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Chapter 12. Monopolistic Competition and Oligopoly. Topics to be Discussed. Monopolistic Competition Oligopoly Price Competition Competition Versus Collusion: The Prisoners’ Dilemma Implications of the Prisoners’ Dilemma for Oligopolistic Pricing Cartels. Monopolistic Competition.

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chapter 12

Chapter 12

Monopolistic Competition and Oligopoly

topics to be discussed
Topics to be Discussed
  • Monopolistic Competition
  • Oligopoly
  • Price Competition
  • Competition Versus Collusion: The Prisoners’ Dilemma
  • Implications of the Prisoners’ Dilemma for Oligopolistic Pricing
  • Cartels

Chapter 12

monopolistic competition
Monopolistic Competition
  • Characteristics
    • Many firms
    • Free entry and exit
    • Differentiated product

Chapter 12

monopolistic competition1
Monopolistic Competition
  • The amount of monopoly power depends on the degree of differentiation
  • Examples of this very common market structure include:
    • Toothpaste
    • Soap
    • Cold remedies

Chapter 12

monopolistic competition2
Monopolistic Competition
  • Toothpaste
    • Crest and monopoly power
      • Procter & Gamble is the sole producer of Crest
      • Consumers can have a preference for Crest – taste, reputation, decay-preventing efficacy
      • The greater the preference (differentiation) the higher the price

Chapter 12

monopolistic competition3
Monopolistic Competition
  • Two important characteristics
    • Differentiated but highly substitutable products
    • Free entry and exit

Chapter 12

a monopolistically competitive firm in the short and long run

MC

MC

AC

AC

PSR

PLR

DSR

DLR

MRSR

MRLR

QSR

QLR

A Monopolistically CompetitiveFirm in the Short and Long Run

$/Q

$/Q

Short Run

Long Run

Quantity

Quantity

a monopolistically competitive firm in the short and long run1
A Monopolistically CompetitiveFirm in the Short and Long Run
  • Short run
    • Downward sloping demand – differentiated product
    • Demand is relatively elastic – good substitutes
    • MR < P
    • Profits are maximized when MR = MC
    • This firm is making economic profits

Chapter 12

a monopolistically competitive firm in the short and long run2
A Monopolistically CompetitiveFirm in the Short and Long Run
  • Long run
    • Profits will attract new firms to the industry (no barriers to entry)
    • The old firm’s demand will decrease to DLR
    • Firm’s output and price will fall
    • Industry output will rise
    • No economic profit (P = AC)
    • P > MC  some monopoly power

Chapter 12

monopolistically and perfectly competitive equilibrium lr

Deadweight

loss

MC

AC

MC

AC

P

PC

D = MR

DLR

MRLR

QC

QMC

Monopolistically and Perfectly Competitive Equilibrium (LR)

Monopolistic Competition

Perfect Competition

$/Q

$/Q

Quantity

Quantity

monopolistic competition and economic efficiency
Monopolistic Competition and Economic Efficiency
  • The monopoly power yields a higher price than perfect competition. If price was lowered to the point where MC = D, consumer surplus would increase by the yellow triangle – deadweight loss.
  • With no economic profits in the long run, the firm is still not producing at minimum AC and excess capacity exists.

Chapter 12

monopolistic competition and economic efficiency1
Monopolistic Competition and Economic Efficiency
  • Firm faces downward sloping demand so zero profit point is to the left of minimum average cost
  • Excess capacity is inefficient because average cost would be lower with fewer firms
    • Inefficiencies would make consumers worse off

Chapter 12

monopolistic competition4
Monopolistic Competition
  • If inefficiency is bad for consumers, should monopolistic competition be regulated?
    • Market power is relatively small. Usually there are enough firms to compete with enough substitutability between firms – deadweight loss small.
    • Inefficiency is balanced by benefit of increased product diversity – may easily outweigh deadweight loss.

Chapter 12

the market for colas and coffee
The Market for Colas and Coffee
  • Each market has much differentiation in products and tries to gain consumers through that differentiation
    • Coke vs. Pepsi
    • Maxwell House vs. Folgers
  • How much monopoly power do each of these producers have?
    • How elastic is demand for each brand?

