Model Oligopoli

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# Model Oligopoli - PowerPoint PPT Presentation

Model Oligopoli. Selain model Cournot, terdapat beberapa jenis lagi model oligopoli, namun hanya ciri bagi setiap model akan dibincangkan. First Mover Advantage – The Stackelberg Model. Oligopoly model in which one firm sets its output before other firms do.

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Presentation Transcript
Model Oligopoli
• Selain model Cournot, terdapat beberapa jenis lagi model oligopoli, namun hanya ciri bagi setiap model akan dibincangkan.
First Mover Advantage – The Stackelberg Model
• Oligopoly model in which one firm sets its output before other firms do.
• Dalam model ini terdapat firma pemimpin dan firma pengikut
• Oleh itu, bagi membuat keputusan tentang output firma pemimpin harus mengambilkira fungsi gerakbalas firma 2.
• Dan firma pengikut akan menentukan output berdasarkan fungsi gerakbalas firma pemimpin
Biasanya, kunatiti output yang dikeluarkan oleh firma pengikut adalah kurang (almost half) daripada output firma pemimpin.
Price Competition (persaingan harga)
• Competition in an oligopolistic industry may occur with price instead of output.
• The Bertrand Model is used
• Oligopoly model in which firms produce a homogeneous good, each firm treats the price of its competitors as fixed, and all firms decide simultaneously what price to charge
Price Competition – Bertrand Model
• Assume here that the firms compete with price, not quantity.
• Since good is homogeneous, consumers will buy from lowest price seller
• If firms charge different prices, consumers buy from lowest priced firm only
• If firms charge same price, consumers are indifferent who they buy from
Price Competition – Bertrand Model
• Nash equilibrium is competitive output since have incentive to cut prices
• Both firms set price equal to MC
• Both firms earn zero profit
Price Competition – Bertrand Model
• Why not charge a different price?
• If charge more, sell nothing
• If charge less, lose money on each unit sold
Nash Equilibrium in Prices
• If Firm 1 sets price first and then firm 2 makes pricing decision
• Firm 1 would be at a distinct disadvantage by moving first
• The firm that moves second has an opportunity to undercut slightly and capture a larger market share
Competition Versus Collusion:The Prisoners’ Dilemma
• Nash equilibrium is a noncooperative equilibrium: each firm makes decision that gives greatest profit, given actions of competitors
• Although collusion is illegal, why don’t firms cooperate without explicitly colluding?
• Why not set profit maximizing collusion price and hope others follow?
Competition Versus Collusion:The Prisoners’ Dilemma
• Competitor is not likely to follow
• Competitor can do better by choosing a lower price, even if they know you will set the collusive level price.
• We can use example from before to better understand the firms’ choices

\$12, \$12

\$20, \$4

\$4, \$20

\$16, \$16

Payoff Matrix for Pricing Game

Firm 2

Charge \$4

Charge \$6

Charge \$4

Firm 1

Charge \$6

Competition Versus Collusion:The Prisoners’ Dilemma
• We can now answer the question of why firm does not choose cooperative price.
• Cooperating means both firms charging \$6 instead of \$4 and earning \$16 instead of \$12
• Each firm always makes more money by charging \$4, no matter what its competitor does
• Unless enforceable agreement to charge \$6, will be better off charging \$4
Competition Versus Collusion:The Prisoners’ Dilemma
• An example in game theory, called the Prisoners’ Dilemma, illustrates the problem oligopolistic firms face.
• Two prisoners have been accused of collaborating in a crime.
• They are in separate jail cells and cannot communicate.
• Each has been asked to confess to the crime.

-5, -5

-1, -10

-10, -1

-2, -2

Payoff Matrix for Prisoners’ Dilemma

Prisoner B

Confess

Don’t confess

Confess

Prisoner A

Would you choose to confess?

Don’t

confess

Oligopolistic Markets
• Conclusions
• Collusion will lead to greater profits
• Explicit and implicit collusion is possible
• Once collusion exists, the profit motive to break and lower price is significant

\$12, \$12

\$29, \$11

\$3, \$21

\$20, \$20

Payoff Matrix for the P&G Pricing Problem

Unilever and Kao

Charge \$1.40

Charge \$1.50

Charge

\$1.40

P&G

What price should P & G choose?

Charge

\$1.50

Observations of Oligopoly Behavior
• In some oligopoly markets, pricing behavior in time can create a predictable pricing environment and implied collusion may occur.
• In other oligopoly markets, the firms are very aggressive and collusion is not possible.
Observations of Oligopoly Behavior
• In other oligopoly markets, the firms are very aggressive and collusion is not possible.
• Firms are reluctant to change price because of the likely response of their competitors.
• In this case prices tend to be relatively rigid.
Price Rigidity
• Firms have strong desire for stability
• Price rigidity – characteristic of oligopolistic markets by which firms are reluctant to change prices even if costs or demands change
• Fear lower prices will send wrong message to competitors leading to price war
• Higher prices may cause competitors to raise theirs
Price Rigidity
• Basis of kinked demand curve model (model permintaan berliku) of oligopoly
• Each firm faces a demand curve kinked at the currently prevailing price, P*
• Above P*, demand is very elastic
• If P>P*, other firms will not follow
• Below P*, demand is very inelastic
• If P<P*, other firms will follow suit
Price Rigidity
• With a kinked demand curve, marginal revenue curve is discontinuous (keluk MR terpatah – DMNL)
• Firm’s costs can change without resulting in a change in price

If the producer raises price, the

competitors will not and the

demand will be elastic.

If the producer lowers price, the

demand will be inelastic.

D

MR

The Kinked Demand Curve

\$/Q

Quantity

So long as marginal cost is in the

vertical region of the marginal

revenue curve, price and output

will remain constant.

MC’

P*

MC

D

Q*

The Kinked Demand Curve

\$/Q

D

M

N

L

Quantity

MR

Cartel - definisi
• Ialah pasaran dimana sebahagian atau semua firma berpakat, mengkoordinasi harga dan tingkat output untuk memaksimumkan keuntungan bersama.
Cartels
• Producers in a cartel explicitly agree to cooperate in setting prices and output.
• Typically only a subset of producers are part of the cartel and others benefit from the choices of the cartel
• If demand is sufficiently inelastic and cartel is enforceable, prices may be well above competitive levels
Examples of successful cartels

OPEC

International Bauxite Association

Mercurio Europeo

Examples of unsuccessful cartels

Copper

Tin

Coffee

Tea

Cocoa

Cartels
Cartels – Conditions for Success
• Stable cartel organization must be formed – price and quantity settled on and adhered to
• Members have different costs, assessments of demand and objectives
• Tempting to cheat by lowering price to capture larger market share
Cartels – Conditions for Success
• Potential for monopoly power
• Even if cartel can succeed, there might be little room to raise price if faces highly elastic demand
• If potential gains from cooperation are large, cartel members will have more incentive to make the cartel work
Cartels
• To be successful:
• Total demand must not be very price elastic
• Either the cartel must control nearly all of the world’s supply or the supply of noncartel producers must not be price elastic