Managerial Economics Unit 6: Oligopoly
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Microeconomics Exam Review Chapters 8 Through 12, 16, 17 and 19
MICROECONOMICS EXAM REVIEW CHAPTERS 8 THROUGH 12, 16, 17 AND 19 Key Terms and Concepts to Know CHAPTER 8 - PERFECT COMPETITION I. An Introduction to Perfect Competition A. Perfectly Competitive Market Structure: • Has many buyers and sellers. • Sells a commodity or standardized product. • Has buyers and sellers who are fully informed. • Has firms and resources that are freely mobile. • Perfectly competitive firm is a price taker; one firm has no control over price. B. Demand Under Perfect Competition: Horizontal line at the market price II. Short-Run Profit Maximization A. Total Revenue Minus Total Cost: The firm maximizes economic profit by finding the quantity at which total revenue exceeds total cost by the greatest amount. B. Marginal Revenue Equals Marginal Cost in Equilibrium • Marginal Revenue: The change in total revenue from selling another unit of output: • MR = ΔTR/Δq • In perfect competition, marginal revenue equals market price. • Market price = Marginal revenue = Average revenue • The firm increases output as long as marginal revenue exceeds marginal cost. • Golden rule of profit maximization. The firm maximizes profit by producing where marginal cost equals marginal revenue. C. Economic Profit in Short-Run: Because the marginal revenue curve is horizontal at the market price, it is also the firm’s demand curve. The firm can sell any quantity at this price. III. Minimizing Short-Run Losses The short run is defined as a period too short to allow existing firms to leave the industry. The following is a summary of short-run behavior: A. Fixed Costs and Minimizing Losses: If a firm shuts down, it must still pay fixed costs. -
The Three Types of Collusion: Fixing Prices, Rivals, and Rules Robert H
University of Baltimore Law ScholarWorks@University of Baltimore School of Law All Faculty Scholarship Faculty Scholarship 2000 The Three Types of Collusion: Fixing Prices, Rivals, and Rules Robert H. Lande University of Baltimore School of Law, [email protected] Howard P. Marvel Ohio State University, [email protected] Follow this and additional works at: http://scholarworks.law.ubalt.edu/all_fac Part of the Antitrust and Trade Regulation Commons, and the Law and Economics Commons Recommended Citation The Three Types of Collusion: Fixing Prices, Rivals, and Rules, 2000 Wis. L. Rev. 941 (2000) This Article is brought to you for free and open access by the Faculty Scholarship at ScholarWorks@University of Baltimore School of Law. It has been accepted for inclusion in All Faculty Scholarship by an authorized administrator of ScholarWorks@University of Baltimore School of Law. For more information, please contact [email protected]. ARTICLES THE THREE TYPES OF COLLUSION: FIXING PRICES, RIVALS, AND RULES ROBERTH. LANDE * & HOWARDP. MARVEL** Antitrust law has long held collusion to be paramount among the offenses that it is charged with prohibiting. The reason for this prohibition is simple----collusion typically leads to monopoly-like outcomes, including monopoly profits that are shared by the colluding parties. Most collusion cases can be classified into two established general categories.) Classic, or "Type I" collusion involves collective action to raise price directly? Firms can also collude to disadvantage rivals in a manner that causes the rivals' output to diminish or causes their behavior to become chastened. This "Type 11" collusion in turn allows the colluding firms to raise prices.3 Many important collusion cases, however, do not fit into either of these categories. -
Total Cost and Profit
4/22/2016 Total Cost and Profit Gina Rablau Gina Rablau - Total Cost and Profit A Mini Project for Module 1 Project Description This project demonstrates the following concepts in integral calculus: Indefinite integrals. Project Description Use integration to find total cost functions from information involving marginal cost (that is, the rate of change of cost) for a commodity. Use integration to derive profit functions from the marginal revenue functions. Optimize profit, given information regarding marginal cost and marginal revenue functions. The marginal cost for a commodity is MC = C′(x), where C(x) is the total cost function. Thus if we have the marginal cost function, we can integrate to find the total cost. That is, C(x) = Ȅ ͇̽ ͬ͘ . The marginal revenue for a commodity is MR = R′(x), where R(x) is the total revenue function. If, for example, the marginal cost is MC = 1.01(x + 190) 0.01 and MR = ( /1 2x +1)+ 2 , where x is the number of thousands of units and both revenue and cost are in thousands of dollars. Suppose further that fixed costs are $100,236 and that production is limited to at most 180 thousand units. C(x) = ∫ MC dx = ∫1.01(x + 190) 0.01 dx = (x + 190 ) 01.1 + K 1 Gina Rablau Now, we know that the total revenue is 0 if no items are produced, but the total cost may not be 0 if nothing is produced. The fixed costs accrue whether goods are produced or not. Thus the value for the constant of integration depends on the fixed costs FC of production. -
Buyer Power: Is Monopsony the New Monopoly?
