Microeconomics I partie 2/9
Fiches pour les révisions
Fiches pour les révisions
Kartei Details
| Zusammenfassung | This flashcard set delves into advanced microeconomic concepts at the university level, focusing on price discrimination, competition models, and firm behavior. It explores various degrees of price discrimination, market structures like monopolistic competition and oligopoly, and specific competition models such as Cournot and Bertrand. The set is particularly useful for economics students and professionals seeking to understand how firms set prices, maximize output, and navigate different market conditions, providing insights into efficient output levels, strategic pricing, and market equilibrium. |
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| Karten | 39 |
| Lernende | 1 |
| Sprache | English |
| Kategorie | VWL |
| Stufe | Universität |
| Erstellt / Aktualisiert | 06.06.2019 / 02.10.2023 |
| Weblink |
https://card2brain.ch/box/20190606_microeconomics_i_partie_29
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| Einbinden |
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Prices or quantities (Cournot VS Bertrand)
Bertrand Competition: Equilibrium
Bertrand Competition: Main Assumptions
Simultaneous price setting
Few (two or more) firms producing identical products
Firms have same constant average and marginal cost
No capacity constraints
! We are looking for a Bertrand equilibrium of this game, i.e. a pair of prices (p1;p2) such that each firm is maximising its profit given the price of the other firm
Many Firms in Cournot Equilibrium
Cournot Competition: Example - Equilibrium Determination
Cournot Competition: Example - Reaction Functions Derivation
Cournot equilibrium
Cournot competition: Output decision
Since the profit maximization equation, derive and get the output decision with MR = MC, then write the best reponse function
Cournot Competition: Main Assumptions
Simultaneous quantity setting
Few firms producing homogeneous or differentiated products (typically, we will look at two firms producing identical products)
After the output decisions, price adjusts according to the demand function (in case of homogeneous products, p = p(q) where
q = q1 + q2)
Game between the firms where each firm maximises its profits given the output of the other firms
Oligopoly: strategies
Oligopoly: Assumptions
Small number of sellers with relatively high market shares
Price-making sellers
Sellers behave strategically (i.e. firms recognise their interdependence)
Many small, price-taking buyers
Monopolistic competition: diagram
Large number of firms selling differentiated products
Each firm faces a downward-sloping demand curve for its product
Firms compete for customers in terms of both price and the kind of
products they sell
Monopolistic Competition: Assumptions
Large number of firms selling differentiated products
Free entry and exit
product differentiation
Firms selling similar but not identical products
! they may be able to raise their price
! the more a product is differentiated from the other products, the more monopoly power the firm has
Large number of firms selling identical products
demand curve facing any one of the firms is essentially flat (i.e. each firm must sell its product for whatever price the other firms are charging)
Two-parts tariffs
Third-Degree Price Discrimination: global exercise
Third-Degree Price Discrimination: Linear Demands
Suppose that a monopolist producing at zero marginal cost faces two markets with linear demand curves:
Third-Degree Price Discrimination: Elasticity of Demand
Third degree price discrimination: first order condition problem
Third-Degree Price Discrimination: examples
Student discounts, senior citizens’ discounts etc.
Second-Degree Price Discrimination: examples
I ‘Non-linear pricing’
I Quantity discounts
I Quality differentiation (first class vs second class...)
I High deductible and low premium vs fuller coverage with higher premium for insurance
Second-Degree Price Discrimination details
Consumers are discriminated according to an unobservable characteristic: their prefereces ! The monopolist gives the consumers an incentive to self select (screening by self-selection)
First-Degree Price Discrimination and Efficiency
The monopolist captures all surplus (the monopolist gets the maximum possible gains from trade)
The consumers’ gains are zero
First-degree price discrimination is Pareto-efficient (efficient amount of output is supplied)
Third-degree price discrimination
output sold to different people at different prices, but every unit sold to a given person sells for the same price
Second-degree price discrimination
different units of output sold for different prices, but every individual who buys the same amount pays the same price
First-degree price discrimination (perfect price discrimination)
different units of output are sold for different prices and these prices may differ from person to person
Entry Deterrence by a Natural Monopoly
Minimum efficient scale
Minimum efficient scale
A natural monopoly arises when
the firm’s technology has economies-of-scale large enough for it to supply the whole market at a lower average total production cost than is possible with more than one firm in the market.
Monopoly: Inefficiency and Deadweight Loss
Efficient output level
The efficient output level yc satisfies p(y) = MC (y)
Total gains-to-trade is maximized
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