Lecture 10: Monopolistic Competition & Oligopoly. . .. .. .. . Lecture 11: Labor and Financial Markets. . .. .. .. . Home Reading. . .. .. . Online Quiz. . .. .. . MECN 6200: Global Competition & Market Dominance Lecture 10 & Lecture 11: Monopolistic Competition. Oligopoly. Labor & Financial Markets. (ONLINE SESSION) Milivoje Davidovic D’Amore-McKim School of Business Northeastern University Fall 2022 . Milivoje Davidovic MECN 6200: Global Competition & Market Dominance . . . . . . . . . . . . . . . . . . . . . D’Amore-McKim School of Business Lecture 9: Monopolistic Comp. Oligopoly. Factor Markets. . . . . . . . . . . . . . . . . . Northeastern University 1 / 16 . Lecture 10: Monopolistic Competition & Oligopoly. . .. .. .. . Lecture 11: Labor and Financial Markets. . .. .. .. . Home Reading. . .. .. . Online Quiz. . .. .. . 1 LECTURE 10: Monopolistic Competition & Oligopoly. 2 LECTURE 11: Labor and Financial Markets. 3 Home Reading Ď Ď Ď 4 Online Quiz Ĭ ̒ ̤ 5 LINK: Lecture 10 & Lecture 11 (Online, Recording) . Milivoje Davidovic MECN 6200: Global Competition & Market Dominance . . . . . . . . . . . . . . . . . . . . . D’Amore-McKim School of Business Lecture 9: Monopolistic Comp. Oligopoly. Factor Markets. . . . . . . . . . . . . . . . . . Northeastern University 2 / 16 . Lecture 10: Monopolistic Competition & Oligopoly. . .. .. .. . Lecture 11: Labor and Financial Markets. . .. .. .. . Home Reading. . .. .. . Online Quiz. . .. .. . 1 Lecture 10: Monopolistic Competition & Oligopoly. 2 Lecture 11: Labor and Financial Markets. 3 Home Reading. 4 Online Quiz. . Milivoje Davidovic MECN 6200: Global Competition & Market Dominance . . . . . . . . . . . . . . . . . . . . . D’Amore-McKim School of Business Lecture 9: Monopolistic Comp. Oligopoly. Factor Markets. . . . . . . . . . . . . . . . . . Northeastern University 3 / 16 . Lecture 10: Monopolistic Competition & Oligopoly. . .. .. .. . Lecture 11: Labor and Financial Markets. . .. .. .. . Home Reading. . .. .. . Online Quiz. . .. .. . Lecture 10: Monopolistic Competition & Oligopoly. • A monopolistically competitive market is characterized by three attributes: many firms, differentiated products, and free entry and exit. • The long-run equilibrium in a monopolistically competitive market differs from that in a perfectly competitive market in two related ways. • First, each firm in a monopolistically competitive market has excess capacity. That is, it chooses a quantity that puts it on the downward-sloping portion of the average total-cost curve. • Second, each firm charges a price above marginal cost. • Link to Canvas (Lecture 10) . Milivoje Davidovic MECN 6200: Global Competition & Market Dominance . . . . . . . . . . . . . . . . . . . . . D’Amore-McKim School of Business Lecture 9: Monopolistic Comp. Oligopoly. Factor Markets. . . . . . . . . . . . . . . . . . Northeastern University 4 / 16 . Lecture 10: Monopolistic Competition & Oligopoly. . .. .. .. . Lecture 11: Labor and Financial Markets. . .. .. .. . Home Reading. . .. .. . Online Quiz. . .. .. . Lecture 10: Monopolistic Competition & Oligopoly. • Monopolistic competition does not have all the desirable properties of perfect competition. • There is the standard deadweight loss of monopoly caused by the markup of price over marginal cost. • In addition, the number of firms (and thus the variety of products) can be too large or too small. • In practice, the ability of policymakers to correct these inefficiencies is limited. • The product differentiation inherent in monopolistic competition leads to the use of advertising and brand names. • Critics of advertising and brand names argue that firms use them to manipulate consumers tastes and to reduce competition. • Defenders of advertising and brand names argue that firms use them to inform consumers and to compete more vigorously on price and product quality. • Link to Canvas (Lecture 10) . Milivoje Davidovic MECN 6200: Global Competition & Market Dominance . . . . . . . . . . . . . . . . . . . . . D’Amore-McKim School of Business Lecture 9: Monopolistic Comp. Oligopoly. Factor Markets. . . . . . . . . . . . . . . . . . Northeastern University 5 / 16 . Lecture 10: Monopolistic Competition & Oligopoly. . .. .. .. . Lecture 11: Labor and Financial Markets. . .. .. .. . Home Reading. . .. .. . Online Quiz. . .. .. . Lecture 10: Monopolistic Competition & Oligopoly. • Oligopolists maximize their total profits by forming a cartel and acting like a monopolist. • Yet, if oligopolists make decisions about production levels individually, the result is a greater quantity and a lower price than under the monopoly outcome. • The larger the number of firms in the oligopoly, the closer the quantity and price will be to the levels that would prevail under perfect competition. • The prisoners dilemma shows that self-interest can prevent people from maintaining cooperation, even when cooperation is in their mutual interest. • Policymakers use the antitrust laws to prevent oligopolies from engaging in behavior that reduces competition. • The application of these laws can be controversial, because some behavior that can appear to reduce competition may in fact have legitimate business purposes. • Link to Canvas (Lecture 10) . Milivoje Davidovic MECN 6200: Global Competition & Market Dominance . . . . . . . . . . . . . . . . . . . . . D’Amore-McKim School of Business Lecture 9: Monopolistic Comp. Oligopoly. Factor Markets. . . . . . . . . . . . . . . . . . Northeastern University 6 / 16 . Lecture 10: Monopolistic Competition & Oligopoly. . .. .. .. . Lecture 11: Labor and Financial Markets. . .. .. .. . Home Reading. . .. .. . Online Quiz. . .. .. . 