产业组织理论课件：Lecture 6 Monopoly practices

1、产业组织理论Theory of Industrial Organization Lecture 6 Monopoly practices OutlineDominant-Firm Price Leadership ModelContestable MarketsNetwork EconomicsConcentration and definition of marketFew industries are truly monopolies. In practice, it is much more common to find industries in which there is a do

2、minant firm as well some number of smaller fringe firms.In a market with a dominant firm, it makes sense to assume that the dominant firm will set the industry price and the fringe firms will take that price as given. In other words, the fringe firms behave exactly like perfectly competitive firmsCo

3、ncentration and definition of marketIn the market for microprocessors, Intel has dominated this market for over two decades, although competitor Advanced Micro Devices (AMD) has gained market shareOther historical examples of dominant firms include IBM in PCs in the early 1980s and in mainframe comp

4、uters in the 1960s and 1970s, Kodak in photographic film, and Boeing in commercial jet aircraftSources of DominanceTwo factors can lead to a dominant firm-competitive fringe market structure:The dominant firm may have a significant cost advantage compared to its rivals. This cost advantage can arise

5、 from superior efficiencyFor example, a firm might have superior technology, better management, or a more desirable geographic location. As a result, the dominant firm can produce any given level of output at a lower cost than other firmsSources of DominanceThe dominant firm may also have been an ea

6、rly entrant into the industry. In this case, the cost advantage over later entrants might arise because the early entrant has had time to benefit from learning by doing or to grow large enough to realize economies of scaleThe dominant firm may have a superior product. For example, Intels microproces

7、sors were traditionally the fastest and most advanced microprocessors availablePricing by a Dominant Firm等价数（Numbers equivalent)假设，在一个行业里有N个相同规模的企业，则HHI的值为10000/N。例如由3个企业构成的行业中，每个企业的市场份额是1/3，其HHI的值是3333由4个相同规模的企业构成的行业中，每个企业的市场份额是1/4，其HHI的值是2500The dominant-firm price leadership model can be explaine

8、d by using the steel industry as an exampleDuring the first half of the twentieth century, United States Steel (US Steel) was the dominant firm in the American steel industry, acting as the price leader for the smaller steel firms. The steel industry demand curve D is P = 100 - Q, the fringes supply

9、 curve Sf is P = 25 + 2qf , and the dominant firms marginal cost curve is MCu = 25 + (13)quPricing by a Dominant FirmIn order to calculate US Steels profi t-maximizing price, we first find its residual demand curve by subtracting the fringe supply curve from the total demand curve at every price gre

10、ater than P = $25. For example, if P = $75, total industry quantity demanded would equal 25 units, and the fringe would supply the entire industry demand of 25. At P = $75, therefore, the residual demand for US Steel would be zero. At P = $25, total industry quantity demanded would equal 75 units, a

11、nd the fringe would supply zero. The residual demand for US Steel would then be 75 units.Similar calculations can be done to obtain US Steels residual demand for any price between $25 and $75. * These calculations yield the black linear residual demand curve connecting the two points (0, 75) and (75

12、, 25). The equation of this demand curve is:P = 75 23qu for $25 P $75.Pricing by a Dominant FirmDerivation of the Dominant Firms Residual Demand Curve in the Dominant-Firm Price Leadership ModelThe market demand for steel is given by P = 100 - Q. Because US Steel, the dominant firm, knows that the f

13、ringe firms supply curve is given by P = 25 + 2qf, it can calculate its residual demand by subtracting the fringe supply curve from the total demand curve for every priceFor prices below $25, the fringe firms supply no output, and the dominant firm faces the entire market demand curve. Once price is

14、 greater than $25, the fringe begins to supply output to the marketFor example, if P = $75, the fringe would supply the entire industry demand of $25, leaving a residual demand of zero for the dominant firmThe black line connecting (0, 75) to (75, 25) shows US Steels residual demand for $25 P $75By

15、the “twice-as-steep rule,” marginal revenue is:MRu = 75 - 43qu for $25 P $75For prices between 0 and $25, the fringe firms supply no output, so US Steels demand curve is identical to the industry demand curve, P = 100 - quUS Steels residual demand curve, therefore, has a kink at qu = 75, and the MRu

