In a monopoly, there's huge barriers to entry. In perfect competition, there's no barriers to entry. What I want to think about in this video is, are there other situations or especially are their terms for other situations that are in between?
And to think about that, I'm going to draw a spectrum. I'm going to do a two dimensional spectrum. I could probably think of more variables where there's nuance between these terms, but these are the two big ones.
So in one dimension, I'm going to think about the number of competitors there are. So this is the number of competitors. And obviously a monopoly is one competitor. Perfect competition, you've got a bunch of competitors.
So I'll put one right over here and a bunch of competitors. If this was 0, then there wouldn't even be a market to speak of. No one is doing is participating there. In this axis, in the vertical axis, I want to think about how differentiated the competitors in the market are. How different are their products or their brands? Differentiation in the market. And this is low differentiation and this is high differentiation. So let's think of a bunch of industries and think about where they sit here.
And then I'll introduce you to two new words, other than just a monopoly or perfect competition. So let's just say that we live in a world where there's 50 producers of screws and all of those screws are completely identical. And so if one producers charges even a penny more, no one's going to want to go to them because they can get the exact same thing from one of the other of the many producers. So that would be a case right over here, low differentiation.
All the screws are the same and there's a bunch of competitors. So that's about as perfect as perfect competition can get in the real world. So bunch of identical screw manufacturers. I'm not sure if the actual screw market has a bunch of competitors, but let's just assume if it did then you would be sitting right over here, pretty close in the world of perfect competition.
In the other spectrum, you imagine your utilities. In most places in, especially the US, but probably the world, there's only one utility. There's only one entity that's managing the power lines.
A lot of times, because of that, it's actually run by the government. But in most of the US it's a regulated private company. And so here you have one player. And you could debate whether it's low differentiation or so high differentiation that it's the only player, but let's just stick it right over there, low differentiation.
This right over here might be a utility. And that's about as close to a monopoly, or that actually is a monopoly. They are the only player there, mono. Mono comes from one, poly comes from seller. One seller, that would be a utility.
Now there are things that are in between. So for example, if you thought about your, let's say that the telephone providers in your area-- there normally are a few people who can provide phone service, especially with the age of internet telephony, now the cable companies are starting to provide phone service and the telephone companies are starting to provide internet and cable service.
So we could think of that market. So let's put this market right over here. So the number of competitors is low, so it's going to be here.
And they are somewhat differentiated. Calculate total revenue, average revenue, and marginal revenue for a firm in a perfectly competitive market. The concept of perfect competition applies when there are many producers and consumers in the market and no single company can influence the pricing.
A perfectly competitive market has the following characteristics:. All goods in a perfectly competitive market are considered perfect substitutes, and the demand curve is perfectly elastic for each of the small, individual firms that participate in the market. Consumers would buy from another firm at a lower price instead. A firm in a competitive market wants to maximize profits just like any other firm.
For a firm operating in a perfectly competitive market, the revenue is calculated as follows:. The average revenue AR is the amount of revenue a firm receives for each unit of output. The marginal revenue MR is the change in total revenue from an additional unit of output sold. For all firms in a competitive market, both AR and MR will be equal to the price. MR is the slope of the revenue curve, which is also equal to the demand curve D and price P.
In the short-term, it is possible for economic profits to be positive, zero, or negative. When price is greater than average total cost, the firm is making a profit. When price is less than average total cost, the firm is making a loss in the market. Perfect Competition in the Short Run : In the short run, it is possible for an individual firm to make an economic profit. This scenario is shown in this diagram, as the price or average revenue, denoted by P, is above the average cost denoted by C.
Over the long-run, if firms in a perfectly competitive market are earning positive economic profits, more firms will enter the market, which will shift the supply curve to the right. As the supply curve shifts to the right, the equilibrium price will go down. As the price goes down, economic profits will decrease until they become zero.
When price is less than average total cost, firms are making a loss. Over the long-run, if firms in a perfectly competitive market are earning negative economic profits, more firms will leave the market, which will shift the supply curve left.
As the supply curve shifts left, the price will go up. As the price goes up, economic profits will increase until they become zero. In sum, in the long-run, companies that are engaged in a perfectly competitive market earn zero economic profits. The long-run equilibrium point for a perfectly competitive market occurs where the demand curve price intersects the marginal cost MC curve and the minimum point of the average cost AC curve.
Perfect Competition in the Long Run : In the long-run, economic profit cannot be sustained. The arrival of new firms in the market causes the demand curve of each individual firm to shift downward, bringing down the price, the average revenue and marginal revenue curve.
The firm is the industry. This market structure is characterized by barriers to entry —factors that prevent new firms from competing equally with the existing firm. Often the barriers are technological or legal conditions. Polaroid, for example, held major patents on instant photography for years. When Kodak tried to market its own instant camera, Polaroid sued, claiming patent violations.
Polaroid collected millions of dollars from Kodak. DeBeers Consolidated Mines Ltd. Public utilities, such as gas and water companies, are pure monopolies. Some monopolies are created by a government order that outlaws competition. The U. Postal Service is currently one such monopoly.
Three characteristics define the market structure known as monopolistic competition :. Under monopolistic competition, firms take advantage of product differentiation. Industries where monopolistic competition occurs include clothing, food, and similar consumer products. Firms under monopolistic competition have more control over pricing than do firms under perfect competition because consumers do not view the products as perfect substitutes.
Nevertheless, firms must demonstrate product differences to justify their prices to customers. Consequently, companies use advertising to distinguish their products from others. Such distinctions may be significant or superficial. Boeing and Airbus Industries aircraft manufacturers and Apple and Google operating systems for smartphones are major players in different oligopolistic industries.
With so few firms in an oligopoly, what one firm does has an impact on the other firms. Thus, the firms in an oligopoly watch one another closely for new technologies, product changes and innovations, promotional campaigns, pricing, production, and other developments.
Sometimes they go so far as to coordinate their pricing and output decisions, which is illegal.
0コメント