Final presentation of Economic analysis for managers Presented to : Sir Dr. Khurram Mughal

Economics analysis for managers Group Members Name ID Saad yaqub13646 Farhan Hussain Ali Shaharyar Zameer Ahmad Mehmood Akram M Shoaib 15206

Oligopoly Monopolistic competition

Perfect competition Monopoly Monopolistic competition Oligopoly

Monopolistic competition Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another as goods but not perfect substitutes.

Characteristics Number and size distribution of sellers Number and size distribution of buyers Product differentiation Conditions of entry and exit many small sellers many small buyers slightly different products Easy entry and exit

S O MC AC MR AR=D P Q Output AC Profit maximizing in short run

S O MC AC MR AR=D P Q Output Profit maximizing in Long Run

S O MC AC MR AR=D P Q Output Evaluation of monopolistic completion Because of inefficiency in production per unit cost is slightly higher then price.

An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (Oligopolists) Oligopoly

Characteristics Ability to set price price setters rather than price takers Number and size distribution of sellers many small buyers Product differentiation Entry and exit product may be homogeneous or differentiated barriers to entry

Varieties of Oligopoly  The product can be homogeneous or differentiated across producers  The more homogeneous the products, the greater the interdependence among the firms Products can be differentiated  physical qualities  sales locations  services  image of the product

D Share of market demand curve d Perceived demand curve Quantity per period P1 Q1 P2 Q2 1 Price per unit Oligopoly

Models of oligopoly The kinked demand model Price leadership Cournot-Nash model Bertrand model

The kinked demand model One firm increase price it will reduce its customers because other firms will may not increase their prices One firm decrease the price no increase in its customers because other firms will also decrease their prices

Price leadership To avoid active competition between firms in oligopoly some firms use price fluctuation. There are two types of price leadership  Dominant firm price leadership In some markets there is a single firm that controls a dominant share of the market and a group of smaller firms. The dominant firm sets prices which are simply taken by the smaller firms in determining their profit maximizing levels of production.  Barometric price leadership In barometric firm price leadership, the most reliable firm emerges as the best barometer of market conditions, or the firm could be the one with the lowest costs of production, leading other firms to follow suit.

Cournot-Nash model The Cournot-Nash model is the simplest oligopoly model. The model assumes that there are two “equally positioned firms”; the firms compete on the basis of quantity rather than price and each firm makes an “output decision assuming that the other firm’s behavior is fixed.Cournot-Nash model

The Bertrand model is essentially the Cournot-Nash model except the strategic variable is price rather than quantity. Neither firm has any reason to change strategy. If the firm raises prices it will lose all its customers. If the firm lowers price it will be losing money on every unit sold Bertrand model

cartels and collusion What is collusion? Unofficial hidden agreement between two or more persons/firms. E.g. Sugar industry What is a cartel? A cartel is a formal agreement among competing firms. e.g. OPEC (Organization of the Petroleum Exporting Countries) Collusion and Cheaters? When one firm in collusion agreement cheats to get more profit.