Chapter 12

the market for colas and coffee1
The Market for Colas and Coffee
  • The demand for Royal Crown is more price inelastic than for Coke
  • There is significant monopoly power in these two markets
  • The greater the elasticity, the less monopoly power and vice versa

Chapter 12

oligopoly characteristics
Oligopoly – Characteristics
  • Small number of firms
  • Product differentiation may or may not exist
  • Barriers to entry
    • Scale economies
    • Patents
    • Technology
    • Name recognition
    • Strategic action

Chapter 12

oligopoly
Oligopoly
  • Examples
    • Automobiles
    • Steel
    • Aluminum
    • Petrochemicals
    • Electrical equipment

Chapter 12

oligopoly1
Oligopoly
  • Management Challenges
    • Strategic actions to deter entry
      • Threaten to decrease price against new competitors by keeping excess capacity
    • Rival behavior
      • Because only a few firms, each must consider how its actions will affect its rivals and in turn how their rivals will react

Chapter 12

oligopoly equilibrium
Oligopoly – Equilibrium
  • If one firm decides to cut their price, they must consider what the other firms in the industry will do
    • Could cut price some, the same amount, or more than firm
    • Could lead to price war and drastic fall in profits for all
  • Actions and reactions are dynamic, evolving over time

Chapter 12

oligopoly equilibrium1
Oligopoly – Equilibrium
  • Defining Equilibrium
    • Firms are doing the best they can and have no incentive to change their output or price
    • All firms assume competitors are taking rival decisions into account
  • Nash Equilibrium
    • Each firm is doing the best it can given what its competitors are doing
  • We will focus on duopoly
    • Markets in which two firms compete

Chapter 12

oligopoly2
Oligopoly
  • The Cournot Model
    • Oligopoly model in which firms produce a homogeneous good, each firm treats the output of its competitors as fixed, and all firms decide simultaneously how much to produce
    • Firm will adjust its output based on what it thinks the other firm will produce

Chapter 12

firm 1 s output decision

Firm 1 and market demand curve, D1(0), if Firm 2 produces nothing.

D1(0)

If Firm 1 thinks Firm 2 will produce

50 units, its demand curve is

shifted to the left by this amount.

If Firm 1 thinks Firm 2 will produce

75 units, its demand curve is

shifted to the left by this amount.

MR1(0)

D1(75)

MR1(75)

MC1

MR1(50)

D1(50)

12.5

25

50

Firm 1’s Output Decision

P1

Q1

Chapter 12

oligopoly3
Oligopoly
  • The Reaction Curve
    • The relationship between a firm’s profit-maximizing output and the amount it thinks its competitor will produce
    • A firm’s profit-maximizing output is a decreasing schedule of the expected output of Firm 2

Chapter 12

reaction curves and cournot equilibrium

Firm 2’s Reaction

Curve Q*2(Q1)

Firm 1’s Reaction

Curve Q*1(Q2)

Reaction Curves and Cournot Equilibrium

Q1

Firm 1’s reaction curve shows how much it

will produce as a function of how much

it thinks Firm 2 will produce. The x’s

correspond to the previous model.

100

75

Firm 2’s reaction curve shows how much it

will produce as a function of how much

it thinks Firm 1 will produce.

50

x

x

25

x

x

Q2

25

50

75

100

Chapter 12

reaction curves and cournot equilibrium1

Firm 2’s Reaction

Curve Q*2(Q1)

Cournot

Equilibrium

Firm 1’s Reaction

Curve Q*1(Q2)

Reaction Curves and Cournot Equilibrium

Q1

100

In Cournot equilibrium, each

firm correctly assumes how

much its competitors will

produce and thereby

maximizes its own profits.

75

50

x

x

25

x

x

Q2

25

50

75

100

Chapter 12

cournot equilibrium
Cournot Equilibrium
  • Each firm’s reaction curve tells it how much to produce given the output of its competitor
  • Equilibrium in the Cournot model, in which each firm correctly assumes how much its competitor will produce and sets its own production level accordingly

Chapter 12

oligopoly4
Oligopoly
  • Cournot equilibrium is an example of a Nash equilibrium (Cournot-Nash Equilibrium)
  • The Cournot equilibrium says nothing about the dynamics of the adjustment process
    • Since both firms adjust their output, neither output would be fixed

Chapter 12

the linear demand curve
The Linear Demand Curve
  • An Example of the Cournot Equilibrium
    • Two firms face linear market demand curve
    • We can compare competitive equilibrium and the equilibrium resulting from collusion
    • Market demand is P = 30 - Q
    • Q is total production of both firms:

Q = Q1 + Q2

    • Both firms have MC1 = MC2 = 0

Chapter 12

oligopoly example
Oligopoly Example
  • Firm 1’s Reaction Curve  MR = MC

Chapter 12

oligopoly example1
Oligopoly Example
  • An Example of the Cournot Equilibrium

Chapter 12

oligopoly example2
Oligopoly Example
  • An Example of the Cournot Equilibrium

Chapter 12

duopoly example

30

Firm 2’s

Reaction Curve

Cournot Equilibrium

15

10

Firm 1’s

Reaction Curve

10

15

30

Duopoly Example

Q1

The demand curve is P = 30 - Q and

both firms have 0 marginal cost.

Q2

Chapter 12

oligopoly example3
Oligopoly Example
  • Profit Maximization with Collusion

Chapter 12

profit maximization w collusion
Profit Maximization w/ Collusion
  • Contract Curve
    • Q1 + Q2 = 15
      • Shows all pairs of output Q1 and Q2 that maximize total profits
    • Q1 = Q2 = 7.5
      • Less output and higher profits than the Cournot equilibrium

Chapter 12

duopoly example1

Firm 2’s

Reaction Curve

Competitive Equilibrium (P = MC; Profit = 0)

15

Cournot Equilibrium

Collusive Equilibrium

10

7.5

Firm 1’s

Reaction Curve

Collusion

Curve

7.5

10

15

Duopoly Example

Q1

For the firm, collusion is the best

outcome followed by the Cournot

Equilibrium and then the

competitive equilibrium

30

Q2

30

Chapter 12

first mover advantage the stackelberg model
First Mover Advantage – The Stackelberg Model
  • Oligopoly model in which one firm sets its output before other firms do
  • Assumptions
    • One firm can set output first
    • MC = 0
    • Market demand is P = 30 - Q where Q is total output
    • Firm 1 sets output first and Firm 2 then makes an output decision seeing Firm 1’s output

Chapter 12

first mover advantage the stackelberg model1
First Mover Advantage – The Stackelberg Model
  • Firm 1
    • Must consider the reaction of Firm 2
  • Firm 2
    • Takes Firm 1’s output as fixed and therefore determines output with the Cournot reaction curve: Q2 = 15 - ½(Q1)

Chapter 12

first mover advantage the stackelberg model2
First Mover Advantage – The Stackelberg Model
  • Firm 1
    • Choose Q1 so that:
    • Firm 1 knows Firm 2 will choose output based on its reaction curve. We can use Firm 2’s reaction curve as Q2 .

Chapter 12

first mover advantage the stackelberg model3
First Mover Advantage – The Stackelberg Model
  • Using Firm 2’s Reaction Curve for Q2:

Chapter 12

first mover advantage the stackelberg model4
First Mover Advantage – The Stackelberg Model
  • Conclusion
    • Going first gives Firm 1 the advantage
    • Firm 1’s output is twice as large as Firm 2’s
    • Firm 1’s profit is twice as large as Firm 2’s
  • Going first allows Firm 1 to produce a large quantity. Firm 2 must take that into account and produce less unless it wants to reduce profits for everyone.

Chapter 12

price competition
Price Competition
  • 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

Chapter 12

price competition bertrand model
Price Competition – Bertrand Model
  • Assumptions
    • Homogenous good
    • Market demand is P = 30 - Q where Q = Q1 + Q2
    • MC1 = MC2 = $3
  • Can show the Cournot equilibrium if Q1 = Q2 = 9 and market price is $12, giving each firm a profit of $81.

Chapter 12

price competition bertrand model1
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

Chapter 12

price competition bertrand model2
Price Competition – Bertrand Model
  • Nash equilibrium is competitive output since have incentive to cut prices
  • Both firms set price equal to MC
    • P = MC; P1 = P2 = $3
    • Q = 27; Q1 & Q2 = 13.5
  • Both firms earn zero profit

Chapter 12

price competition bertrand model3
Price Competition – Bertrand Model
  • Why not charge a different price?
    • If charge more, sell nothing
    • If charge less, lose money on each unit sold
  • The Bertrand model demonstrates the importance of the strategic variable
    • Price versus output

Chapter 12

bertrand model criticisms
Bertrand Model – Criticisms
  • When firms produce a homogenous good, it is more natural to compete by setting quantities rather than prices
  • Even if the firms do set prices and choose the same price, what share of total sales will go to each one?
    • It may not be equally divided