COVER STORIES Antitrust , Vol. 33, No. 2, Spring 2019. © 2019 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. Buyer Power: Is Monopsony the New Monopoly? BY DEBBIE FEINSTEIN AND ALBERT TENG OR A NUMBER OF YEARS, exists—or only when it can also be shown to harm consumer commentators have debated whether the United welfare; (2) historical case law on monopsony; (3) recent States has a monopoly problem. But as part of the cases involving monopsony issues; and (4) counseling con - recent conversation over the direction of antitrust siderations for monopsony issues. It remains to be seen law and the continued appropriateness of the con - whether we will see significantly increased enforcement Fsumer welfare standard, the debate has turned to whether the against buyer-side agreements and mergers that affect buyer antitrust agencies are paying enough attention to monopsony power and whether such enforcement will be successful, but issues. 1 A concept that appears more in textbooks than in case what is clear is that the antitrust enforcement agencies will be law has suddenly become mainstream and practitioners exploring the depth and reach of these theories and clients should be aware of developments when they counsel clients must be prepared for investigations and enforcement actions on issues involving supply-side concerns. implicating these issues. This topic is not going anywhere any time soon. -
35 Measuring Oligopsony and Oligopoly Power in the US Paper Industry Bin Mei and Changyou Sun Abstract
Measuring Oligopsony and Oligopoly Power in the U.S. Paper Industry Bin Mei and Changyou Sun1 Abstract: The U.S. paper industry has been increasingly concentrated ever since the 1950s. Such an industry structure may be suspected of imperfect competition. This study applied the new empirical industrial organization (NEIO) approach to examine the market power in the U.S. paper industry. The econometric analysis consisted of the identification and estimation of a system of equations including a production function, market demand and supply functions, and two conjectural elasticities indicating the industry’s oligopsony and oligopoly power. By employing annual data from 1955 to 2003, the above system of equations was estimated by Generalized Method of Moments (GMM) procedure. The analysis indicated the presence of oligopsony power but no evidence of oligopoly power over the sample period. Keywords: Conjectural elasticity; GMM; Market power; NEIO Introduction The paper sector (NAICS 32-SIC 26) has been the largest among the lumber, furniture, and paper sectors in the U.S. forest products industry. According to the latest Annual Survey of Manufacturing in 2005, the value of shipments for paper manufacturing reached $163 billion or a 45% share of the total forest products output (U.S. Bureau of Census, 2005). Thus, the paper sector has played a vital role in the U.S. forest products industry. However, spatial factors such as the cost of transporting products between sellers and buyers can mitigate the forces necessary to support perfect competition (Murray, 1995a). This is particularly true in markets for agricultural and forest products. For example, timber and logs are bulky and land-intensive in nature, thus leading to high logging service fees. -
A Primer on Profit Maximization
Central Washington University ScholarWorks@CWU All Faculty Scholarship for the College of Business College of Business Fall 2011 A Primer on Profit aM ximization Robert Carbaugh Central Washington University, [email protected] Tyler Prante Los Angeles Valley College Follow this and additional works at: http://digitalcommons.cwu.edu/cobfac Part of the Economic Theory Commons, and the Higher Education Commons Recommended Citation Carbaugh, Robert and Tyler Prante. (2011). A primer on profit am ximization. Journal for Economic Educators, 11(2), 34-45. This Article is brought to you for free and open access by the College of Business at ScholarWorks@CWU. It has been accepted for inclusion in All Faculty Scholarship for the College of Business by an authorized administrator of ScholarWorks@CWU. 34 JOURNAL FOR ECONOMIC EDUCATORS, 11(2), FALL 2011 A PRIMER ON PROFIT MAXIMIZATION Robert Carbaugh1 and Tyler Prante2 Abstract Although textbooks in intermediate microeconomics and managerial economics discuss the first- order condition for profit maximization (marginal revenue equals marginal cost) for pure competition and monopoly, they tend to ignore the second-order condition (marginal cost cuts marginal revenue from below). Mathematical economics textbooks also tend to provide only tangential treatment of the necessary and sufficient conditions for profit maximization. This paper fills the void in the textbook literature by combining mathematical and graphical analysis to more fully explain the profit maximizing hypothesis under a variety of market structures and cost conditions. It is intended to be a useful primer for all students taking intermediate level courses in microeconomics, managerial economics, and mathematical economics. It also will be helpful for students in Master’s and Ph.D. -
Externalities and Public Goods Introduction 17
