IMPERFECT COMPETITION

Presented By: Abhishek Sharma Dilip Margam Koushik Gupta Jayashree

Jobin Joy

Dr. Manmohan Singh

Was born on Sep 26th, 1932 Earned first class honours degree in economics in 1957

Did Ph.d in economics from Oxford University

Joined Govt. Of India as economic advisor in 1971

Awarded Padma Vibhushan in 1987

IMPERFECT COMPETITION

In economic theory, imperfect competition is the competitive situation in any market where the conditions necessary for perfect competition are not satisfied.

Forms of imperfect competition include:

Monopoly, in which there is only one seller of a good.
Duopoly, in which there are two seller of a good. Oligopoly, in which there is a small number of sellers. Monopolistic competition, in which there are many sellers producing highly differentiated goods.

Monopsony, in which there is only one buyer of a good.

Oligopsony, in which there is a small number of buyers. Information asymmetry when one competitor has the advantage of more or better information.

MONOPOLY
Monopoly is said to exist when one firm is

the sole producer or

seller of a product which has no close substitute.

FEATURES OF MONOPOLY
Single seller in the market

No close substitute
No competition Price maker Monopoly is also an industry Difficult entry of new firms

Can fix both price and output by himself

Long Run Super-Normal Profit

Y
Super-Normal Profits AC A B E

MC

P Price R

AR MR
X

Output

Long Run Normal Profit

Y MC

P Price R

AC

AR
E

MR
X

Output

Long Run Normal Loss

Y MC

P Price R

B A E

AC AVC AR

MR
X

Output

Short Run Super-Normal Profit

YY
Super-Normal Profits A B E

MC
AC

P Price R

AR MR
X

Output

Short Run Normal Profit

Y MC

P Price R

AC

AR
E

MR
X

Output

Short Run Normal Loss

Y MC

P Price R

B A E

AC AVC AR

MR
X

Output

Comparison Between Monopoly And Perfect Competition

PERFECT COMPETITION MONOPOLY

Price determined by intersection of demand and supply curve

AR is perfectly elastic and horizontal Price higher for a short term but later becomes equal. Supernormal profits do not occur in long run

Producer has control over price

AR is downward sloping

Monopolist always sell the product higher than the Average cost Supernormal profit occurs even in long run.

COMPARISON
PERFECT COMPETITION
Government interfference is there.

MONOPOLY
Government interference is not there.

Price discrimination does not occurs

Price discrimination occurs

MONOPOLISTIC COMPETITION
Monopolistic Competition is a form of market structure in which large number of independent firms are supplying products that are slightly differentiated from the point of view of buyers.

The products of the competing firms are close but not perfect substitutes because buyers do not regard them as identical.

Each firm is, therefore, the sole producer of a particular brand or product. It is a monopolist as far as that particular product is concerned.

Contd.
Since the various brands are close substitutes, a large number of monopoly producers of these brands are involved in keen competition with one another.
This type of market structure, where there is competition among large number of monopolists is called Monopolistic Competition.

Assumptions In Analyzing Firm Behaviour

The demand curve of each individual firm has the same shape(elasticity) and position (distance from the y-axis). We assume the demand curve of all firms to be symmetrical. The cost curves, both average and marginal, are symmetrical for each firms.

The Short Run Equilibrium

In the short run, the firm can adopt an independent price policy, with least consideration for the varieties produced and prices charged by other producers. The firm being rational in determining the price for a given product will seek to maximize total profits.

The demand curve is downward sloping. The demand curve of the firm in a monopolistically competitive market is however more elastic than that of a firm in a pure monopoly.

The Long Run Equilibrium

When firms in short run earn super-natural profits in a monopolistically competitive market, some new firms will be attracted to enter the business, as the group pertaining to the industry is open. On account of rivals entry, the demand curve faced by the typical firm will shift to the origin and it will also tend to be more elastic because competition faced from an increasing close substitutes.

Gradually in the long run the firms demand curve becomes tangent to its average curve, the firm earns only normal profits.

In long period the firms cant make super normal profit.

