最新版微观经济学课件英文版princ-ch16-presentation.ppt

1、 2009 South-Western,a part of Cengage Learning,all rights reservedC H A P T E REconomicsPremium PowerPoint Slides by Ron Cronovich16What market structures lie between perfect competition and monopoly,and what are their characteristics?How do monopolistically competitive firms choose price and quanti

2、ty?Do they earn economic profit?In what ways does monopolistic competition affect societys welfare?What are the social costs and benefits of advertising?1MONOPOLISTIC COMPETITION2Introduction:Between Monopoly and CompetitionTwo extremesPerfect competition:many firms,identical productsMonopoly:one fi

3、rmIn between these extremes:imperfect competitionOligopoly:only a few sellers offer similar or identical products.Monopolistic competition:many firms sell similar but not identical products.MONOPOLISTIC COMPETITION3Characteristics&Examples of Monopolistic CompetitionCharacteristics:Many sellersProdu

4、ct differentiationFree entry and exitExamples:apartmentsbooksbottled waterclothingfast foodnight clubsMONOPOLISTIC COMPETITION4Comparing Perfect&Monop.Competitionyesnone,price-takerfirm has market power?downward-slopinghorizontalD curve facing firmdifferentiatedidenticalthe products firms sellzeroze

5、rolong-run econ.profits yesyesfree entry/exitmanymanynumber of sellersMonopolistic competitionPerfect competitionMONOPOLISTIC COMPETITION5Comparing Monopoly&Monop.Competitionyesyesfirm has market power?downward-slopingdownward-sloping(market demand)D curve facing firmmanynoneclose substitutes zeropo

6、sitivelong-run econ.profits yesnofree entry/exitmanyonenumber of sellersMonopolistic competitionMonopolyMONOPOLISTIC COMPETITION6profitATCPA Monopolistically Competitive Firm Earning Profits in the Short RunThe firm faces a downward-sloping D curve.At each Q,MR P.To maximize profit,firm produces Q w

7、here MR=MC.The firm uses the D curve to set P.QuantityPriceATCDMRMCQMONOPOLISTIC COMPETITION7lossesA Monopolistically Competitive Firm With Losses in the Short RunFor this firm,P MC.Under perfect competition,P=MC.MONOPOLISTIC COMPETITION11Monopolistic Competition and WelfareMonopolistically competit

8、ive markets do not have all the desirable welfare properties of perfectly competitive markets.Because P MC,the market quantity is below the socially efficient quantity.Yet,not easy for policymakers to fix this problem:Firms earn zero profits,so cannot require them to reduce prices.MONOPOLISTIC COMPE

9、TITION12Monopolistic Competition and WelfareNumber of firms in the market may not be optimal,due to external effects from the entry of new firms:The product-variety externality:surplus consumers get from the introduction of new productsThe business-stealing externality:losses incurred by existing fi

10、rms when new firms enter marketThe inefficiencies of monopolistic competition are subtle and hard to measure.No easy way for policymakers to improve the market outcome.1.So far,we have studied three market structures:perfect competition,monopoly,and monopolistic competition.In each of these,would yo

11、u expect to see firms spending money to advertise their products?Why or why not?2.Is advertising good or bad from societys viewpoint?Try to think of at least one“pro”and“con.”13MONOPOLISTIC COMPETITION14AdvertisingIn monopolistically competitive industries,product differentiation and markup pricing

12、lead naturally to the use of advertising.In general,the more differentiated the products,the more advertising firms buy.Economists disagree about the social value of advertising.MONOPOLISTIC COMPETITION15The Critique of AdvertisingCritics of advertising believe:Society is wasting the resources it de

13、votes to advertising.Firms advertise to manipulate peoples tastes.Advertising impedes competition it creates the perception that products are more differentiated than they really are,allowing higher markups.MONOPOLISTIC COMPETITION16The Defense of AdvertisingDefenders of advertising believe:It provi

14、des useful information to buyers.Informed buyers can more easily find and exploit price differences.Thus,advertising promotes competition and reduces market power.Results of a prominent study:Eyeglasses were more expensive in states that prohibited advertising by eyeglass makers than in states that

15、did not restrict such advertising.MONOPOLISTIC COMPETITION17Advertising as a Signal of QualityA firms willingness to spend huge amounts on advertising may signal the quality of its product to consumers,regardless of the content of ads.Ads may convince buyers to try a product once,but the product mus

16、t be of high quality for people to become repeat buyers.The most expensive ads are not worthwhile unless they lead to repeat buyers.When consumers see expensive ads,they think the product must be good if the companyis willing to spend so much on advertising.MONOPOLISTIC COMPETITION18Brand NamesIn ma

17、ny markets,brand name products coexist with generic ones.Firms with brand names usually spend more on advertising,charge higher prices for the products.As with advertising,there is disagreement about the economics of brand namesMONOPOLISTIC COMPETITION19The Critique of Brand NamesCritics of brand na

18、mes believe:Brand names cause consumers to perceive differences that do not really exist.Consumers willingness to pay more for brand names is irrational,fostered by advertising.Eliminating govt protection of trademarks would reduce influence of brand names,result in lower prices.MONOPOLISTIC COMPETI

19、TION20The Defense of Brand NamesDefenders of brand names believe:Brand names provide information about quality to consumers.Companies with brand names have incentive to maintain quality,to protect the reputation of their brand names.MONOPOLISTIC COMPETITION21CONCLUSIONDifferentiated products are eve

20、rywhere;examples of monopolistic competition abound.The theory of monopolistic competition describes many markets in the economy,yet offers little guidance to policymakers looking to improve the markets allocation of resources.A monopolistically competitive market has many firms,differentiated produ

21、cts,and free entry.Each firm in a monopolistically competitive market has excess capacity produces less than the quantity that minimizes ATC.Each firm charges a price above marginal cost.22Monopolistic competition does not have all of the desirable welfare properties of perfect competition.There is

22、a deadweight loss caused by the markup of price over marginal cost.Also,the number of firms(and thus varieties)can be too large or too small.There is no clear way for policymakers to improve the market outcome.23Product differentiation and markup pricing lead to the use of advertising and brand names.Critics of advertising and brand names argue that firms use them to reduce competition and take advantage of consumer irrationality.Defenders argue that firms use them to inform consumers and to compete more vigorously on price and product quality.24