Ebook Microeconomics (19th edition): Part 2
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Ebook Microeconomics (19th edition): Part 2
CHAPTERCompetition among the Few10Look at the airline price wars of 1992. When American Airlines, Northwest Airlines, and other U.S. carnets went loe- Ebook Microeconomics (19th edition): Part 2-to-toe in matching and exceeding one another's reduced fares, the result was record volumes of air travel—and record losses. Some estimates suggest that the overall losses suffered by the industry that year exceed the combined profits for the entire industry from its inception.Akshay R. Rao, Mark E Ebook Microeconomics (19th edition): Part 2. Bergen, anti Scott Davis "I low to Fight a Price War"Earlier chapters analyzed the market structures of perfect competition and complete monopoly. IEbook Microeconomics (19th edition): Part 2
f yon look out the window at the American economy, however, yon will see that such polar cases are rare. Most industries lie between these two extremeCHAPTERCompetition among the Few10Look at the airline price wars of 1992. When American Airlines, Northwest Airlines, and other U.S. carnets went loe- Ebook Microeconomics (19th edition): Part 2s? I low do they set their prices and outputs? To answer these questions, we look closely at what happens under oligopoly and monopolistic compedtion, paying special attention to the role of concentration anti strategic interaction. We then introduce the elements of game theory. which is an importan Ebook Microeconomics (19th edition): Part 2t tool for understanding how people and businesses interact in strategic situations. The final section reviews the different public policies used to cEbook Microeconomics (19th edition): Part 2
ombat monopolistic abuses, focusing on regulation and antitrust laws.A. BEHAVIOR OF IMPERFECT COMPETITORSLook back at Table 9-1. which shows the folloCHAPTERCompetition among the Few10Look at the airline price wars of 1992. When American Airlines, Northwest Airlines, and other U.S. carnets went loe- Ebook Microeconomics (19th edition): Part 2ion occurs when a large number of firms produce slightly differentiated products. (3) Oligopoly is an intermediate form of imperfect competition in which an industry is dominated by a few firms. (4) Monopoly is the most concentrated market structure, in which a single firm produces the entire output Ebook Microeconomics (19th edition): Part 2 of an industry.How do we measure the power of firms in an industry to control price and output? How do the different species behave? We begin with thEbook Microeconomics (19th edition): Part 2
ese issues.187188CHAPTER 10 • COMPETITION AMONG THE FEWConcentration Measured by Value of Shipments in Manufacturing Industries. 2002FIGURE 10-1. ConcCHAPTERCompetition among the Few10Look at the airline price wars of 1992. When American Airlines, Northwest Airlines, and other U.S. carnets went loe- Ebook Microeconomics (19th edition): Part 2omestic output. Compare this With the ideal of perfect competition, in which each firm is too small to affect the market price.Source: U.S. Bureau of the Orow. 2002 data.Measures of Market PowerIn many situations—Slid) as deciding whether the government should intervene in a market or whether a firm Ebook Microeconomics (19th edition): Part 2 has abused its monopoly position—economists need a quantitative measure of the extent of a firm’s market power. Market power signifies the degree ofEbook Microeconomics (19th edition): Part 2
control that a single firm or a small number of firms have over the price and production decisions in an industry.The most common measure of market poCHAPTERCompetition among the Few10Look at the airline price wars of 1992. When American Airlines, Northwest Airlines, and other U.S. carnets went loe- Ebook Microeconomics (19th edition): Part 2 industry accounted for by the four largest firms. .Similarly, the eight-firm concentration ratio is the percent of the market taken by the top eight firms. The market is customarily measured by domestic sales, shipments, or output. In a pure monopoly, the four-firm and eight-firm concentration rati Ebook Microeconomics (19th edition): Part 2os would be 1Ebook Microeconomics (19th edition): Part 2
ven the largest firms produce only a tiny fraction of industry output.Many economists believe that traditional concentration ratios do not adequately CHAPTERCompetition among the Few10Look at the airline price wars of 1992. When American Airlines, Northwest Airlines, and other U.S. carnets went loe- Ebook Microeconomics (19th edition): Part 2 summing the squares of each participant's market share. Perfect competition would have an Hill of near zero because each firm produces only a small percentage of the total output, while complete monopoly would have an IIIII of 10.000 because one firm produces 100 percent of the output (100* = 10,00 Ebook Microeconomics (19th edition): Part 20). (For the formula ami an example, sec question 2 at the end of this chapter.)Warning on ConcentrationMeasuresAlthough concentration measures arewidEbook Microeconomics (19th edition): Part 2
ely used, they are often misleading because of international competition and competition from closely related industries. Conventional concentration mCHAPTERCompetition among the Few10Look at the airline price wars of 1992. When American Airlines, Northwest Airlines, and other U.S. carnets went loe- Ebook Microeconomics (19th edition): Part 2ERFECT COMPETITIONcompetition is very intense in the manufacturing sector, the actual market power of domestic firms is much smaller than is indicated by measures of market power based solely on domestic production. For example, the conventional concentration measures shown in Figure 10-1 indicate t Ebook Microeconomics (19th edition): Part 2hat the top four US automotive firms had 85 percent of the U.S. market If we include imports as well, however, these top four U.S. firms had only 43 pEbook Microeconomics (19th edition): Part 2
ercent of the U.S. marketIn addition to ignoring international competition, traditional concentration measures ignore the impact of competition from oCHAPTERCompetition among the Few10Look at the airline price wars of 1992. When American Airlines, Northwest Airlines, and other U.S. carnets went loe- Ebook Microeconomics (19th edition): Part 2munications carriers." Sometimes, however, strong competition comes from other quarters. For example, cellular telephones are a major threat to traditional wired telephone service even though the two are produced by different industries. Even though the four-firm concentration ratio for wired carrie Ebook Microeconomics (19th edition): Part 2rs alone is 60 percent, the four-firm ratio for all telecommunications carriers Is only 46 percent, so the definition of a market can strongly influenEbook Microeconomics (19th edition): Part 2
ce the calculation of the concentration ratios.In the end. some measure of market power ts essential for many legal purposes, such as aspects of antitCHAPTERCompetition among the Few10Look at the airline price wars of 1992. When American Airlines, Northwest Airlines, and other U.S. carnets went loe- Ebook Microeconomics (19th edition): Part 2ther monopolistic abuses are in fact a real threat.THE NATURE OF IMPERFECT COMPETITIONIn analyzing the determinants of concentration, economists have found that three major factors are at work in imperfectly competitive markets. These factors are economies of scale, barriers to entry, and strategic Ebook Microeconomics (19th edition): Part 2interaction (the first two were analyzed in the previous chapter, and the third is the subject of detailed examination in the next section):•Cosh. WheEbook Microeconomics (19th edition): Part 2
n the minimum efficient size of operation for a firm occurs at a sizable fraction of industry output, only a few firms can profitably survive and oligCHAPTERCompetition among the Few10Look at the airline price wars of 1992. When American Airlines, Northwest Airlines, and other U.S. carnets went loe- Ebook Microeconomics (19th edition): Part 2number of competitors in an industry.CHAPTERCompetition among the Few10Look at the airline price wars of 1992. When American Airlines, Northwest Airlines, and other U.S. carnets went loe-Gọi ngay
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