OLIGOPOLY

OLIGOPOLY
The Term Oligopoly has been derived from two

Greek words.

Oligi which means few and Polien means sellers. Market structure in which there are a few sellers selling homogeneous or differentiated products to many buyers.

TYPES:
Pure oligopoly: - The products produced by the firms are homogeneous ,today pure oligopoly is not found.
Differentiated oligopoly: the products produced by the firms are close substitutes and in the present world differentiated oligopoly is found.

Characteristics:
Few sellers Homogeneous or differentiated product Blocked entry and exit Inter-dependence Uncertainty Advertising Constant struggle Price rigidity

Kinked Demand Curve

Kinked demand curve is made of two segments :
1.The relatively elastic demand curve.

2.The relatively inelastic demand curve.

The curve have more elastic demand above the kink point and less elastic below it.

Kinked demand curve

Price
The firm therefore, effectively faces IfThe principle of is charging demand Assume the firm to lower its price to of the firm seeks the kinked a price a kinked demand curve forcing it to gain a curve rests an output of 100. 5 andcompetitiveon the principle rivals producing advantage, its maintain stable or rigid it makes will followasuit. Any gains pricing will that: If it chose to raise price above 5, its structure. lost and the % change quickly beOligopolistic firms may in rivals would not follow suit andits firm a. If a firm raises its price, the overcome this smaller than the % demand will beby engaging in noneffectively facesnot follow suit rivals will an elastic demand price competition. reduction in price total revenue curve for its product (consumers would would If a firm lowers its price, its b. again fall as the firm now faces buy from the cheaper rivals). The % a relatively inelastic demand curve. rivals will all do the same change in demand would be greater than the % change in price and TR would fall.

Total Revenue B
Total Revenue A

Total Revenue B

Kinked D Curve

D = elastic

D = Inelastic
100

Quantity

Pattern of behaviour in Oligopolistic markets: -

Cartel

Price leadership

Cartel
Existing firms forms an agreement.

Cartels are formed to enjoy a monopoly power.

Its designed to earn profit to the collaborating firms. Example: OPEC International cartel in the worlds petroleum market.

Price Leadership

A traditional leader in the oligopoly market announces price changes from time to time which others follow. The dominant firm may assume the price leadership. There is barometric price leadership when a smaller firm tries out a new price, which may or may not be recognized by the larger firms.

Types of price leadership

Price leadership of a dominant firm:- One of the few firms in the industry, which produces a large portion of product is selected as the leader.
Barometric Price leadership:-An old experience, largest firm assumes the role of a custodian and protect interest. Aggressive price leadership:-Firm shows any independence, it is threatened with direct consequences.

Factors depending price leadership

a) Dominance in the market. b) Initiative.

c) Aggressive pricing. d) Reputation.

DUOPOLY

The word duo means two and pollen means to sell. Duopoly is a market situation in which there are only two sellers producing and selling either identical or differentiated ones.

Features of duopoly:
It is a form of imperfect competition Two sellers selling goods in the market. The firms produce and sell either identical products or differentiated ones. The two forms may either resort to competition or collusion. It is a simple form of oligopoly.

PRICE DISCRIMINATION UNDER MONOPOLY

Meaning: -It means charging different prices to different consumer of their product is called price discrimination. Monopoly firms have the sole objective of earning maximum profits. It is designed to increase the total profits. They may charge uniform or different prices.

Price Discrimination And Equilibrium Output Of A Firm Under Monopolistic Competition

A firm under monopolistic competition is a price maker.
Thus, unlike perfect competition, there is pricing problem. Therefore the firm has to determine a suitable price for its product which yields a maximum total profit.

When Price Discrimination is possible?

Legal sanction.

Preference of buyers.

Non transferability of goods.

Markets are separated by large distance. NOTE:- Price Discrimination is found only under imperfect competition, especially in monopoly and not in perfect competition.

Types of Price Discrimination

Personal Discrimination. Age Discrimination.

Quality variation Discrimination.

Seasonal Discrimination.

Equilibrium under price discrimination

THANK YOU!!!!