Chapter

10

includes:10.1

What

is

Oligopoly?10.2 ty

CompetitionCournot

Duopoly（古諾雙寡頭模型）Stackelberg

Duopoly（斯泰克伯格雙寡頭模型）Kinked

Demand

Curve

Model（折彎的需求曲線模型）10.3

Price

CompetitionBertrand

Duopoly（伯特蘭雙寡頭模型）Price

Leaderships2經濟學院Overview

of

Last

ClassWhat

is

Oligopoly?ty

CompetitionCournot

Duopoly（古諾雙寡頭模型）Stackelberg

Duopoly（斯泰克伯格雙寡頭模型）3經濟學院Outlines

of

Today’s

Class

Kinked

Demand

Curve

Model（折彎的需求曲線模型）Bertrand

Duopoly（伯特蘭雙寡頭模型）Price

Leaderships(價格 者模型)4經濟學院Chapter

8

includes:10.1

What

is

Oligopoly?10.2 ty

CompetitionCournot

Duopoly（古諾雙寡頭模型）Stackelberg

Duopoly（斯泰克伯格雙寡頭模型）Kinked

Demand

Curve

Model（折彎的需求曲線模型）10.3

Price

CompetitionBertrand

Duopoly（伯特蘭雙寡頭模型）Price

Leaderships5經濟學院Sweezy(Kinked-Demand)Model斯威齊（或折彎的需求曲線）模型6經濟學院Strategic

interdependence: You

aren’t

incomplete

control

of

your

own

destiny!The

effect

of

a

price

reduction

on

the

tydemanded

of

your

product

depends

uponwhether

your

rivals(競爭對手)respond

by

cuttingtheir

prices

too!The

effect

of

a

price

increase

on

the

tydemanded

of

your

product

depends

uponwhether

your

rivals

respond

by

raising

theirprices

too!Sweezy

(Kinked-Demand)

ModelA

Few

firms

in

the

marketEach

producing

homogeneous

products.Barriers

to

entryEach

firm

believes

rivals

will

match

(or

follow)price

reductions,

but

won’t

match

(or

follow)price

increases.Key

feature

of

Sweezy

ModelPrice-Rigidity(價格剛性)7經濟學院Oligopoly

-

Kinked

Demand

CurveUnderlying

assumptions

of

firmscompetitors

will

lower

prices

if

you

norder

to

keep

market

sharecompetitors

will

not

raise

prices

if

you

norder

to

increase

their

market

shareAbove

leads

to

what,

in

reality,

are

twodemand

curves;

one

for

price

increases

and

another

for

decreases8經濟學院QD1

(Rival

holds

itsprice

constant)Q0D2

(Rival

matches

your

price

change)PPHP0PL9經濟學院PQD1P0Q0D2

(Rival

matches

your

price

change)(Rival

holds

itsprice

constant)DDemand

if

Rivals

Match

PriceReductions

but

not

Price

Increases10經濟學院Oligopoly

-

Kinked

Demand

CurvePDemandQ11經濟學院Sweezy

Marginal

RevenueD1Q0MR1MR2(Rival

holds

itsprice

constant)DPD2

(Rival

matches

your

price

change)P0QMR12經濟學院Oligopoly

-

Discontinuous

MR

CurvePDemandMRQ13經濟學院Oligopoly

-

Kinked

Demand

CurveOccurs

only

in

cutthroat

competitionDemand

is

kinked

because

of

one

firm’sview

of

how

other

firms

will

react

iftheyraise

or

lower

pricesKinked

demand

curve

leads

todiscontinuous(不連續)MR

curveResult

is

that

a

firm

is

reluctant

to

changeprices

either

up

or

down14經濟學院Oligopoly

-

Kinked

Demand

CurveLeads

to

sticky

(administered)

prices.Firms

absorb

many

cost

increases

withoutchanging

prices.Firms

do

not

pass

cost

decreases

on

to

theconsumer

without

changing

prices.15經濟學院Oligopoly

-

Sticky

PricesPQDMCQ*MR=MCASACP*MR16經濟學院PQDMRMC1MC2Price

changes

onlywhen

MC

shifts

outof

the

MR

gapWhy

are

prices

sticky

under

oligopoly?MC3Q3

Q*P3P*If

Costs

increasewithin

the

MR

gap…Price

does

notchange17經濟學院Why

are

prices

sticky

under

oligopoly?Price

does

notchange

if

demandcurve

shifts18經濟學院The

Kinked

Demand

ModelDeveloped

to

explain

why

prices

inoligopoly

markets

tended

to

beinflexible(僵硬的).Changes

in

costs

were

only

rarely

met

bychanges

in

pricesPrice

changes

did

occur

when

changes

incosts

were

large

in

magnitude.This

model

explains

why

prices

under

monopoly

tend

to

be

“sticky”19經濟學院3.