17 Externalities and Public Goods Introduction 17 Chapter Outline 17.1 Externalities 17.2 Correcting Externalities 17.3 The Coase Theorem: Free Markets Addressing Externalities on Their Own 17.4 Public Goods 17.5 Conclusion Introduction 17 Pollution is a major fact of life around the world. • The United States has areas (notably urban) struggling with air quality; the health costs are estimated at more than $100 billion per year. • Much pollution is due to coal-fired power plants operating both domestically and abroad. Other forms of pollution are also common. • The noise of your neighbor’s party • The person smoking next to you • The mess in someone’s lawn Introduction 17 These outcomes are evidence of a market failure. • Markets are efficient when all transactions that positively benefit society take place. • An efficient market takes all costs and benefits, both private and social, into account. • Similarly, the smoker in the park is concerned only with his enjoyment, not the costs imposed on other people in the park. • An efficient market takes these additional costs into account. Asymmetric information is a source of market failure that we considered in the last chapter. Here, we discuss two further sources. 1. Externalities 2. Public goods Externalities 17.1 Externalities: A cost or benefit that affects a party not directly involved in a transaction. • Negative externality: A cost imposed on a party not directly involved in a transaction ‒ Example: Air pollution from coal-fired power plants • Positive externality: A benefit conferred on a party not directly involved in a transaction ‒ Example: A beekeeper’s bees not only produce honey but can help neighboring farmers by pollinating crops. -
Corporate Disclosure As a Tacit Coordination Mechanism: Evidence from Cartel Enforcement Regulations∗
Corporate Disclosure as a Tacit Coordination Mechanism: Evidence from Cartel Enforcement Regulations∗ Thomas Bourveau Guoman She Alminas Zaldokasˇ This version: September 2019 - First version: October 2016 Abstract We empirically study how collusion in product markets affects firms’ financial disclosure strategies. We find that after a rise in cartel enforcement, U.S. firms start sharing more detailed information in their financial disclosure about their customers, contracts, and products. This new information potentially benefits peers by helping to tacitly coordinate actions in product markets. Indeed, changes in disclosure are associated with higher future profitability. Our results highlight the potential conflict between securities and antitrust regulations. Keywords: Financial Disclosure, Antitrust Enforcement, Collusion, Tacit Coordination JEL Classification: D43, G38, M41, L15, L41 ∗Bourveau is at Columbia Business School. She and Zaldokasˇ are at the Hong Kong University of Science and Technology (HKUST). Thomas Bourveau: [email protected]; Guoman She: [email protected]; Alminas Zaldokas:ˇ [email protected]. We thank our editor Haresh Sapra and the anonymous referee for their constructive comments and guidance. We thank our discussants Julian Atanassov, Luzi Hail, Rachel Hayes, Gerard Hoberg, Hyo Kang, Vardges Levonyan, Xi Li, Tse-Chun Lin, Tim Loughran, Mike Minnis, Vladimir Mukharlyamov, Vikram Nanda, Kevin Tseng, Jiang Xuefeng, and Xintong Zhan for comments that helped to improve this paper. We also thank Sumit Agarwal, Phil Berger, Jeremy Bertomeu, Matthias Breuer, Jason Chen, Hans Christensen, Anna Costello, Sudipto Dasgupta, Wouter Dessein, Hila Fogel-Yaari, Joey Engelberg, Eric Floyd, Yuk-Fai Fong, Jonathan Glover, Kai Wai Hui, Bruno Jullien, Christian Leuz, J¯uraLiaukonyt_e, Daniele Macciocchi, Nathan Miller, Jeff Ng, Kasper Meisner Nielsen, Giorgo Sertsios, Daniel D. -
Relationship Between Public and Private Antitrust Enforcement, Note by the United States Submitted to the OECD Competition Commi
Unclassified DAF/COMP/WP3/WD(2015)11 Organisation de Coopération et de Développement Économiques Organisation for Economic Co-operation and Development 09-Jun-2015 ___________________________________________________________________________________________ _____________ English - Or. English DIRECTORATE FOR FINANCIAL AND ENTERPRISE AFFAIRS COMPETITION COMMITTEE Unclassified DAF/COMP/WP3/WD(2015)11 Working Party No. 3 on Co-operation and Enforcement RELATIONSHIP BETWEEN PUBLIC AND PRIVATE ANTITRUST ENFORCEMENT -- United States -- 15 June 2015 This document reproduces a written contribution from the United States submitted for Item III of the 121st meeting of the Working Party No. 3 on Co-operation and Enforcement on 15 June 2015. More documents related to this discussion can be found at: http://www.oecd.org/daf/competition/antitrust- enforcement-in-competition.htm Please contact Ms. Naoko Teranishi if you have any questions regarding this document [phone number: +33 1 45 24 83 52 -- E-mail address: [email protected]]. English JT03378179 Complete document available on OLIS in its original format - This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of Or. English international frontiers and boundaries and to the name of any territory, city or area. DAF/COMP/WP3/WD(2015)11 -- United States -- 1. The United States relies on a combination of federal, state,1 and private enforcers to combat anticompetitive conduct.2 The three enforcement groups play different, yet complementary, roles. Federal and state competition law enforcers have similar missions – to protect the public from the harms flowing from anticompetitive conduct. Federal enforcement seeks to protect the interests of all consumers across the nation or within interstate commerce, while state enforcers focus their efforts on the consumers in their respective states. -
