 169。2020 Pearson Education, Inc. Chapter 12 97 Gaming and Strategic Decisions ?Game is any situation in which players (the participants) make strategic decisions ?Ex: firms peting with each other by setting prices, group of consumers bidding against each other in an auction ?Strategic decisions result in payoffs to the players: outes that generate rewards or benefits 169。2020 Pearson Education, Inc. Chapter 12 80 Price Setting by a Dominant Firm Price Quantity D DD QD P* At this price, fringe firms sell QF, so that total sales are QT. P1 QF QT P2 MCD MRD SF The dominant firm’s demand curve is the difference between market demand (D) and the supply of the fringe firms (SF). 169。2020 Pearson Education, Inc. Chapter