Chapter 12

price competition differentiated products
Price Competition – Differentiated Products
  • Market shares are now determined not just by prices, but by differences in the design, performance, and durability of each firm’s product
  • In these markets, more likely to compete using price instead of quantity

Chapter 12

price competition differentiated products1
Price Competition – Differentiated Products
  • Example
    • Duopoly with fixed costs of $20 but zero variable costs
    • Firms face the same demand curves
      • Firm 1’s demand: Q1 = 12 - 2P1 + P2
      • Firm 2’s demand: Q2 = 12 - 2P1 + P2
    • Quantity that each firm can sell decreases when it raises its own price but increases when its competitor charges a higher price

Chapter 12

price competition differentiated products2
Price Competition – Differentiated Products
  • Firms set prices at the same time

Chapter 12

nash equilibrium in prices
Nash Equilibrium in Prices
  • What if both firms collude?
    • They both decide to charge the same price that maximizes both of their profits
    • Firms will charge $6 and will be better off colluding since they will earn a profit of $16

Chapter 12

nash equilibrium in prices1

Firm 2’s Reaction Curve

Collusive Equilibrium

$6

$4

Firm 1’s Reaction Curve

Nash Equilibrium

$4

$6

Nash Equilibrium in Prices

P1

Equilibrium at price of $4 and profits of $12

P2

Chapter 12

nash equilibrium in prices2
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

Chapter 12

a pricing problem procter gamble
A Pricing Problem: Procter & Gamble
  • Procter & Gamble, Kao Soap, Ltd., and Unilever, Ltd. were entering the market for Gypsy Moth Tape
  • All three would be choosing their prices at the same time
  • Each firm was using same technology so had same production costs
    • FC = $480,000/month & VC = $1/unit

Chapter 12

a pricing problem procter gamble1
A Pricing Problem: Procter & Gamble
  • Procter & Gamble had to consider competitors’ prices when setting their price
  • P&G’s demand curve was:

Q = 3,375P-3.5(PU)0.25(PK)0.25

Where P, PU, PK are P&G’s, Unilever’s, and Kao’s prices respectively

Chapter 12

a pricing problem procter gamble2
A Pricing Problem: Procter & Gamble
  • What price should P&G choose and what is the expected profit?
  • Can calculate profits by taking different possibilities of prices you and the other companies could charge
  • Nash equilibrium is at $1.40 – the point where competitors are doing the best they can as well

Chapter 12

a pricing problem for procter gamble
A Pricing Problem for Procter & Gamble
  • Collusion with competitors will give larger profits
    • If all agree to charge $1.50, each earn profit of $20,000
    • Collusion agreements are hard to enforce

Chapter 12

competition versus collusion the prisoners dilemma
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?

Chapter 12

competition versus collusion the prisoners dilemma1
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

Chapter 12

competition versus collusion the prisoners dilemma3
Competition Versus Collusion:The Prisoners’ Dilemma
  • Possible Pricing Outcomes:

Chapter 12

payoff matrix for pricing game

$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

Chapter 12

competition versus collusion the prisoners dilemma4
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

Chapter 12

competition versus collusion the prisoners dilemma5
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

Chapter 12

payoff matrix for prisoners dilemma

-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

Chapter 12

oligopolistic markets
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

Chapter 12

payoff matrix for the p g pricing problem

$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

Chapter 12

observations of oligopoly behavior
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

Chapter 12

observations of oligopoly behavior1
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

Chapter 12

price rigidity
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

Chapter 12

price rigidity1
Price Rigidity
  • Basis of kinked demand curve model of oligopoly
    • Each firm faces a demand curve kinked at the current 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

Chapter 12

price rigidity2
Price Rigidity
  • With a kinked demand curve, marginal revenue curve is discontinuous
  • Firm’s costs can change without resulting in a change in price
  • Kinked demand curve does not really explain oligopolistic pricing
    • Description of price rigidity rather than an explanation of it

Chapter 12

the kinked demand curve

If the producer raises price, the

competitors will not and the

demand will be elastic.

If the producer lowers price, the

competitors will follow and the

demand will be inelastic.

