Week 3: Monopoly and Duopoly
Total Page:16
File Type:pdf, Size:1020Kb

Load more
Recommended publications
-
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. -
DUOPOLY MICROECONOMICS Principles and Analysis Frank Cowell
Prerequisites Almost essential Monopoly Useful, but optional Game Theory: Strategy and Equilibrium DUOPOLY MICROECONOMICS Principles and Analysis Frank Cowell April 2018 Frank Cowell: Duopoly 1 Overview Duopoly Background How the basic elements of the Price firm and of game competition theory are used Quantity competition Assessment April 2018 Frank Cowell: Duopoly 2 Basic ingredients . Two firms: • issue of entry is not considered • but monopoly could be a special limiting case . Profit maximisation . Quantities or prices? • there’s nothing within the model to determine which “weapon” is used • it’s determined a priori • highlights artificiality of the approach . Simple market situation: • there is a known demand curve • single, homogeneous product April 2018 Frank Cowell: Duopoly 3 Reaction . We deal with “competition amongst the few” . Each actor has to take into account what others do . A simple way to do this: the reaction function . Based on the idea of “best response” • we can extend this idea • in the case where more than one possible reaction to a particular action • it is then known as a reaction correspondence . We will see how this works: • where reaction is in terms of prices • where reaction is in terms of quantities April 2018 Frank Cowell: Duopoly 4 Overview Duopoly Background Introduction to a simple simultaneous move Price price-setting problem competitionCompetition Quantity competition Assessment April 2018 Frank Cowell: Duopoly 5 Competing by price . Simplest version of model: • there is a market for a single, homogeneous good • firms announce prices • each firm does not know the other’s announcement when making its own . Total output is determined by demand • determinate market demand curve • known to the firms . -
1 Continuous Strategy Markov Equilibrium in a Dynamic Duopoly
1 Continuous Strategy Markov Equilibrium in a Dynamic Duopoly with Capacity Constraints* Milan Horniacˇek CERGE-EI, Charles University and Academy of Sciences of Czech Republic, Prague The paper deals with an infinite horizon dynamic duopoly composed of price setting firms, producing differentiated products, with sales constrained by capacities that are increased or maintained by investments. We analyze continuous strategy Markov perfect equilibria, in which strategies are continuous functions of (only) current capacities. The weakest possible criterion of a renegotiation-proofness, called renegotiation-quasi-proofness, eliminates all equilibria in which some continuation equilibrium path in the capacity space does not converge to a Pareto efficient capacity vector giving both firms no lower single period net profit than some (but the same for both firms) capacity unconstrained Bertrand equilibrium. Keywords: capacity creating investments, continuous Markov strategies, dynamic duopoly, renegotiation-proofness. Journal of Economic Literature Classification Numbers: C73, D43, L13. * This is a revised version of the paper that I presented at the 1996 Econometric Society European Meeting in Istanbul. I am indebted to participants in the session ET47 Oligopoly Theory for helpful and encouraging comments. Cristina Rata provided an able research assistance. The usual caveat applies. CERGE ESC Grant is acknowledged as a partial source of financial support. 2 1. INTRODUCTION Many infinite horizon, discrete time, deterministic oligopoly models involve physical links between periods, i.e., they are oligopolistic difference games. These links can stem, for example, from investment or advertising. In difference games, a current state, which is payoff relevant, should be taken into account by rational players when deciding on a current period action. -
1 Bertrand Model
ECON 312: Oligopolisitic Competition 1 Industrial Organization Oligopolistic Competition Both the monopoly and the perfectly competitive market structure has in common is that neither has to concern itself with the strategic choices of its competition. In the former, this is trivially true since there isn't any competition. While the latter is so insignificant that the single firm has no effect. In an oligopoly where there is more than one firm, and yet because the number of firms are small, they each have to consider what the other does. Consider the product launch decision, and pricing decision of Apple in relation to the IPOD models. If the features of the models it has in the line up is similar to Creative Technology's, it would have to be concerned with the pricing decision, and the timing of its announcement in relation to that of the other firm. We will now begin the exposition of Oligopolistic Competition. 