Perfect Competition Pure Monopoly Monopolistic Competition Oligopoly

Concentration Ratios One measure the degree of competition in an industry is its concentration ratio. An industry’s concentration ration is the percentage market share of the top firms in the industry. The concentration ratio of the “n” top firms is: Total Sales of the top “n” Firms CRn = Total Industry’s Sales 100

An Example Four-firm and eight-firm concentration ratios are more commonly used, concentration ratios can be calculated for any number of top firms. 20 and 50- firm concentration ratios are particularly useful when comparing industries with larger number firms. In the US there are 48 manufacturers of breakfast cereal with the total sales of $9099 million. The top 4 companies sales amount to $7543 million. The 4- firm concentration ratio for this industry is (7543/9099).100= 82.9 (See Table 11.5, page 447< in the book.)

Monopolistic Competition Many firms producing producing differentiated products Each firm would face a downward-sloping demand curve The 15-minute fame To maximize profit the firm set its estimated MR equal to its MC The firm may enjoy a short-run profit In the long run due to the emergence of substitutes the demand starts to shrink

MS P1P1 $ Q Q1 Q2 Q3 MS` P2P2 A Monopolistically competitive Firm’s Market Share

0 d MR` MS 1 q 1 Q o q 2 q 2 q 3 q 4 $ Q MS 2 MS 3 MS 4 MS 5 p1p1 p2p2 p3p3 p4p4 p5p5 a b c d e f A Monopolistically Competitive Firm’s Demand Curve

0 d MR SMC P MS Q1 Q2 $ Q a b

0 d` MR` SMC Pe Qe $ Q a SATC c b MS Short-Run Equilibrium: A Monopolistically Competitive Firm

d MR LMC LAC Q qe $ o Pe Long-Run Equilibrium: A Monopolistically Competitive Firm P=LAC

Oligopolies A market with a few firms each large enough to have an effect on the price Interdependence among firms Each firm would try to guess its competitor’s reaction to its pricing strategy Relative price stability Different Oligopoly models The Kinked Demand Curve Model The Game Theory

0 Q $ MR D d d` MC 1 MC 2 MC 3 MC 4 QeQe Pe a The Kinked Demand Curve

D D` MR` o PbPb PaPa MC b MC a Qb QaQTQT Q $ A Duopoly with a Superior Firm

0 QLQL Qm DLDL MR L Qe L QesQem Pe $ Dm S f, MC f MC L Leader Market Demand and Small Firms’ Supply e PbPb a PfPf g h