D

MR

The Kinked Demand Curve

$/Q

Quantity

Chapter 12

the kinked demand curve1

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

Quantity

Chapter 12

MR

price signaling and price leadership
Price Signaling and Price Leadership
  • Price Signaling
    • Implicit collusion in which a firm announces a price increase in the hope that other firms will follow suit
  • Price Leadership
    • Pattern of pricing in which one firm regularly announces price changes that other firms then match

Chapter 12

price signaling and price leadership1
Price Signaling and Price Leadership
  • The Dominant Firm Model
    • In some oligopolistic markets, one large firm has a major share of total sales, and a group of smaller firms supplies the remainder of the market
    • The large firm might then act as the dominant firm, setting a price that maximizes its own profits

Chapter 12

the dominant firm model
The Dominant Firm Model
  • Dominant firm must determine its demand curve, DD
    • Difference between market demand and supply of fringe firms
  • To maximize profits, dominant firm produces QD where MRD and MCD cross
  • At P*, fringe firms sell QF and total quantity sold is QT = QD + QF

Chapter 12

price setting by a dominant firm

SF

D

The dominant firm’s demand

curve is the difference between

market demand (D) and the supply

of the fringe firms (SF).

P1

MCD

P*

DD

At this price, fringe firms

sell QF, so that total

sales are QT.

P2

MRD

QF

QD

QT

Price Setting by a Dominant Firm

Price

Quantity

Chapter 12

cartels
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

Chapter 12

cartels1
Examples of successful cartels

OPEC

International Bauxite Association

Mercurio Europeo

Examples of unsuccessful cartels

Copper

Tin

Coffee

Tea

Cocoa

Cartels

Chapter 12

cartels conditions for success
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

Chapter 12

cartels conditions for success1
Cartels – Conditions for Success
  • Potential for monopoly power
    • Even if cartel can succeed, there might be little room to raise prices if it faces highly elastic demand
    • If potential gains from cooperation are large, cartel members will have more incentive to make the cartel work

Chapter 12

analysis of cartel pricing
Analysis of Cartel Pricing
  • Members of cartel must take into account the actions of non-members when making pricing decisions
  • Cartel pricing can be analyzed using the dominant firm model
    • OPEC oil cartel – successful
    • CIPEC copper cartel – unsuccessful

Chapter 12

the opec oil cartel

TD

SC

TD is the total world demand

curve for oil, and SC is the

competitive supply. OPEC’s

demand is the difference

between the two.

OPEC’s profit maximizing

quantity is found at the

intersection of its MR and

MC curves. At this quantity

OPEC charges price P*.

P*

DOPEC

MCOPEC

MROPEC

QOPEC

The OPEC Oil Cartel

Price

Quantity

Chapter 12

cartels2
Cartels
  • About OPEC
    • Very low MC
    • TD is inelastic
    • Non-OPEC supply is inelastic
    • DOPEC is relatively inelastic

Chapter 12

the opec oil cartel1

TD

SC

  • The price without the cartel:
  • Competitive price (PC) where
  • DOPEC = MCOPEC

DOPEC

MCOPEC

Pc

MROPEC

QC

QT

The OPEC Oil Cartel

Price

P*

QOPEC

Quantity

Chapter 12

the cipec copper cartel

TD

  • TD and SC are relatively elastic
  • DCIPECis elastic
  • CIPEC has little monopoly power
  • P* is closer to PC

SC

MCCIPEC

DCIPEC

P*

PC

MRCIPEC

QCIPEC

QC

QT

The CIPEC Copper Cartel

Price

Quantity

Chapter 12

cartels3
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

Chapter 12

the cartelization of intercollegiate athletics
The Cartelization of Intercollegiate Athletics
  • Large number of firms (colleges)
  • Large number of consumers (fans)
  • Very high profits

Chapter 12

the cartelization of intercollegiate athletics1
The Cartelization of Intercollegiate Athletics
  • NCAA is the cartel
    • Restricts competition
    • Reduces bargaining power by athletes – enforces rules regarding eligibility and terms of compensation
    • Reduces competition by universities – limits number of games played each season, number of teams per division, etc.
    • Limits price competition – sole negotiator for all football television contracts

Chapter 12

the cartelization of intercollegiate athletics2
The Cartelization of Intercollegiate Athletics
  • Although members have occasionally broken rules and regulations, has been a successful cartel
  • In 1984, Supreme Court ruled that the NCAA’s monopolization of football TV contracts was illegal
    • Competition led to drop in contract fees
    • More college football on TV, but lower revenues to schools

Chapter 12