Ch11 Market Power, Collusion, and Oligopoly¶

Merger¶

horizontal integration¶

before merger: competitive (to where D=MC)
after merger: MC drops ch11-market-power,-colusion,-and-obligopoly-1.png don't necessarily gain

if MC' << MC ch11-market-power,-colusion,-and-obligopoly-2.png
P' lower than before merger
and both consumers & producer gain

if MC' = MC
ch11-market-power,-colusion,-and-obligopoly-3.jpg deadweight loss

vertical integration¶

Say there's a upstream monopoly and downstream monopoly respectively. Upstream company would sell a monopoly price for downstream company, which is a part of the MC of downstream company. When they merge, Upstream would produces at MC = D, lowering the MC of downstream.

ch11-market-power,-colusion,-and-obligopoly-4.png

provide service¶

resale price ch11-market-power,-colusion,-and-obligopoly-5.jpg

Oligopoly¶

cartel¶

A group of firms engaged in collusion

will fail due to prison dilemma, unless repeated

contestable market¶

firm can enter & exit costlessly ch11-market-power,-colusion,-and-obligopoly-6.png P=MC=AC

natural monopoly in a contestable market ch11-market-power,-colusion,-and-obligopoly-7.png

Cournot model¶

Cournot Model ==assumption: the rival has fixed quantity== i.e. take rivals' output as given ch11-market-power,-colusion,-and-obligopoly-8.png

Bertrand model¶

Bertrand Model

==assumption: the rival has fixed price== i.e. take rivals' price as given, and assume the rival won't change it → will undercut its price as long as > MC s.t. it can capture the entire market → repeatedly undercut each's price → ==price = MC = competition price==

about Cournot & Bertrand model¶

if the assumptions fail, which is always the case, the models won't work

monopolistic competition¶

monopolistic competition
producing a product that differs sufficiently from the output of other producers that some consumers will have a distinct preference for it
basically same products with different branding
demand very elastic
Q = where MR = MC
short run : positive economic profits
long run : zero economic profits
- TR = TC i.e. P = AC

ch11-market-power,-colusion,-and-obligopoly-9.png