lecture 7: non-competitive markets

monopoly, duopoly, oligopoly, monopolistic competition

types of non-competitive markets

one firm produces and sells

monopoly

two firms produce and sell

duopoly

few large firms that produce and sell

oligopoly

small firms that produce and sell, main focus on product differentiation

monopolistic competition

1 or 2 firms

high cost of distribution

technical efficiency overwhelms allocative efficiency > relationship between cost and price

resource cost must cover price

characteristics of monopolies or duopolies

few firms

high fixed cost > high risk of catastrophe/losing firms

product differentiation main focus, price competition is absent

characteristics of oligopolies

quantifies oligopolies

% of shares within the industry

squares market shares

number between 0-10,000 ( 0 is perfect, 10,000 is monopoly)

Herfindahl-Hirschman Index (HHI)

small firms, focus on product differentiation

no control over price

limited customer base and time period

characteristics for monopolistic competition

strategies that can be imitated > leads to demand elasticity

weak differentiation

patents and trademarks forbid imitation

strong differentiation

total amount paid by buyers in the market and received by sellers

p x q = TR

total revenue + equation

change in total revenue one pq pair to the next

marginal revenue

lower prices with higher quantites

systemic falls

marginal revenue is positive when the price elasticity of demand is >1

a flat demand curve results in __

elasticity

a steep demand curve results in ___

inelasticity

the marginal revenue must cover ___

supply costs

the result of allocation inefficiency

government intervention

cross-price elasticity

free-market theory and provision of information

social intervention

forms of government intervention

certificate of need, professional standards review org, prospective payment systems, balanced budget act, patient protection and ACA

current cost regulationsand standards for healthcare financing

planning body approves increase in hospital beds

certificate of need

monitor patient charts for unneeded treatment in UR, replaced by HMO and PPO in managed care reviews

professional standards review org

using DRGs to set payment per discharge

prospective payment systems

mandated insurance coverage

patient protection and ACA