Economic Evaluation Glossary of Terms
Economic Evaluation Glossary of Terms A Attributable fraction: indirect health expenditures associated with a given diagnosis through other diseases or conditions (Prevented fraction: indicates the proportion of an outcome averted by the presence of an exposure that decreases the likelihood of the outcome; indicates the number or proportion of an outcome prevented by the “exposure”) Average cost: total resource cost, including all support and overhead costs, divided by the total units of output B Benefit-cost analysis (BCA): (or cost-benefit analysis) a type of economic analysis in which all costs and benefits are converted into monetary (dollar) values and results are expressed as either the net present value or the dollars of benefits per dollars expended Benefit-cost ratio: a mathematical comparison of the benefits divided by the costs of a project or intervention. When the benefit-cost ratio is greater than 1, benefits exceed costs C Comorbidity: presence of one or more serious conditions in addition to the primary disease or disorder Cost analysis: the process of estimating the cost of prevention activities; also called cost identification, programmatic cost analysis, cost outcome analysis, cost minimization analysis, or cost consequence analysis Cost effectiveness analysis (CEA): an economic analysis in which all costs are related to a single, common effect. Results are usually stated as additional cost expended per additional health outcome achieved. Results can be categorized as average cost-effectiveness, marginal cost-effectiveness, -
Criminalising Cartel Activity: Lessons from the US Experience
Criminalising cartel activity: Lessons from the US experience William Kolasky* The Federal Government has proposed the introduction of criminal sanctions for entities and individuals involved in anti-competitive cartel activity. In this comment, the author provides an historical introduction and overview of the equivalent provisions in the United States. The view put forward is that criminal sanctions are critical as a response to cartel behaviour, with this having the corresponding effect of making compliance programs far more significant as well as placing a greater onus on the legal profession. International cooperation and the role of leniency policies within the regulatory environment will also become increasingly important. Introduction Cartel enforcement in Australia has been on the rise in recent years, most recently aided by the implementation of the Australian Competition and Consumer Commission’s (ACCC) amnesty program in June 2003. Under the existing civil penalty regime in Australia, corporations involved in cartels face pecuniary penalties of up to AUS$10 million per contravention, while their executives face penalties of up to AUS$500,000 per contravention. On 24 June 2004, the Australian Federal Government introduced legislation to amend the Trade Practices Act 1974 (Cth) (TPA) in response to the Dawson Report to further stiffen the sanctions for cartel behaviour. The proposed amendments would introduce criminal sanctions, including jail terms, for individuals for ‘hard-core’ cartel behaviour, as well as substantially increase the maximum fines for corporations. The maximum penalty for corporations would increase from its current level to the greater of AUS$10 million, three times the gain from the contravention, or where the gain cannot be readily ascertained, 10% of the group’s annual Australian turnover. -
Principles of Microeconomics
PRINCIPLES OF MICROECONOMICS A. Competition The basic motivation to produce in a market economy is the expectation of income, which will generate profits. • The returns to the efforts of a business - the difference between its total revenues and its total costs - are profits. Thus, questions of revenues and costs are key in an analysis of the profit motive. • Other motivations include nonprofit incentives such as social status, the need to feel important, the desire for recognition, and the retaining of one's job. Economists' calculations of profits are different from those used by businesses in their accounting systems. Economic profit = total revenue - total economic cost • Total economic cost includes the value of all inputs used in production. • Normal profit is an economic cost since it occurs when economic profit is zero. It represents the opportunity cost of labor and capital contributed to the production process by the producer. • Accounting profits are computed only on the basis of explicit costs, including labor and capital. Since they do not take "normal profits" into consideration, they overstate true profits. Economic profits reward entrepreneurship. They are a payment to discovering new and better methods of production, taking above-average risks, and producing something that society desires. The ability of each firm to generate profits is limited by the structure of the industry in which the firm is engaged. The firms in a competitive market are price takers. • None has any market power - the ability to control the market price of the product it sells. • A firm's individual supply curve is a very small - and inconsequential - part of market supply.