16、 curve has a gap at qu = 75Once the residual demand curve of US Steel is identifi ed, the profit-maximizing output for US Steel can be calculated. Recall that the marginal cost curve for US Steel is:MCu = 25 + 13quTo maximize profits, US Steel equates MRu to MCu , resulting in the profit-maximizing

17、quantity for US Steel as 30 unitsTo obtain price, go up vertically in the Figure to point Z on US Steels residual demand curve and P = $55.00The fringe firms act as perfectly competitive price takers, supplying the quantity at which the fringe supply curve intersects the horizontal line P = $55.00.

18、In this case, qf = 15 Total industry output is simply the sum of US Steels output and the fringes output, or Q = 30 + 15 = 45.One of the major implications of the dominant-firm price leadership model is that the dominant firms market share declines continuously over timeIf the competitive fringe fir

19、ms earn above normal economic profits, there will be an incentive for the fringe supply to increase over time as new firms enter and existing fringe firms expand outputAs a result, the residual demand for the dominant firm will shift to the left (decrease), and the dominant firms relative share of o

20、utput will declineSuppose in our previous example profits existed for the competitive fringe, inducing new firms to enter the industry. The fringes supply curve would then double so that Sf would beP = 25 + qf . To obtain US Steels new residual demand curve, again subtract the fringe supply curve fr

21、om the total demand curve at every price greater than P = $25In the next Figure, at P = $62.50, total industry quantity demanded would equal 37.5 units, and the fringe would supply the entire industry demand of 37.5. If P = $62.50, therefore, the residual demand for US Steel would be zeroAs in the p

22、revious Figures, if P = $25, total industry quantity demanded would equal 75 units, and the fringe would supply zero. The residual demand for US Steel would then be 75 units. For prices between $25 and $62.50, US Steels demand curve is a linear demand curve that connects the two points (0, 62.5) and

23、 (75, 25).The equation of this curve is: P = 62.50 - 12qu for $25 P $62.50By the “twice-as-steep rule,” marginal revenue is:MRu = 62.50 - quFor prices between 0 and $25, the fringe firms supply no output, so US Steels demand curve is identical to the industry demand curve, P = 100 - qu. US Steels re

24、sidual demandcurve, therefore, has a kink at qu = 75, and the MRu curve has a gap at qu = 75Once the residual demand curve of US Steel is identifi ed, the profi t-maximizing output for US Steel can be calculated. Recall that the marginal cost curve for US Steel is:MCu = 25 + 13quTo maximize profits,

25、 US Steel equates MRu to MCu , resulting in the profit-maximizing quantity for US Steel as 30 unitsTo obtain price, go up vertically in Figure 5.2 to point Z on US Steels residual demand curve and P = $55.00.The fringe firms act as perfectly competitive price takers, supplying the quantity at which

26、the fringe supply curve intersects the horizontal line P = $55.00In this case, qf = 15. Total industry output is simply the sum of US Steels output and the fringes output, or： Q = 30 + 15 = 45The major implication is that the dominant firms market share declines continuously over timeIf the competit

27、ive fringe firms earn above normal economic profits, there will be an incentive for the fringe supply to increase over time as new firms enter and existing fringe firms expand outputAs a result, the residual demand for the dominant firm will shift to the left (decrease), and the dominant firms relat

28、ive share of output will declineImplications of the dominant-firm price leadership model The dominant firm is remarkably passive in this model. This passivity is often cited as one of the major weaknesses of the modelA dominant firm can adopt certain strategies to help to maintain its market power i

29、n the face of potential entry. However, it sometimes makes sense for a dominant firm to sacrifice market share to its competitorsAmong the relevant factors in the dominant firms decision are its discount rate, the current period profits compared to future profits, and the dominant firms concerns abo

30、ut attracting antitrust attention by behaving aggressively toward its competitorsThe dominant-firm price leadership modelEquilibrium in the Dominant-Firm Price Leadership ModelOnce the residual demand curve for US Steel is known, the marginal revenue curve can be found using the “twice-as-steep rule

