Matakuliah
Tahun
: J0114-Teori Ekonomi
: 2009
PURE COMPETITION AND MONOPOLY,
MONOPOLISTICS AND OLIGOPOLY
Pertemuan 19
Four Market Models
•
•
•
•
Pure Competition
Pure Monopoly
Monopolistic Competition
Oligopoly
Imperfect Competition
Pure
Competition
Monopolistic
Competition
Oligopoly
Pure
Monopoly
Market Structure Continum
Bina Nusantara University
3
Pure Competition
•
•
•
•
•
Very Large Numbers
Standardized Product
“Price Takers”
Free Entry and Exit
Perfectly Elastic Demand
– Average Revenue
– Total Revenue
– Marginal Revenue
Graphically…
Bina Nusantara University
4
Pure Competition
$1179
P
TR
1048
917
QD TR
MR
$0
131
262
393
524
655
786
917
1048
1179
1310
] $131
] 131
] 131
] 131
] 131
] 131
] 131
] 131
] 131
] 131
$131 0
131 1
131 2
131 3
131 4
131 5
131 6
131 7
131 8
131 9
131 10
Bina Nusantara University
Firm’s
Revenue
Data
Price and Revenue
Firm’s
Demand
Schedule
(Average
Revenue)
786
655
524
393
262
D = MR = AR
131
2
4
6
8
10
Quantity Demanded (Sold)
125
Pure Monopoly
Characteristics
•
•
•
•
•
•
Single Seller
No Close Substitutes
“Price Maker”
Blocked Entry
Nonprice Competition
Examples
O 22.1
– Regulated Monopolies
– Near-Monopolies
– Western Union-Frisbee-De Beers
• Dual Objectives of Study
Bina Nusantara University
6
Pure Monopoly
Barriers to Entry
• Economies of Scale
• Legal Barriers to Entry
– Patents
– Licenses
• Ownership or Control of Essential Resources
• Pricing and Other Strategic Barriers to Entry
Monopoly Demand
Bina Nusantara University
• Monopoly Status is Secure
• No Governmental Regulation
• Firm is a Single-Price Monopolist (No Price
Discrimination)
7
Price and Marginal Revenue
Marginal Revenue is Less Than Price
• A Monopolist is
Selling 3 Units at
$142
• To Sell More (4),
Price Must Be
Lowered to $132
• All Customers
Must Pay the Same
Price
• TR Increases $132
Minus $30 (3x$10)
Bina Nusantara University
$142
132
122
D
112
Loss = $30
102
Gain = $132
92
82
0
1
2
3
4
5
6
8
Monopoly Revenue and Costs
Revenue and Cost Data of a Pure Monopolist
Cost Data
Revenue Data
(2)
Price
(1)
Quantity (Average
Of Output Revenue)
0
1
2
3
4
5
6
7
8
9
10
$172
162
152
142
132
122
112
102
92
82
72
(3)
Total
Revenue
(1) X (2)
$0 ]
162 ]
304 ]
426 ]
528 ]
610 ]
672 ]
714 ]
736 ]
738 ]
720
(4)
Marginal
Revenue
$162
142
122
102
82
62
42
22
2
-18
(5)
(6)
(7)
(8)
Average Total Cost Marginal Profit (+)
Total Cost (1) X (5)
Cost
or Loss (-)
$190.00
135.00
113.33
100.00
94.00
91.67
91.43
93.75
97.78
103.00
$100 ]
190 ]
270 ]
340 ]
400 ]
470 ]
550 ]
640 ]
750 ]
880 ]
1030
Bina Nusantara University
Can you See Profit Maximization?
$90
80
70
60
70
80
90
110
130
150
$-100
-28
+34
+86
+128
+140
+122
+74
-14
-142
-310
9
Monopoly Revenue and Costs
Demand, Marginal Revenue, and Total Revenue for a Pure Monopolist
$200
Demand and Marginal Revenue Curves
Inelastic
Elastic
Price
150
100
50
D
MR
0
Total Revenue
$750
2
4
6
8
10
Total-Revenue Curve
12
14
16
18
500
250
TR
Bina Nusantara University
10
0
2
4
6
8
10
12
14
16
18
Monopolistic Competition
• Characteristics
– Small Market Shares
– No Collusion
– Independent Action
• Differentiated Products
–
–
–
–
–
Product Attributes
Service
Location
Brand Names and Packaging
Some Control Over Price
• Easy Entry and Exit
• Advertising
– Nonprice Competition
Bina Nusantara University
• Monopolistically Competitive Industries
11
Price and Output Determination
In Monopolistic Competition
• The Firm’s Demand Curve
• The Short Run:
– Profit or Loss
• The Long Run:
– Only a Normal Profit
– Profits: Firms Enter
– Losses: Firm’s Leave
• Complications
– Product Variety
Bina Nusantara University
12
Price and Output Determination
In Monopolistic Competition
Short-Run Profits
Price and Costs
MC
ATC
P1
A1
D1
Economic
Profit
MR = MC
MR
Q1
Bina Nusantara University
13
0
Quantity
Price and Output Determination
In Monopolistic Competition
Short-Run Losses
Price and Costs
MC
ATC
A2
P2
Loss
D2
MR = MC
MR
Bina Nusantara University
0
Q2
Quantity
14
Price and Output Determination
In Monopolistic Competition
Long-Run Equilibrium
MC
Price and Costs
ATC
P3=
A3
D3
MR = MC
Q3
Bina Nusantara University
0
MR
15
Quantity
Three Oligopoly Models
• Kinked Demand Curve : Noncollusive Oligpoly
• Collusive Pricing : Cartel and other Collusion
• Price Leadership Model
Bina Nusantara University
16
Kinked-Demand Curve
Noncollusive Oligopoly
Competitor and Rivals Strategize Versus Each Other
Consumers Effectively Have 2 Partial Demand Curves
and Each Part Has Its Own Marginal Revenue Part
e
P0
f
Rivals Match g
Price Decrease
0
Q0
MR1
Quantity
D2
MR2
Price and Costs
Price
Rivals Ignore
Price Increase
MC1
D2
P0
e
MR2
f
MC2
g
D1
D1
0
Q0
MR1
Quantity
Resulting in a Kinked-Demand Curve to the Consumer –
Price and Output Are Optimized at the Kink
Bina Nusantara University
17
Kinked-Demand Curve
Noncollusive Oligopoly
• Criticisms of the Model
– Doesn’t Explain How Price Gets to the Kink
(P0)
– Oligopoly Prices Are Not As Rigid During
Instability as the Model Indicates
– Possibility of Price Wars
Bina Nusantara University
18
Cartels and Other Collusion
• Price and Output
– Collusion and Tendency Toward Joint-Profit
Maximization
Price and Costs
MC
P0
ATC
A0
MR=MC
Economic
Profit
Bina Nusantara University
Effectively Sharing
The Monopoly Profit
Q0
MR
Quantity
D
19
Cartels and Other Collusion
• Covert Collusion
– Tacit Understandings
• Obstacles to Collusion
–
–
–
–
–
–
Bina Nusantara University
Demand and Cost Differences
Number of Firms
Cheating
Recession
Potential Entry
Legal Obstacles:
• Antitrust Law
20
Price Leadership Model
•
•
•
•
•
Bina Nusantara University
Leadership Tactics
Infrequent Price Changes
Communications
Limit Pricing
Breakdowns in Price Leadership:
– Price Wars
21