Criticisms

of

the

Kinked

Demand

Curve

TheoryThis

theory

has

two

basic

ings:,

it

ignores

where

the

prevailing(“kink”)

price

came

from;second,

empirical

evidence

points

out

anumber

of

oligopolies

whose

behaviorcould

not

be

explained

by

a

kinkeddemand

curve.20經濟學院Chapter

10

includes:10.1

What

is

Oligopoly?10.2 ty

CompetitionCournot

Duopoly（古諾雙寡頭模型）Stackelberg

Duopoly（斯泰克伯格雙寡頭模型）Kinked

Demand

Curve

Model（折彎的需求曲線模型）10.3

Price

CompetitionBertrand

Duopoly（伯特蘭雙寡頭模型）Price

Leaderships(價格

者模型)21經濟學院Price

Competition:

Bertrand

Model（伯特蘭模型）Alternative

strategic

behaviorFirms

compete

using

only

price

(notBertrand

ModelSimultaneous

game（同時博弈）Firms

use

price

as

strategic

variableGet

results

dramatically

different

fromcompetitionty)ty22經濟學院Bertrand

(1883)

price

competition.Both

firms

choose

prices

simultaneously

and

haveconstant

marginal

cost：MC1=MC2=c.Firm

1

chooses

p1.

Firm

2

chooses

p2.Consumers

buy

from

the

lowest

price

firm.

(If

p1=p2,each

firm

gets

half

the

consumers.)An

equilibrium

is

a

choice

of

prices

p1

and

p2

suchthatfirm

1

wouldn’t

want

to

change

his

price

given

p2.firm

2

wouldn’t

want

to

change

her

price

given

p1.23經濟學院Bertrand

ModelExample

of

Bertrand

ModelEach

firm’s

MC

=

c,

constantAll

firms

simultaneously

set

their

pricesEquilibrium:

All

firms

set

p=cAll

firms

have

same

p,

or

high

p

loses

all

salesAny

p>c,

slight

price

reduction

yields

big

profitAny

p<c,

lose

money24經濟學院Bertrand

EquilibriumTake

firm

1’s

decision

if

p2

is

strictly

bigger

than

c:If

he

sets

p1>p2,

then

he

earns

0.If

he

sets

p1=p2,

then

he

earns1/2*D(p2)*(p2-c).If

he

sets

p1

such

that

c<p1<p2

he

earns

D(p1)*(p1-c).For

a

large

enough

p1<p2,

we

have:D(p1)*(p1-c)>1/2*D(p2)*(p2-c).Each

has

incentive

to

slightly

undercut

the

other.Equilibrium

is

that

both

firms

charge

p1=p2=c.25經濟學院The

Bertrand

Paradox(伯特蘭悖論)The

conclusions

of

the

Bertrand

Model

are

thefollowing:(i)

that

firms

price

at

marginal

cost,and(ii)

thatfirms

do

not

make

profit.These

conclusion

does

not

match

the

results

ofcournot

duopoly

model.

That

means

even

duopolywould

suffice

to

restore

competition,

and

we

can

getthe

competitive

equilibrium

from

oligopoly.We

call

this

the

Bertrand

Paradox.26經濟學院How

to

solve

the

Bertrand

ParadoxThe

Edgeworth

Solution（埃奇沃思解法）Introducing

capacity

construction,

by

which

firms

cannotsell

more

than

they

are

capable

of

producing.The

temporal

Dimension(時間緯度)The“timing”(速度)of

price

reduction

of

each

firm

doesalways

not

seem

reflect

economic

reality.the

morecollusive

behavior

than

in

the

Bertrand

equilibrium

can

besustained

by

the

threat

of

future

losses

in

a

price

war.Product

Differentiation(產品差異化)27經濟學院The

Edgeworth

Model28經濟學院Chapter

10

includes:10.1

What

is

Oligopoly?10.2 ty

CompetitionCournot

Duopoly（古諾雙寡頭模型）Stackelberg

Duopoly（斯泰克伯格雙寡頭模型）Kinked

Demand

Curve

Model（折彎的需求曲線模型）10.3

Price

CompetitionBertrand

Duopoly（伯特蘭雙寡頭模型）Price

Leaderships(價格

者模型)29經濟學院30Price-leadership

modelPrice-leadershipSequential

gamePrice-leader

firm

sets

its

priceTypically

large,

respected

firmDominant

firmBarometric

firmFollower

firms

–

usually

smaller

–

react

to

leaderNote:

Follower

firms

are

price

takersogous

to

compet北it京iv大e學經f濟ir學m院sPrice

LeadershipMarket

demand

function

is

D(p)Given

leader

price

p,

follower

firms

supplyqf(p),

anticipated

by

leaderSo

leader

gets

residual

demandL(p)

=

D(p)

–

qf(p)Leader’s

chooses

p

to

max

profitL(p)

=

p[D(p)

-

qf(p)]

–

cL[D(p)-

qf(p)]31經濟學院Price

LeadershipResultsFollowers

aP=MCcompetitorsEconomic

profit

of

each

is

zeroLeader

acts

as

monopolist

residual

demandMRL=MCLOnly

leader

earns

monopoly

profits32經濟學院33經濟學院34經濟學院Co-operative

Behavior:

CollusionCollusion

is

illegal

inUSBut

not

for

international

car

sOPECBauxite,

copper,

tin,

coffee,

tea,

mercury,

iodineGoal

of

car :

Joint

profit

izationCan

achieve

(joint)

monopoly

profitsMust

di utput,

profits

among

car

membersIf

car fraction

of

market,

like

dominant

firm

model35經濟學院Co-operative

Behavior:

CollusionFundamental

tensio