Transcript Prices and Decision Making

Oligopoly
A
few large sellers dominate
 An individual firm can change output, sales,
and prices in the industry
 Examples of Oligopolistic Markets
 Interdependent
Behavior
 If
one firm does something, the other follows
 Collusion – formal agreement to set prices
 Form
of price-fixing
 Collusion
is illegal
Oligopoly

Pricing Behavior
See price wars
 Raising prices is often too risky
 Some follow independent pricing



Oligopolist sets its own price based on demand, cost of
inputs, and other factors
Price leadership
One firm initiates most changes
 Others follow


Profit Maximization
MR=MC
 Final price tends to be higher than monopolistic
competition

Monopoly

Very few pure monopolies
Dislike of monopolies
 Easy to find substitutes
 New technology introduces new product


Natural Monopoly


Geographic Monopoly


Costs are minimized by having a monopoly
Due to its location
Technological Monopoly
Due to new technology that others cannot copy
 Get patents and copyrights

Monopoly
 Government
Monopoly
 Government
Total Revenue
Marginal Revenue
Marginal Cost
only a
demand curve
 Monopolists tend to
produce less than
hundreds of pure
competitors
Marginal Product
 Display
Monopolist
Supply
 MR=MC
Market Demand
Maximization
Price
 Profit
owned services
$10
600
600
0
$6,000
$9
720
720
120
$6,480
$4.00
$5.00
$8
850
850
130
$6,800
$2.46
$2.90
$7
990
990
140
$6,930
$0.93
$0.93
$6
1140
1140
150
$6,840
-$0.60
-$0.91
$5
1300
1300
160
$6,500
-$2.13
-$2.61
$4
1470
1470
170
$5,880
-$3.65
$3
1650
1650
180
$4,950
-$5.17
$2
1840
1840
190
$3,680
-$6.68
$1
2040
2040
200
$2,040
-$8.20