1. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Market Structure  Types Competitive Monopoly Monopolistic Competition Oligopoly

2. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Competition: Short Run Equilibrium Market Quantity In millions (Q) Price D S 10 million $50

3. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Competition: Entry & Long Run Equilibrium Market Typical firm Quantity In millions (Q) Quantity In thousands (q) Price D S 10 million 500 thousand ATC MC $50

4. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Competition Summary  Definition Identical products Many buyers and sellers Free entry and exit from market  Short Run Firms may get either positive or negative economic profit  Long Run Firms earn zero economic profit (normal accounting profit) Act quickly to take advantage before its all gone

5. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. United Airlines…  United Airlines frequently flies from San Francisco to Washington DC at far less than the “cost” of the flight. These costs include: Fuel Pilots, and other flight crew Baggage handlers, gate keepers Gate charges Share of the cost for running hubs at two airports. Other things….  Should United discontinue these flights?

6. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Barriers to Entry  Incumbent Reactions Specific Assets Scale Economies Reputation Effects Excess Capacity  Incumbent Advantages Pre-commitment Contracts Licenses and Patents Learning-Curve Effects Pioneering Brand Advantages  Exit costs

7. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Monopoly  One firm producing a product with no close substitutes  Strong Barrier to Entry  Some unrealized gains-to-trade

8. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Monopoly: Maximizing Profit Quantity Of Output Price and Cost per unit of output $10 MC = ATC MR Demand

9. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Monopoly: Efficiency Quantity Of Output Price and Cost per unit of output $10 MC = ATC MR Demand

10. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Monopolistic Competition  Products are slightly different from each other  Free Entry and Exit of Firms in the Long Run

11. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Oligopoly  Few firms that are strategically connected  Strong barriers to entry

12. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Nash Equilibrium  Each firm does the best it can given the strategy of the other firm

13. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Nash Equilibrium Example $20 WonCo – Low Price WonCo – High Price $200 TuInc – Low Price $250 $40 $400 TuInc – High Price $200 $0 WonCo – Low Price WonCo – High Price TuInc – Low PriceTuInc – High Price Differentiated Products WonCo picks rows; Tuinc Columns

14. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Cartel’s Dilemma $500 AVInc – Low Output AVInc – High Output $600 BeaCo – Low Output $150 $500 $150 AVInc – Low Output AVInc – High Output $200 BeaCo – High Output $200 $600 AvInc picks rows; BeaCo Columns

15. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Cartel’s Dilemma: Collusive Outcome $500 AVInc – Low Output AVInc – High Output $600 BeaCo – Low Output $150 $500 $150 AVInc – Low Output AVInc – High Output $200 BeaCo – High Output $200 $600 AvInc picks rows; BeaCo Columns

16. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Two Oligopoly Models  Cournot (Output Competition) Firm’s pick output Price is greater than Marginal Cost, but gets closer to Marginal cost as the number of firms increases.  Bertrand (Price Competition) Firm’s pick price If the products are identical, Price = Marginal cost and profit is zero even with 2 firms.

17. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Work Space: Intentionally Blank