Chapter 11 Price Searchers with High Entry Barriers High Entry Barriers 1 Economies of Scale Ex lower cost from big factory 2 Government Licensing limits entry Ex bar exam 3 Patents Ex Walmart s two sided dock 4 Control over Essential Resource Ex oil 1 High Entry Barriers 2 Single Seller with no good substitutes Ex Comcast Monopoly Oligopoly 1 Small number of firms 2 3 Economies of Scale 4 High Entry Barriers Interdependence among firms because each firm is large relative to the market Ex 6 million cars year to minimize costs produce 1million year 6 firms max will emerge Price and Output with Oligopolies If there is no collusion competitive outcome If there is collusion produce at the monopolist price and quantity split profits after Obstacles to Collusion Information problems hard to detect price cuts can give faster delivery instead of low price 1 Many firms 2 3 Low entry barriers 4 Anti Trust Action Game Theory a tool used to analyze strategic choices made by competitors in a conflict situation prisoner s dilemma situation where cooperation would be mutually beneficial but incentives are misaligned for cooperation two suspects and each are being questioned they can either confess or deny golden ball game bitch steals the money High Barriers to Entry problems 1 Discipline of market forces is weakened 2 Allocative inefficiency due to reduce competition dead weight loss Comcast internet price is 50 mo but ATC is 20 3 Government grants of market power increase rent seeking Ex liquor store What to do Anti trust legislation Sherman and Clayton Anti Trust Acts Price regulation well intentioned but there are information problems where the government doesn t know the firm s MC or ATC Cost shifting no incentive to lower cost Special interest effect Ex funeral services that got shut down organized and have concentrated benefits while the public is unorganized and costs are spread thin Pulling it all together competition in the U S has increased dramatically Why more info
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