1 Lecture 10: Monopolistic Competition & Oligopoly. 2 Lecture 11: Labor and Financial Markets. 3 Home Reading. 4 Online Quiz. . Milivoje Davidovic MECN 6200: Global Competition & Market Dominance . . . . . . . . . . . . . . . . . . . . . D’Amore-McKim School of Business Lecture 9: Monopolistic Comp. Oligopoly. Factor Markets. . . . . . . . . . . . . . . . . . Northeastern University 7 / 16 . Lecture 10: Monopolistic Competition & Oligopoly. . .. .. .. . Lecture 11: Labor and Financial Markets. . .. .. .. . Home Reading. . .. .. . Online Quiz. . .. .. . Lecture 11: Labor and Financial Markets • The economys income is distributed in the markets for the factors of production such as land, labor, and capital. • The demand for factors, such as labor, is a derived demand that comes from firms that use the factors to produce goods and services. • Competitive, profit maximizing firms hire each factor up to the point at which the value of the factors marginal product equals its price. • The supply of labor arises from individuals trade-off between work and leisure. • An upward-sloping labor-supply curve means that people respond to an increase in the wage by working more hours and enjoying less leisure. • Link to Canvas (Lecture 11) . Milivoje Davidovic MECN 6200: Global Competition & Market Dominance . . . . . . . . . . . . . . . . . . . . . D’Amore-McKim School of Business Lecture 9: Monopolistic Comp. Oligopoly. Factor Markets. . . . . . . . . . . . . . . . . . Northeastern University 8 / 16 . Lecture 10: Monopolistic Competition & Oligopoly. . .. .. .. . Lecture 11: Labor and Financial Markets. . .. .. .. . Home Reading. . .. .. . Online Quiz. . .. .. . Lecture 11: Labor and Financial Markets • The price paid to each factor adjusts to balance the supply and demand for that factor. • Because factor demand reflects the value of the marginal product of that factor, in equilibrium each factor is compensated according to its marginal contribution to the production of goods and services. • Because factors of production are used together, the marginal product of any one factor depends on the quantities of all factors that are available. • As a result, a change in the supply of one factor alters the equilibrium earnings of all the factors. • Other things being equal, workers in hard, unpleasant jobs are paid more than workers in easy, pleasant jobs. • Wages are determined by years of education, experience, and job characteristics; however, part of wagedifferential is due to hardly measurable things such as ability, effort, and chance. • Wages are sometimes pushed above the level that brings supply and demand into balance due to minimumwage laws, unions, and efficiency wages. • Link to Canvas (Lecture 11) . Milivoje Davidovic MECN 6200: Global Competition & Market Dominance . . . . . . . . . . . . . . . . . . . . . D’Amore-McKim School of Business Lecture 9: Monopolistic Comp. Oligopoly. Factor Markets. . . . . . . . . . . . . . . . . . Northeastern University 9 / 16 . Lecture 10: Monopolistic Competition & Oligopoly. . .. .. .. . Lecture 11: Labor and Financial Markets. . .. .. .. . Home Reading. . .. .. . Online Quiz. . .. .. . Lecture 11: Labor and Financial Markets • A country’s financial system includes its banks, non-bank lenders; securities markets; pension, mutual, and other investment funds; insurers; and market infrastructures such as central clearing counterparties, payment providers, and central banks, as well as its regulatory and supervisory authorities. • Highly leveraged financial system intermediaries - those with significantly more debt than equitycan amplify the effect of negative shocks in the financial system and broad economy. • We compare investment and returns by calculating the present value of money, since the same amount today and tomorrow have different present values. • We also manage risks having in mind our preferences (risk-aversion, risk-neutrality, risk-loving) and experience diminishing marginal utility of wealth, especially at a higher level of income/wealth. • The interaction between the supply of savings and the demand for loans on the market for loanable funds determines the real interest rate and how much is loaned out. • The equilibrium interest