Chapter 8: Imperfect Competition
8.1 Monopoly
Monopoly: only provider of a good
- Caused by:
- Patents
- Control of resources
- Economies of scale/other cost advantages
- Exclusive licenses
- Network externalities
- Ex) Social media networks becoming valuable as people switch sites
8.2 Price Discrimination
Price discrimination: when seller can provide same good to different buys at different prices
- Firm must have market power
- Buyers with differing demand elasticities must be separable
- Must be able to prevent reselling
Perfect price discrimination: when seller can charge each buyer the most they’re willing to pay for a good
8.3 Monopolistic Competition
- Bilateral monopoly: when the market only has one buyer and one seller
8.4 Oligopoly and Game Theory
- Oligopoly: where a few firms sell a standardized or differentiated product
- Market power: ability of individual firm to influence price
- Strategic decision-making: individual must make choice but consequences depend on factors that are unknown to the individual
- Game theory: considers strategic decisions individuals in a game or market place will need to make to anticipate what a rival would do
- Prisoner’s dilemma: situation where distrust leads two individuals to chose a less than optimal result