1. NS4960 Spring Term 2017 Markets and Competition

2. Spectrum of Competition

3. Aspects of Competition

4. Business Motives I Firms can pursue a diverse set of motives.
Profit Maximization
Goal assumed by most theories – incremental revenues equal incremental costs
Sales Volume Maximization
Firm produces where total revenue equals total cost
Market Share
Common in oligopolies
Survival
Often found in highly competitive markets
Shareholder value
Equals remaining value of business after all debts paid
Satisficing
Attempting to take account number of objectives without maximizing any particular one

5. Business Motives II Factors that affect business motives
Who owns the firm?
Owners have different objectives than those appointed to manage operations
Who manages the firm?
Owners often try to maximize profits, professional manager often opt for maximizing sales revenue
How large is the firm?
Small firms often just attempt to survive, large firms maintain market share
What are competitors doing? Degree of Competition
Aggressive, cooperative?
What is the time period?
Short run survival may dominate. In long run, shareholder value or environmental goals may be factors

6. Perfect Competition Conditions for Pure Competition
Composed of a large number of independent sellers
The firms offer a standardized product
This feature rules out non price competition – advertising, sales promotion
No individual firm supplies enough of the product to influence its market price noticeably
In a competitive industry, no artificial obstacles prevent new firms from entering or old firms from leaving the industry. Firms and the resources they employ are mobile
In actual practice fairly rare – used in economics more to set a norm – this market structure produces the best result

7. Firm Cost Structure

8. Plot of Cost Structure

9. Dynamic Adjustent I

10. Dynamic Adjustment II

11. Monopoly: Cost and Revenue

12. Monopoly Optimization

13. Monopoly Price Discrimination

14. Regulating Monopolies

15. Evaluating Monopolies
Short run vs long run
Short run excess profits, higher prices, lower output levels than perfect competition
Long run – more innovation, investment, higher wages
Who are monopolists?
Need to define market
Are they natural monopolies?
Issue of anti trust
Cellophane
Alcoa

16. Oligopolistic Industries

17. Example of Oligopoly

18. Oligopoly Game Theory

19. Constant Sum Game: Minimize Losses

20. First Oligopoly Model I

21. First Oligopoly Model II

22. First Oligopoly Model III

23. Colusive Oligopoly

24. Problem of Potential Entry

25. Dominant Firm Model

26. Sales Maximization Model