【文章內(nèi)容簡介】 et demand and its costs ? – Choice of price, or equivalently, quantity ? ? Downward sloping demand allows ? monopolist to exercise market power ? – Static monopoly model no strategic behavior ? – In future lectures consider possible strategic ? behavior in more than one period models Chapter 3: Monopoly and Dominant firm ? Market Power ? ? Monopolist has the most market power ? possible ? ? Perfectly petitive firm has least market ? power possible ? – What is Lerner Index? ? ? Oligopolists fall in between ? – Lerner indices greater than 0 but less than monopoly Chapter 3: Monopoly and Dominant firm ? Monopoly Profit Maximization Chapter 3: Monopoly and Dominant firm ? Marginal Revenue ? ? For a monopolist mr is not equal to price: – What does first term measure? – What does second term measure? Downward sloping demand implies first term is negative so mr is less than price Chapter 3: Monopoly and Dominant firm ? Example: Linear Demand Chapter 3: Monopoly and Dominant firm ? Example: Linear Demand and Constant Marginal Costs Chapter 3: Monopoly and Dominant firm ? Monopoly Profits Chapter 3: Monopoly and Dominant firm ? Price as Demand Rotates Chapter 3: Monopoly and Dominant firm ? Market Power and Elasticity Chapter 3: Monopoly and Dominant firm ? Inverse Relationship ? ? There is an inverse relationship between ? demand elasticity and market power ? ? What does ε represent? Will this ? relationship be true outside of monopoly? ? – In general does ε depend on quantity (Q)? ? – When does mc not depend on quantity (Q)? Chapter 3: Monopoly and Dominant firm ? Estimated Demand Chapter 3: Monopoly and Dominant firm ? RentSeeking ? ? Posner (1975) contends DWL ? underestimates loss of social welfare ? because of monopoly ? – Argues that part of the producer surplus also ? represents lost social welfare ? – Monopolist might expend real resources trying ? to obtain or maintain monopoly power ? ? Lobbying government ? ? Suing potential rivals in court (patent infringement) Chapter 3: Monopoly and Dominant firm ? Measures of Efficiency ? ? Static efficiency ? – Maximize social welfare in one time period ? ? Dynamic efficiency ? – Maximize discounted present value of welfare ? ? May give up some today for big payoffs in future ? ? Ex: If innovation important, possible ? monopoly is dynamically efficient while ? statically inefficient Chapter 3: Monopoly and Dominant firm ? Passthrough: Monopolist Chapter 3: Monopoly and Dominant firm ? Passthrough: Monopolist Chapter 3: Monopoly and Dominant firm ? Passthrough: Competition Chapter 3: Monopoly and Dominant firm ? Natural Monopoly ? ? Natural monopoly: One firm can produce ? market output at lower cost than more ? than one firm ? – Classic examples, now debated: utilities amp。 ? cable ? ? Practically speaking there needs to be ? large cost savings to justify the lack of petition Chapter 3: Monopoly and Dominant firm ? Subadditivity ? ? Subadditivity: Cost of producing sum of ? outputs less than the sum of the costs: ? Cost subadditivity is a necessary condition ? for the existence of a natural monopoly ? –Decreasing AC implies subadditivity, but ? can meet subadditivity requirement ? without decreasing AC Chapter 4:Differentiated Goods ? Chapter 4 ? Differentiated Goods: Monopolistic Competition Chapter 4:Differentiated Goods ? Types of Product Differentiation ? ? Horizontally differentiated products: ? Valued differently across consumers ? – Consumers disagree about ranking of goods ? ? Vertically differentiated products: ? Consumers agree more of vertically ? differentiating factor is better but may ? value it at different levels ? – Consumers agree about ranking of goods Chapter 4:Differentiated Goods ? Cereal: Horizontal Differentiation ? ? Consider readytoeat breakfast cereals ? ? Clearly products are differentiated ? – What are some of the characteristics that ? differ across brands of cereals? ? – Do preferences about these characteristics ? vary across consumers or do all consumers ? agree that “more” of some characteristic is ? better? Chapter 4:Differentiated Goods Chapter 4:Differentiated Goods ? Processors: Vertical Differentiation ? Do consumers agree that a faster processor is better? ? Are entire puters horizontally or vertically differentiated? Chapter 4:Differentiated Goods ? Demand for Horizontally ? Differentiated Goods ? ? Representative consumer: Demand is for ? whole goods ? – “Goods are goods” approach ? – Chamberlin (1933) ? ? Characteristics approach: Demand is for ? characteristics bundled into goods ? – Address branch ? – Hotelling (1929) amp。 Lancaster (1960?s amp。 70?s) Chapter 4:Differentiated Goods ? Representative Consumer ? ? Representative consumer: A fictional ? single consumer that represents the ? behavior in aggregate of all M consumers ? – Quantities purchased by the representative ? consumer times M yield market quantities: Chapter 4:Differentiated Goods ? Representative Consumer ? ? Assumes representative consumer has: ? – Preferences over goods not the individual ? features that make up the good ? – A taste for variety ? ? Implication: The representative consumer ? consumes a little bit of everything ? ? Usual approach in basic microeconomics: ? – Indifference curves: quantity of goods on axes Chapter 4:Differentiated Goods ? Monopolistic Competition ? ? Chamberlin (1933) noticed number of ? industries with intense petition (many ? firms) but differentiated goods ? ? Examples: ? – Restaurant meals ? – Shampoo ? ? Antitrust example: . vs. Oracle Chapter 4:Differentiated Goods ? “Tweak”