1 Bertrand Model Firms can compete on several variables, and levels, for example, they can compete based on their choices of prices, quantity, and quality. The most basic and funda- mental competition pertains to pricing choices. The Bertrand Model is examines the interdependence between rivals' decisions in terms of pricing decisions. The assumptions of the model are: 1. 2 firms in the market, i 2 f1; 2g. 2. Goods produced are homogenous, ) products are perfect substitutes. 3. Firms set prices simultaneously. 4. Each firm has the same constant marginal cost of c. What is the equilibrium, or best strategy of each firm? The answer is that both firms will set the same prices, p1 = p2 = p, and that it will be equal to the marginal ECON 312: Oligopolisitic Competition 2 cost, in other words, the perfectly competitive outcome. -
Amazon's Antitrust Paradox
LINA M. KHAN Amazon’s Antitrust Paradox abstract. Amazon is the titan of twenty-first century commerce. In addition to being a re- tailer, it is now a marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television and films, a fashion designer, a hardware manufacturer, and a leading host of cloud server space. Although Amazon has clocked staggering growth, it generates meager profits, choosing to price below-cost and ex- pand widely instead. Through this strategy, the company has positioned itself at the center of e- commerce and now serves as essential infrastructure for a host of other businesses that depend upon it. Elements of the firm’s structure and conduct pose anticompetitive concerns—yet it has escaped antitrust scrutiny. This Note argues that the current framework in antitrust—specifically its pegging competi- tion to “consumer welfare,” defined as short-term price effects—is unequipped to capture the ar- chitecture of market power in the modern economy. We cannot cognize the potential harms to competition posed by Amazon’s dominance if we measure competition primarily through price and output. Specifically, current doctrine underappreciates the risk of predatory pricing and how integration across distinct business lines may prove anticompetitive. These concerns are height- ened in the context of online platforms for two reasons. First, the economics of platform markets create incentives for a company to pursue growth over profits, a strategy that investors have re- warded. Under these conditions, predatory pricing becomes highly rational—even as existing doctrine treats it as irrational and therefore implausible. -
A Cournot-Nash–Bertrand Game Theory Model of a Service-Oriented Internet with Price and Quality Competition Among Network Transport Providers
A Cournot-Nash–Bertrand Game Theory Model of a Service-Oriented Internet with Price and Quality Competition Among Network Transport Providers Anna Nagurney1,2 and Tilman Wolf3 1Department of Operations and Information Management Isenberg School of Management University of Massachusetts, Amherst, Massachusetts 01003 2School of Business, Economics and Law University of Gothenburg, Gothenburg, Sweden 3Department of Electrical and Computer Engineering University of Massachusetts, Amherst, Massachusetts 01003 December 2012; revised May and July 2013 Computational Management Science 11(4), (2014), pp 475-502. Abstract: This paper develops a game theory model of a service-oriented Internet in which profit-maximizing service providers provide substitutable (but not identical) services and compete with the quantities of services in a Cournot-Nash manner, whereas the network transport providers, which transport the services to the users at the demand markets, and are also profit-maximizers, compete with prices in Bertrand fashion and on quality. The consumers respond to the composition of service and network provision through the demand price functions, which are both quantity and quality dependent. We derive the governing equilibrium conditions of the integrated game and show that it satisfies a variational in- equality problem. We then describe the underlying dynamics, and provide some qualitative properties, including stability analysis. The proposed algorithmic scheme tracks, in discrete- time, the dynamic evolution of the service volumes, quality levels, and the prices until an approximation of a stationary point (within the desired convergence tolerance) is achieved. Numerical examples demonstrate the modeling and computational framework. Key words: network economics, game theory, oligopolistic competition, service differen- tiation, quality competition, Cournot-Nash equilibrium, service-oriented Internet, Bertrand competition, variational inequalities, projected dynamical systems 1 1. -
Potential Games and Competition in the Supply of Natural Resources By
