Presented to :
Sir Dr. Khurram Mughal
Final presentation of Economic analysis for managers
Economics analysis for managers
Group Members
Name
ID
Saad yaqub
Farhan Hussain
Ali Shaharyar
13646
Zameer Ahmad
Mehmood Akram
M Shoaib
15570
15366
15582
15303
15206
Outline
Monopolistic
competition
Oligopoly
Perfect
competition
Monopoly
Monopolistic
competition
Oligopoly
Monopolistic
competition
Monopolistic competition is a type of imperfect
competition such that many producers sell
products that are differentiated from one
another as goods but not perfect substitutes.
Characteristics
Number and size distribution of sellers
many small sellers
Number and size distribution of buyers
many small buyers
Product differentiation
slightly different products
Conditions of entry and exit
Easy entry and exit
Profit maximizing in
short run
S
MC
AC
P
AC
MR
O
Q
AR=D
Output
Profit maximizing in
Long Run
S
MC
AC
P
AR=D
MR
O
Q
Output
Evaluation of
monopolistic completion
Because of
inefficiency in
production per unit
cost is slightly
higher then price.
S
MC
AC
P
AR=D
MR
O
Q
Output
Oligopoly
An oligopoly is a market form in which
a market or industry is dominated by a
small number of sellers (Oligopolists)
Characteristics
Ability to set price
price setters rather than price takers
Number and size distribution of sellers
many small buyers
Product differentiation
product may be homogeneous or differentiated
Entry and exit
barriers to entry
Varieties of Oligopoly
 The product can be homogeneous or differentiated
across producers
 The more homogeneous the products, the greater the
interdependence among the firms
Products can be differentiated
 physical qualities
 sales locations
 services
 image of the product
Oligopoly
D
Price per unit
d
Share of market
demand curve
P1
Perceived
demand curve
P2
Q1
1
Q2
Q2 Quantity per period
Models of oligopoly
The kinked demand model
Price leadership
Cournot-Nash model
Bertrand model
The kinked demand model
• One firm increase price
it will reduce its customers because other firms will may not
increase their prices
• One firm decrease the price
no increase in its customers because other firms will also
decrease their prices
Price leadership
To avoid active competition between firms in oligopoly some firms use price
fluctuation.
There are two types of price leadership
 Dominant firm price leadership
In some markets there is a single firm that controls a dominant
share of the market and a group of smaller firms. The dominant
firm sets prices which are simply taken by the smaller firms in
determining their profit maximizing levels of production.
 Barometric price leadership
In barometric firm price leadership, the most reliable firm emerges
as the best barometer of market conditions, or the firm could be
the one with the lowest costs of production, leading other firms to
follow suit.
Cournot-Nash model
• The Cournot-Nash model is the simplest oligopoly model. The model
assumes that there are two “equally positioned firms”; the firms
compete on the basis of quantity rather than price and each firm
makes an “output decision assuming that the other firm’s behavior is
fixed.
Bertrand model
• The Bertrand model is essentially the Cournot-Nash model except the
strategic variable is price rather than quantity.
• Neither firm has any reason to change strategy. If the firm raises
prices it will lose all its customers. If the firm lowers price it will be
losing money on every unit sold
cartels and collusion
What is collusion?
Unofficial hidden agreement between two or more persons/firms.
E.g. Sugar industry
What is a cartel?
A cartel is a formal agreement among competing firms.
e.g. OPEC (Organization of the Petroleum Exporting Countries)
Collusion and Cheaters?
When one firm in collusion agreement cheats to get more profit.