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Market structures and business strategy (Types of market structure…

- - - - unlikely to exist in real world
        but internet has changed this
        i) many small firms
        ii) freedom to enter- low startup cost
        iii) perfect knowledge - price comparison
      - Short Run Equilibrium
        
        output determine by MC=MR
        
        loss -> continue producing if AVC<AR
      - Long run equilibrium
        -earn supernormal profit, new firms enter, :point_up::skin-tone-2: S, :small_red_triangle_down:profits, return to normal and vice versa
      - Economic efficiency [concept]
        
        Productive efficiency (max output)
        
        Allocative efficiency (max social welfare)
        [ignore externalities, hence = MC ]
        P = MC = social optimum
        :check: P< MC = :point_up::skin-tone-2: output, :point_up::skin-tone-2: welfare -> value of extra unit exceed cost of extra resources used in pdn .
        :check:P> MC -> :small_red_triangle_down:output :point_up::skin-tone-2: welfare as last unit consumed is lower than the cost of resources used in pdn
      - -Product efficiency: must be efficient
        ready to respond if competitors adopt more efficient production methods or develop new products
        Allocative efficiency: P=MC=MR always will be at optimum
  - - - Features
        
        barriers to entry
        
        a # of small firms
        
        differeN products
        
        interdependence of firms
        
        non price competition ( i.e advertising)
      - Types
        
        duopoly
        
        collusive oligopoly
        
        non collusive oligopoly
        
        CARTELS- formal
        TACIT COLLUSION
        ( unwritten "rules")
        likely to occur:
        
        few firms
        
        similar products
        
        open about cost and production methods
        
        dominant firm
        
        market is stable
        
        no government to curb collusion
        
        Non-Collusive
        
        Cournot Model
        
        Betrand Model
        
        Kinked Demand Theory
      - Consumer & Oligopolists
        :red_cross:if oligopoly collude
        :red_cross:oligopolists are too small to benefit from economies of scale
        :red_cross:excessive adverts
        REDUCE PROBS
        
        countervailing powers
        
        price competition
        
        weak barriers to entry
      - NON COLLUSIVE GAME THEORY
        
        study of alt strategies that players adopt depending on assumptions about rivals' behaviours
        
        :check:single move games - dominant strategy
        
        Nash Equilibrium: position resulting from everyone making their optimal decision base on assumption of rival's decisions
        
        Prisoners' dilemma: 2 or more firms who, by attempting to choose the best strategy, base on what others are likely to do ends up in a worse off position
        :check: Multiple-Move games
        
        tit-for tat-> aggressive price tactic - backed with credible threat
        :check:Decision trees
        
        :tada: usefulness of game theory
        
        considers all scenarios -> firms does not need to know what other firms decides
        
        restricted to simple scenarios
        
        change in oligopolists' behaviours
    - - Assumptions
        
        many firms has small independent market share
        
        freedom to enter
        
        each firm sell differN pdt
      - Equilibrium of Firm
        
        SR - supernormal profits
        
        LR - demand :small_red_triangle_down: as :point_up::skin-tone-2:firms-> normal profits
        but....... subjected to
        :check:perfect info avail to all,
        :check:firm's size,
        :check:complete freedom of entry?,
        :check:new firms reduce all firms' profits
      - Monopolistic VS PC
        
        produce lower Q than PC => less than social optimum
        
        higher P ( but not huge diff)
        
        excess capacity since output is not at LRAC(min)
        but...
        :check:price diff is small
        :check:many variety of products
        
        Monopolistic VS Monopoly
        
        charges lower P than Monopoly
        
        more efficient
        but ...
        :check:no economies of scale
        :check:invest in R & D to improve efficiency
  - - - Barriers to entry
        
        Perfectly Contestable Market
        
        free and costless exit / entry
        hence firms will produce efficiently and
        keep prices down
        ( :star: Monopolist in a perfectly contestable market)
        
        Comparison with perfect competition
        Price and Output
        :pencil2: Mono -> in SR, high P, Low Q, produce at MC=MR, AR>MR
        :pencil2:PC -> MC=AR=MR=P
        Productive Efficiency
        :pen:PC -> produce at min LRAC
        :pen:Mono-> less efficient
        reason: less incentive to do so,not essential for survival, but can benefit from Economies of scale, R and D for pdt development, earn higher profits, competition for corporate control if it is inefficient
        Allocative efficiency
        :pen:Mono -> less than social optimum output
        :pen:PC -> at social optimum output
        
        Equilibrium price and output
        
        NATURAL
        :check:Economies of scale
        :check: Economies of scope( range of pdts hence spread overheads aX range)
        :check: lower cost for an established firm
        :check:product differN
        :check:control over key inputs
        :check:aggressive tactics
        :check:threat of merger/takeover
- - - - Marketing Mix
        
        Price
        
        Product
        
        Place
        
        Promotion
  - - - Advert/sales ratio
        total expense on advert/ total value of sales of product
        
        high in oligopoly
        
        high for consumer durables( consumers spend a large % of their income )
        
        high for new products
      - Effect
        :<3:brand loyalty ( less price elastic)
        :<3:increase MU to consumer