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Prof. (DR) Vandana Bhavsar
Prof. (DR) Vandana Bhavsar
P AR = MR
AR
0 Q MR
0 Q
Important Points to Note:
Marginal revenue and the price elasticity of
demand are related by the formula
If elasticity of AR = , MR coincides with
AR
If e = 1, MR is zero
If e > 1, MR is +ve
If e < 1, MR is ve
If e = 0, gap between AR & MR widens.
MARKETS
Market structure identifies how a market
is made up in terms of:
The number of firms in the industry
The nature of the product produced
The degree of monopoly power each firm
has
The degree to which the firm can influence
price
Profit levels
Firms behaviour pricing strategies, non-
price competition, output levels
The extent of barriers to entry
The impact on efficiency
MARKET STRUCTURE
Perfect Pure
Competition Monopoly
Perfect Pure
Competition Monopoly
Perfect Pure
Competition Monopoly
Monopolistic Competition Oligopoly DuopolyMonopoly
SAC
P P
D=MR=AR
q Q Q
Q
Cable TV
Monopoly Waste
[mono(1) poly (seller)] Management
Control over price: Total
Rubiks Product: unique
Eg: Cable TV
Cube
Technological Monopoly
Geographic Monopoly
Patent
Only seller in a specific area
Ex: Rubiks Cube
Example: Remote Store
4 6750
5 6000
6 5250
7 5000
PRICE DISCRIMINATION
A monopolist can sometimes increase
economic profit by charging higher
prices to customers who value the
product more
Elements of Monopoly
Product differentiation creates brand loyalty
Keen competition
Interdependence Of Firms
Policies of one firm affect the other firms
Existence Of Price Rigidity
Uncertainty
Due to interdependence of firms on each
other, no certain prediction about the
behaviour of different firms can be made.
Substantial Barriers To Entry
Existence of Non-profit Motive
Sales maximisation, output maximisation.
EXAMPLES
Athletic shoe market
Nike has 47% of market
Reebok has 16%
and Adidas has 7%
Cement,
Steel,
Pepsi and Coke,
Petroleum refining
Power generation and supply in most of the parts of
the country
The car market is an apt oligopoly example. There
are few car manufacturers across the world as
against the demand for millions of cars every day. The
Indian automobile market is considered to be the best
examples of oligopoly.
OLIGOPOLY MODELS MODERN
VERSION
NON- COLLUSIVE MODELS
Non-collusive models assume that there is
no collusion between the firms
Price Rigidity Paul Sweezys Kinky
Demand model
COLLUSIVE MODELS
Cartels
CARTELS
Formal (explicit) agreement among firms.
Usually occur in an oligopolistic industry, where there is
a small number of sellers and usually involve
homogeneous products.