31、.” Because the residual demand curve has a kink at (75, 25), the corresponding marginal revenue curve has a gap at this quantityThe residual demand curve and the marginal revenue curve for US Steel are shown in black in this fi gure. US Steel calculates its profi t-maximizing level of output by equa

32、ting its marginal cost to marginal revenue and produces 30 units of outputTo obtain price, go up vertically to point Z on US Steels residual demand curve; the equilibrium price is $55.00. The fringe firms act as price takers and produce 15 units of output, giving a total industry output of 30 + 15 =

33、 45Equilibrium with an Increased Fringe Supply in the Dominant-Firm Price Leadership ModelIf the fringe firms earn above-normal profits at the price set by the dominant firm, there is an incentive for new firms to enter the market. Entry shifts the supply curve of the fringe to the right, causing th

34、e residual demand curve for the dominant firm to shift to the leftIn this figure, the number of fringe firms has doubled compared to Figure 5.2 ; the fringe supply is now given by P = 25 + qf . With the same market demand, the dominant firms profi t-maximizing quantity falls to 28.125 units; it sets

35、 a lower price of $48.44. As a result of entry, the dominant firms market share decreasesEquilibrium with an Increased Fringe Supply in the Dominant-Firm Price Leadership Model可竞争市场，指那种进入完全自由以及退出没有成本的市场。可竞争市场的本质在于它们很容易受到打了就跑的进入者的伤害。在经济学中指在市场中可以形成竞争性价格，即便市场上只有一家企业，即垄断企业进入退出壁垒很低；一个绝对可竞争市场是完全没有进入及退出壁垒的

36、。可竞争市场具有“打了就跑”（Hit and run）理论的特点，即潜在竞争者进入市场谋取短期利润，当市场中的已有企业降低价格以回击新竞争者时，竞争者便立刻退出市场。因此这种情况下，即使市场上仅有一个企业，该市场仍然极具竞争性Contestable Markets 可竞争市场可竞争市场理论（the Theoryof Contestable Markets)，又称可竞争性理论（ Contestability Theory)，形成于20世纪70年代末80年代初，由美国福利经济学家威鲍莫尔（ WilliamBaumol）首先提出。1982年，鲍莫尔与 美国西北大学教授潘扎尔（Panzar）、 普林斯

37、顿大学教授 威利格 （Willig）一起出版了 可竞争市场与产业结构理论一书， 标志着系统化的可竞争性理论的形成可竞争市场理论被用于反击反托拉斯法的一些弱点，包括仅仅看市场是否垄断并不意味着垄断企业获得高额利润而消费者受害，对政府规制体制改革具有相当大的影响Contestable Markets 可竞争市场The contestable markets hypothesis contends that potential competition may be more important than actual competition and that even a completely mo

38、nopolized market may perform as if it were perfectly competitive in structureWhen it was introduced, this theory represented a dramatic departure from the conventional wisdom of economists, and, therefore, it drew a great deal of attention and scrutinyContestable Markets 可竞争市场The theory of perfectly

39、 contestable markets begins with a set of three basic assumptions:Assumption 1: Entry is free. Free entry means that incumbent firms have no inherent advantages vis-vis potential entrants; there are no entry barriers using Stiglers definition.Thus, existing firms have no cost advantages, no patents,

40、 and no product differentiation advantages. Entrants are on completely equal footing with established firms, even with an established monopolistContestable Markets 可竞争市场Assumption 2: Entry is absolute. Absolute entry implies that if a potential entrant enters the market and charges a price below the

41、 incumbents price, then the entrant will completely displace the incumbentThis assumption is sometimes explained by saying that the entry lag is less than the price adjustment lag : a new firm can enter a market and sell its product before the established firms can react and change their pricesConte

42、stable Markets 可竞争市场Assumption 3: No sunk costs are associated with entry. The assumption of no sunk costs permits “hit-and-run” entry. Firms can enter a market, extract profits for a period of time, and then withdraw with zero sunk cost lossesThis assumption implies that a firm could sell its produ