View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by ASU Digital Repository Potential Games and Competition in the Supply of Natural Resources by Robert H. Mamada A Dissertation Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy Approved March 2017 by the Graduate Supervisory Committee: Carlos Castillo-Chavez, Co-Chair Charles Perrings, Co-Chair Adam Lampert ARIZONA STATE UNIVERSITY May 2017 ABSTRACT This dissertation discusses the Cournot competition and competitions in the exploita- tion of common pool resources and its extension to the tragedy of the commons. I address these models by using potential games and inquire how these models reflect the real competitions for provisions of environmental resources. The Cournot models are dependent upon how many firms there are so that the resultant Cournot-Nash equilibrium is dependent upon the number of firms in oligopoly. But many studies do not take into account how the resultant Cournot-Nash equilibrium is sensitive to the change of the number of firms. Potential games can find out the outcome when the number of firms changes in addition to providing the \traditional" Cournot-Nash equilibrium when the number of firms is fixed. Hence, I use potential games to fill the gaps that exist in the studies of competitions in oligopoly and common pool resources and extend our knowledge in these topics. In specific, one of the rational conclusions from the Cournot model is that a firm’s best policy is to split into separate firms. In real life, we usually witness the other way around; i.e., several firms attempt to merge and enjoy the monopoly profit by restricting the amount of output and raising the price. -
Chapter 5 Perfect Competition, Monopoly, and Economic Vs
Chapter Outline Chapter 5 • From Perfect Competition to Perfect Competition, Monopoly • Supply Under Perfect Competition Monopoly, and Economic vs. Normal Profit McGraw -Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw -Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. From Perfect Competition to Picking the Quantity to Maximize Profit Monopoly The Perfectly Competitive Case P • Perfect Competition MC ATC • Monopolistic Competition AVC • Oligopoly P* MR • Monopoly Q* Q Many Competitors McGraw -Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw -Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Picking the Quantity to Maximize Profit Characteristics of Perfect The Monopoly Case Competition P • a large number of competitors, such that no one firm can influence the price MC • the good a firm sells is indistinguishable ATC from the ones its competitors sell P* AVC • firms have good sales and cost forecasts D • there is no legal or economic barrier to MR its entry into or exit from the market Q* Q No Competitors McGraw -Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw -Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. 1 Monopoly Monopolistic Competition • The sole seller of a good or service. • Monopolistic Competition: a situation in a • Some monopolies are generated market where there are many firms producing similar but not identical goods. because of legal rights (patents and copyrights). • Example : the fast-food industry. McDonald’s has a monopoly on the “Happy Meal” but has • Some monopolies are utilities (gas, much competition in the market to feed kids water, electricity etc.) that result from burgers and fries. -
Microeconomics III Oligopoly — Preface to Game Theory
Microeconomics III Oligopoly — prefacetogametheory (Mar 11, 2012) School of Economics The Interdisciplinary Center (IDC), Herzliya Oligopoly is a market in which only a few firms compete with one another, • and entry of new firmsisimpeded. The situation is known as the Cournot model after Antoine Augustin • Cournot, a French economist, philosopher and mathematician (1801-1877). In the basic example, a single good is produced by two firms (the industry • is a “duopoly”). Cournot’s oligopoly model (1838) — A single good is produced by two firms (the industry is a “duopoly”). — The cost for firm =1 2 for producing units of the good is given by (“unit cost” is constant equal to 0). — If the firms’ total output is = 1 + 2 then the market price is = − if and zero otherwise (linear inverse demand function). We ≥ also assume that . The inverse demand function P A P=A-Q A Q To find the Nash equilibria of the Cournot’s game, we can use the proce- dures based on the firms’ best response functions. But first we need the firms payoffs(profits): 1 = 1 11 − =( )1 11 − − =( 1 2)1 11 − − − =( 1 2 1)1 − − − and similarly, 2 =( 1 2 2)2 − − − Firm 1’s profit as a function of its output (given firm 2’s output) Profit 1 q'2 q2 q2 A c q A c q' Output 1 1 2 1 2 2 2 To find firm 1’s best response to any given output 2 of firm 2, we need to study firm 1’s profit as a function of its output 1 for given values of 2. -
Topics in Mean Field Games Theory & Applications in Economics And
