【正文】 ement Challenges ? Strategic actions ? Rival behavior ? Question ? What are the possible rival responses to a 10% price cut by Ford? 25 Chapter 1 Oligopoly ? Equilibrium in an Oligopolistic Market ? In perfect petition, monopoly, and monopolistic petition the producers did not have to consider a rival’s response when choosing output and price. ? In oligopoly the producers must consider the response of petitors when choosing output and price. 26 Chapter 1 Oligopoly ? Equilibrium in an Oligopolistic Market ? Defining Equilibrium ?Firms doing the best they can and have no incentive to change their output or price ?All firms assume petitors are taking rival decisions into account. 27 Chapter 1 Oligopoly ? Nash Equilibrium ? Each firm is doing the best it can given what its petitors are doing. 28 Chapter 1 Oligopoly ? The Cournot Model ? Duopoly ?Two firms peting with each other ?Homogenous good ?The output of the other firm is assumed to be fixed 29 Chapter 1 MC1 50 MR1(75) D1(75) If Firm 1 thinks Firm 2 will produce 75 units, its demand curve is shifted to the left by this amount. Firm 1’s Output Decision Q1 P1 What is the output of Firm 1 if Firm 2 produces 100 units? D1(0) MR1(0) If Firm 1 thinks Firm 2 will produce nothing, its demand curve, D1(0), is the market demand curve. D1(50) MR1(50) 25 If Firm 1 thinks Firm 2 will produce 50 units, its demand curve is shifted to the left by this amount. 30 Chapter 1 Oligopoly ? The Reaction Curve ?A firm’s profitmaximizing output is a decreasing schedule of the expected output of Firm 2. 31 Chapter 1 Firm 2’s Reaction Curve Q*2(Q2) Firm 2’s reaction curve shows how much it will produce as a function of how much it thinks Firm 1 will produce. Reaction Curves and Cournot Equilibrium Q2 Q1 25 50 75 100 25 50 75 100 Firm 1’s Reaction Curve Q*1(Q2) x x x x Firm 1’s reaction curve shows how much it will produce as a function of how much it thinks Firm 2 will produce. The x’s correspond to the previous model. In Cournot equilibrium, each firm correctly assumes how much its petitors will produce and thereby maximize its own profits. Cournot Equilibrium 32 Chapter 1 Oligopoly ? Questions 1) If the firms are not producing at the Cournot equilibrium, will they adjust until the Cournot equilibrium is reached? 2) When is it rational to assume that its petitor’s output is fixed? 33 Chapter 1 Oligopoly ? An Example of the Cournot Equilibrium ? Duopoly ?Market demand is P = 30 Q where Q = Q1 + Q2 ?MC1 = MC2 = 0 The Linear Demand Curve 34 Chapter 1 Oligopoly ? An Example of the Cournot Equilibrium ?Firm 1’s Reaction Curve 111 )30( Revenue, Total PQR ???12211121130)(30??????The Linear Demand Curve 35 Chapter 1 Oligopoly ? An Example of the Cournot Equilibrium 12211121111211521150230MCMRQRMR????????????Curve Reacti on s239。 FirmCurve Reacti on s139。 Profit = 0) Collusion Curve Collusive Equilibrium For the firm, collusion is the best oute followed by the Cournot Equilibrium and then the petitive equilibrium 41 Chapter 1 Example ? Let market demand be given by P=1,000。 P1 = P2 = $3 ?Q = 27。PPPPPPP????????????? curv e react ion s239。 Firm price maximiz ing profit s1 Firm?Differentiated Products 59 Chapter 1 Firm 1’s Reaction Curve Nash Equilibrium in Prices P1 P2 Firm 2’s Reaction Curve $4 $4 Nash Equilibrium $6 $6 Collusive Equilibrium 60 Chapter 1 Nash Equilibrium in Prices ? Does the Stackelberg model prediction for first mover hold when price is the variable instead of quantity? ? Hint: Would you want to set price first? 61 Chapter 1 Example ? If C(Q1)=10Q1 and C(Q2)=5Q2, find the differentiatedproducts Bertrand equilibrium, given the following demand curves: ? Q1(P1,P2)=1,00020P1+15P2 and ? Q2(P1,P2)=800+5P115P2 62 Chapter 1 A Pricing Problem for Procter Gamble ? Scenario 1) Procter Gamble, Kao Soap, Ltd., and Unilever, Ltd were entering the market for Gypsy Moth Tape. 2) All three would be choosing their prices at the same time. Differentiated Products 63 Chapter 1 ? Scenario 3) Procter Gamble had to consider petitors prices when setting their price. 4) FC = $480,000/month and VC = $1/unit for all firms Differentiated Products A Pricing Problem for Procter Gamble 64 Chapter 1 ? Scenario 5) PG’s demand curve was: Q = 3,(PU).25(PK).25 ?Where P, PU , PK are PG’s, Unilever’s, and Kao’s prices respectively Differentiated Products A Pricing Problem for Procter Gamble 65 Chapter 1 ? Problem ? What price should PG choose and what is the expected profit? Differentiated Products A Pricing Problem for Procter Gamble 66 Chapter 1 PG’s Profit (in thousands of $ per month) 226 215 204 194