43、ction facilities for their present value in a resale market or could use them in another market without any losses. It is important to note that this assumption does not eliminate fixed costs but only sunk costsContestable Markets 可竞争市场The monopoly price for this market is PM . Under the assumptions

44、 of the contestable market hypothesis, this price is not sustainableIf the monopolist charges PM and earns a positive economic profi t, a potential entrant would enter the market and charge a price below PM . The entrant would then displace the monopolist. Consequently, the only price that the monop

45、olist can sustain is PC = LRAC, the price at which the long-run verage cost curve intersects the demand curve. Any higher price attracts entry, whereas any lower price results in economic lossesA Natural Monopoly in a Contestable MarketIn this model, potential competition is more important than actu

46、al competition, and even a natural monopolist may earn zero economic profitsThe originators of the theory recognized that any movement away from the three basic assumptions would result in dramatically different resultsIf sunk costs were greater than zero, then hit-and-run entry would be impossible

47、and incumbents could earn excess profi ts without attracting entryContestable Markets 可竞争市场Experimental economists have been able to simulate perfectly contestable markets and achieve the predicted resultsBut one of the major tests of any theory has always been its ability to predict and explain rea

48、l-world phenomena, and according to this test, the contestable markets hypothesis has not fared very wellContestability can serve as a useful theoretical benchmark when thinking about a multiproduct environmentContestable Markets 可竞争市场The special characteristics of these network industries often lea

49、d to market failure and the emergence of a firm with monopoly powerMany industries exhibit the characteristics of network industries, including computer operating systems, airline services, banking services, telephone services, e-mail, the Internet, computer software, online role-playing games, musi

50、c players, and DVD playersNetwork EconomicsComplementarity, compatibility, and standardsConsumption externalitiesSwitching costs and lock-inSignifi cant economies of scale in productionFour main characteristics distinguish network industries from other industriesSome products must be consumed togeth

51、er with other products: Trains must run on tracks and digital cameras are not useful without memory cards. Similarly, a DVD player is used in combination with DVDs, and a computer and software are used togetherSuch products are called complements . Because of complementarity, consumers often shop fo

52、r systems; they buy computers with software installed and stereo receivers along with speakersComplementarity, Compatibility, and StandardsIn order to work together, components must exhibit compatibility , which implies that they must operate on the same standardAn early example of problems that ari

53、se when complementary products are not compatible comes from American economic historyCompatibility is sometimes a physical issue, but it can also be a technological issue. Clearly, when compatibility is required, some coordination is necessary to make sure that components work togetherComplementari

54、ty, Compatibility, and StandardsCoordination across firms may be difficult for at least two reasons: Transactions costs associated with communicating across firmsConcern about violating antitrust laws by sharing information. For both of these reasons, a firm may choose to produce multiple components

55、 itself. This, combined with consumers tendency to shop for systems, can increase the entry barriers for new firmsComplementarity, Compatibility, and StandardsThe value of goods or services produced in network industries to a potential customer depends on the number of consumers already owning that

56、good or using that serviceThis kind of side effect is an externality, and the externalities arising from network effects are referred to as adoption or network externalitiesNetwork externalities can be either positive or negative. If a consumer benefits as more consumers use the same (or a compatibl

57、e) brand, the network externality is positiveExternalitiesFor example, think of Skype, e-mail, or Facebook: you would not use these services unless you knew that other people also used them. An online role-playing game would not be very interesting if you were the only player of that game. And the m

58、ore people you know who use the service, the more valuable it is to youSometimes, positive network externalities can result from preferences; in a phenomenon called the bandwagon effect , a consumer places more value on a good as more consumers possess the good. Consider, for example, Ugg boots, whi

59、ch became seemingly ubiquitous on college campuses in the past decade. In the case of a negative externality, consumers are worse off as the number of users of the same brand increasesOne cause of negative network externalities is congestion or interference; another is the snob effect , in which a c

60、onsumer gains utility from owning an exclusive or unique good such as a rare work of art or designer clothingIf such products are adopted more widely, a consumer loses the sense of belonging to an elite groupExternalitiesEconomists sometimes distinguish between direct and indirect network externalit