Topics in Mean Field Games Theory & Applications in Economics and Quantitative Finance Charafeddine Mouzouni To cite this version: Charafeddine Mouzouni. Topics in Mean Field Games Theory & Applications in Economics and Quan- titative Finance. Analysis of PDEs [math.AP]. Ecole Centrale Lyon, 2019. English. tel-02084892 HAL Id: tel-02084892 https://hal.archives-ouvertes.fr/tel-02084892 Submitted on 29 Mar 2019 HAL is a multi-disciplinary open access L’archive ouverte pluridisciplinaire HAL, est archive for the deposit and dissemination of sci- destinée au dépôt et à la diffusion de documents entific research documents, whether they are pub- scientifiques de niveau recherche, publiés ou non, lished or not. The documents may come from émanant des établissements d’enseignement et de teaching and research institutions in France or recherche français ou étrangers, des laboratoires abroad, or from public or private research centers. publics ou privés. N◦ d’ordre NNT : 2019LYSEC006 THESE` de DOCTORAT DE L’UNIVERSITE´ DE LYON oper´ ee´ au sein de l’Ecole Centrale de Lyon Ecole Doctorale 512 Ecole Doctorale InfoMaths Specialit´ e´ de doctorat : Mathematiques´ et applications Discipline : Mathematiques´ Soutenue publiquement le 25/03/2019, par Charafeddine MOUZOUNI Topics in Mean Field Games Theory & Applications in Economics and Quantitative Finance Devant le jury compos´ede: M. Yves Achdou Professeur, Universite´ Paris Diderot President´ M. Martino Bardi Professeur, Universita` di Padova Rapporteur M. Jean-Franc¸ois Chassagneux Professeur, Universite´ Paris Diderot Rapporteur M. Franc¸ois Delarue Professeur, Universite´ Nice-Sophia Antipolis Examinateur Mme. Catherine Rainer Maˆıtre de conferences,´ Universite´ de Brest Examinatrice M. Francisco Silva Maˆıtre de conferences,´ Universite´ de Limoges Examinateur Mme. -
Apple and Amazon's Antitrust Antics
APPLE AND AMAZON’S ANTITRUST ANTICS: TWO WRONGS DON’T MAKE A RIGHT, BUT MAYBE THEY SHOULD Kerry Gutknecht‡ I. INTRODUCTION The exploding market for books of all kinds in the form of digital files (“e- books”), which can be read on mobile devices and personal computers, has attracted aggressive competition between the two leading online e-book retail- ers, Amazon, Inc. (“Amazon”) and Apple Inc. (“Apple”).1 While both Amazon and Apple have been accused by critics of engaging in anticompetitive practic- es with regard to e-book sales,2 the U.S. Department of Justice has focused on Apple. In 2012, federal prosecutors brought an antitrust suit against Apple and five of the nation’s largest book publishers—HarperCollins Publishers LLC (“HarperCollins”), Hachette Book Group, Inc. and Hachette Digital (“Hachette”); Holtzbrinck Publishers, LLC d/b/a Macmillan (“Macmillan”); Penguin Group (USA), Inc. (“Penguin”); and Simon & Schuster, Inc. and (“Simon & Schuster”) (collectively, the “Publisher Defendants”)3—for collud- ing in violation of the Sherman Act to raise the retail prices of e-books.4 Each ‡ J.D. Candidate, May 2014, The Catholic University of America, Columbus School of Law. The author would like to thank Calla Brown for her daily support and the CommLaw Conspectus staff for their diligent effort during the writing and editing process. Finally, a special thanks to Antonio F. Perez for providing expert advice during the writing of this paper. 1 Complaint at 2–3, United States v. Apple Inc., 952 F. Supp. 2d 638 (S.D.N.Y. 2013) (No. 12 CV 2826) [hereinafter Complaint]. -
ABSTRACT Asymptotics for Mean Field Games of Market Competition
ABSTRACT Asymptotics for mean field games of market competition Marcus A. Laurel Director: P. Jameson Graber, Ph.D. The goal of this thesis is to analyze the limiting behavior of solutions to a system of mean field games developed by Chan and Sircar to model Bertrand and Cournot competition. We first provide a basic introduction to control theory, game theory, and ultimately mean field game theory. With these preliminaries out of the way, we then introduce the model first proposed by Chan and Sircar, namely a cou- pled system of two nonlinear partial differential equations. This model contains a parameter that measures the degree of interaction between players; we are inter- ested in the regime goes to 0. We then prove a collection of theorems which give estimates on the limiting behavior of solutions as goes to 0 and ultimately obtain recursive growth bounds of polynomial approximations to solutions. Finally, we state some open questions for further research. APPROVED BY DIRECTOR OF HONORS THESIS: Dr. P. Jameson Graber, Department of Mathematics APPROVED BY THE HONORS PROGRAM: Dr. Elizabeth Corey, Director DATE: ASYMPTOTICS FOR MEAN FIELD GAMES OF MARKET COMPETITION A Thesis Submitted to the Faculty of Baylor University In Partial Fulfillment of the Requirements for the Honors Program By Marcus A. Laurel Waco, Texas December 2018 TABLE OF CONTENTS Acknowledgments . iii Dedication . iv Chapter One: Introductions of Pertinent Concepts . 1 Chapter Two: Bertrand and Cournot Mean Field Games . 15 Chapter Three: Proof of Error Estimates . 21 Chapter Four: Conclusions and Open Questions . 46 References . 48 ii ACKNOWLEDGMENTS I am particularly grateful toward my thesis mentor, Dr.