Econ 202, Week 14 Notes
Econ 202, Week 14 Notes Econ202
Popular in Principles of Microeconomics
verified elite notetaker
Popular in Economcs
This 4 page Class Notes was uploaded by Sydney Dingman on Thursday April 21, 2016. The Class Notes belongs to Econ202 at Colorado State University taught by Professor Christopher Blake in Winter 2016. Since its upload, it has received 25 views. For similar materials see Principles of Microeconomics in Economcs at Colorado State University.
Reviews for Econ 202, Week 14 Notes
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 04/21/16
Econ 202, Week 14 Notes 4/19/16, Module 34, Monopolistic Competition Characteristics o Many Buyers o Many Sellers o Differentiated products View of these products is what generates market power for the firm (not as much as monopoly) o Free entry and exit (low barriers to entry) In the long run, each individual firm in a monopolistic competition will have profit equal to zero in the long run. o Graph 1 Each firm faces a downward sloping demand curve This will create a wedge between the demand curve and MR curve Represents demand for the products of a specific firm o Graph 2 Monopolistically competitive firm earning profit less than zero 4/19/16, Module 35, Product Differentiation and Advertising Differences between goods and services in a market are either real or not meaningful. 3 Real Types of Product Differentiation o Style or Type Ex. Mall food court (pizza, Chinese, burgers, sandwiches, ice cream) Ex. Clothing, shoes o Location Ex. Gas stations, restaurants, grocery stores o Quality Ex. Godiva v. Hersey’s, Tools, makeup brands What if firms are unable to create meaningful product differences? o E.g. Crest v. Colgate not a lot of difference between toothpaste products o Firms attempt to gain market power through one of two avenues. Branding: using certain methods to try to get brand recognition by way of logos or something recognizable. Generating consumer loyalty through brand recognition Generating loyalty creates a more stable demand curve for the firm itself Ex. loyalty card. Advertising: some sort of a program (commercial, ad, etc.) that creates demand for your product E.g. any commercial for food/pizza changes your preferences and you end up buying the product Pros and Cons of Monopolistic Competition o Pros: Firms gain market power Consumers get a variety Incentive for firms to improve/expand variety and quality of goods and services o Cons: Deadweight loss generated due to market power, prices are higher than in perfect competition Might be too many products for consumers to choose from 4/21/16, Module 31, Oligopoly Key Characteristic: o Few dominant sellers Firms will no longer act independently from one another Actions by one dominant seller will impact the profits of the other firms in the market o High barriers to entry 2 Firms can maintain economic profit greater than 0 in the long run under certain conditions Duopoly: market with two dominant firms o Ex. Pepsi and Coke In an ideal world, these firms want to act as much like a monopoly as possible o Mutually restrict the quantity produced in a market Can charge higher prices make more profit Options for firms: o Collusion: an agreement between firms to work together and act jointly to act like a monopoly Illegal in the United States Tacit Collusion: implicit agreement between firms not to compete too hard with one another o Non-cooperative behavior: firms within the market act in their own self interest, they do not try to work together to restrict quantity and raise prices This behavior typically results in price wars a race to the bottom or lower price to try to get higher market share; firms lower prices to get more sales 4/21/16, Module 32, Game Theory Subset of economics that looks at interactions between economic agents o Developed by John Nash (A Beautiful Mind) Characteristics of “Games” o Rules of the games Dictate the allowable actions Ex. Rock, Paper, Scissors o Strategies associated with the rules Frequency at which each player selects a rule of the game Ex. “Always throw rock”, Random, do what your opponent did last Impacted by the previous moves made, they change through time depending on the action of other players 3 Information also impacts how strategies change o Pay offs Based on the strategies and rules, what do the players gain from the interactions they just had; benefits for each player, given an interaction We use a payoff matrix to describe they payoffs each player receives based on their selection of strategies o Profit for firms based on production decisions Prisoner’s Dilemma o Story: two criminals are caught by the police and suspected of a major crime, but the police only have enough evidence to convict them of a minor crime. Once detained, they are separated and told that if one tells on the other and gives enough evidence to convict them, the teller will be let go and the other will get 10 years. o Relating this to a duopoly: Firms have two options: Cooperate with one another keep production low Defect firm deciding to go against the agreement ^ and produce more to get a higher market share NOTEBOOK For Pepsi: If they know Coke will cooperate, the best response is to defect and make more money ($200>$180) If they know Coke will defect, the best response is to defect ($160>$150) Because Pepsi always wants to defect to make profit, they have a dominant strategy Dominant strategy: regardless of the other player’s actions, one rule is always the best response to the actions of the other player o In Prisoner’s Dilemma, defect is the dominant strategy Nash Equilibrium: outcome where in no player has an incentive to change strategy 4
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'