rate is affectde by changes in both demand and supply, and these changes might be cause by some government policies. • The most important government-related factors that affect the market for loanable funds are taxed and government borrowing (saving incentives, investment incentives, and government budget deficits and surpluses). • Link to Canvas (Lecture 11) . Milivoje Davidovic MECN 6200: Global Competition & Market Dominance . . . . . . . . . . . . . . . . . . . . . D’Amore-McKim School of Business Lecture 9: Monopolistic Comp. Oligopoly. Factor Markets. . . . . . . . . . . . . . . . . . Northeastern University 10 / 16 . Lecture 10: Monopolistic Competition & Oligopoly. . .. .. .. . Lecture 11: Labor and Financial Markets. . .. .. .. . Home Reading. . .. .. . Online Quiz. . .. .. . 1 Lecture 10: Monopolistic Competition & Oligopoly. 2 Lecture 11: Labor and Financial Markets. 3 Home Reading. 4 Online Quiz. . Milivoje Davidovic MECN 6200: Global Competition & Market Dominance . . . . . . . . . . . . . . . . . . . . . D’Amore-McKim School of Business Lecture 9: Monopolistic Comp. Oligopoly. Factor Markets. . . . . . . . . . . . . . . . . . Northeastern University 11 / 16 . Lecture 10: Monopolistic Competition & Oligopoly. . .. .. .. . Lecture 11: Labor and Financial Markets. . .. .. .. . Home Reading. . .. .. . Online Quiz. . .. .. . Home Reading/Watching: Lecture 10 • Article 1: Microsoft Faces Antitrust Complaint in Europe About Its Cloud Services v Link: Microsoft Faces Antitrust Complaint in Europe • Article 2: Protect the Internet From the Big Oligopoly v Link: Protect the Internet • Article 3: Profit Is Easier With an Oligopoly v Link: Profit Is Easier With an Oligopoly • Video 1: U.S. Banks Almost Like an Oligopoly v Link: U.S. Banking Market . Milivoje Davidovic MECN 6200: Global Competition & Market Dominance . . . . . . . . . . . . . . . . . . . . . D’Amore-McKim School of Business Lecture 9: Monopolistic Comp. Oligopoly. Factor Markets. . . . . . . . . . . . . . . . . . Northeastern University 12 / 16 . Lecture 10: Monopolistic Competition & Oligopoly. . .. .. .. . Lecture 11: Labor and Financial Markets. . .. .. .. . Home Reading. . .. .. . Online Quiz. . .. .. . Home Reading/Watching: Lecture 11 • Article 1: The Relevance of Broker Networks for Information Diffusion in the Stock Market v Link: Information Diffusion in the Stock Market • Article 2: The Value of Intermediation in the Stock Market v Link: The Value of Intermediation • Article 3: The Impact of the Mariel Boatlift on the Miami Labor Market v Link: The Miami Labor Market • Video 1: The Minimum Wage: Does it Hurt Workers? v Link: The Minimum Wage . Milivoje Davidovic MECN 6200: Global Competition & Market Dominance . . . . . . . . . . . . . . . . . . . . . D’Amore-McKim School of Business Lecture 9: Monopolistic Comp. Oligopoly. Factor Markets. . . . . . . . . . . . . . . . . . Northeastern University 13 / 16 . Lecture 10: Monopolistic Competition & Oligopoly. . .. .. .. . Lecture 11: Labor and Financial Markets. . .. .. .. . Home Reading. . .. .. . Online Quiz. . .. .. . 1 Lecture 10: Monopolistic Competition & Oligopoly. 2 Lecture 11: Labor and Financial Markets. 3 Home Reading. 4 Online Quiz. . Milivoje Davidovic MECN 6200: Global Competition & Market Dominance . . . . . . . . . . . . . . . . . . . . . D’Amore-McKim School of Business Lecture 9: Monopolistic Comp. Oligopoly. Factor Markets. . . . . . . . . . . . . . . . . . Northeastern University 14 / 16 . Lecture 10: Monopolistic Competition & Oligopoly. . .. .. .. . Lecture 11: Labor and Financial Markets. . .. .. .. . Home Reading. . .. .. . Online Quiz. . .. .. . Online Quiz (General Information) • Fact 1: It is based on the lectures we will cover during the regular class. • Fact 2: It is based on multiple choice questions, and it will be assigned on Canvas. • Fact 3: It will be assigned almost every Friday (will be announced), and it is due in 7 days (next Friday, 11:59 PM). • Fact 4: It will be graded; you will have two attempts to complete each question; you will be able to see the correct answers only once after the first attempt. • Fact 5: These questions will help you to get better prepared for the midterm exams, and for the final exam. . Milivoje Davidovic MECN 6200: Global Competition & Market Dominance . . . . . . . . . . . . . . . . . . . . . D’Amore-McKim School of Business Lecture 9: Monopolistic Comp. Oligopoly. Factor Markets. . . . . . . . . . . . . . . . . . Northeastern University 15 / 16 . Lecture 10: Monopolistic Competition & Oligopoly. . .. .. .. . Lecture 11: Labor and Financial Markets. . .. .. .. . Home Reading. . .. .. . Online Quiz. . .. .. . Thank You. . Milivoje Davidovic MECN 6200: Global Competition & Market Dominance . . . . . . . . . . . . . . . . . . . . . D’Amore-McKim School of Business Lecture 9: Monopolistic Comp. Oligopoly. Factor Markets. . . . . . . . . . . . . . . . . . Northeastern University 16 / 16 .
