MONOPOLY

COMPETITIO
N
MANAGERICAL ECONOMICS
 1 ĐÀO THỊ LAN ANH
2 NGUYỄN THỊ LAN

TEAM 7 3
4
DƯƠNG THANH NHÀN
MAI THU HƯƠNG
5 TRẦN THỊ QUẾ ANH
Table of contents
1 2 3
Definition Of A Continuum Of Market Price-Output
Competitive Strategy Structures

4 5 6
Selling And Promotional Competitive Markets Conclusion
Expenses Under Asymmetric
Information
1 Definition Of Competitive Strategy

Competitive strategy is a system of short-term and long-term implementation plans that

an organization outlines with the desire to achieve the goal of increasing its competitive
advantage over other competitors
2 A Continuum Of Market Structures

The relationship between individual firms and the relevant market as a whole is
2.1
referred to as the industry’s market structure and depends upon

• The number and relative size of firms in the industry.

• The similarity of the products sold by the firms of the industry; that is, the degree of
product differentiation.
• The extent to which decision making by individual firms is independent, not
interdependent or collusive.
• The conditions of entry and exit. Four specific market structures are often
distinguished: pure competition, monopoly, monopolistic competition, and oligopoly.
We discuss each in turn.
2 A Continuum Of Market Structures

Pure Competition is a market structure characterized by a large number of buyers and

2.2
sellers of a homogeneous product, with costless entry and exit, and no collusion. The pure
competition industry model has the following characteristics:

• A large number of buyers and sellers have a small impact on the market price.
• Firms produce a homogeneous product with no differentiation.
• Firms act independently to ensure accurate market information
• Free entry and exit from the market.
2 A Continuum Of Market Structures

Contestable Markets
2.3
A contestable market is an extreme case of purely competitive markets. In this market
structure, break-even performance often occurs with just a handful of firms, perhaps only one.
The reason is that entry and exit are free and costless.
3 Price-Output

3.1 DETERMINATION UNDER PURE COMPETITION

SHORT RUN
A company in a competitive
industry can break even, generate
temporary profits, or operate at a
loss.

In the case of pure competition,

marginal revenue MR equals price
P, because selling each additional
unit increases total revenue equal
to the price of that unit.
3 Price-Output

3.1 DETERMINATION UNDER PURE COMPETITION

LONG RUN
All inputs are free to vary,
eliminating the distinction between
fixed and variable costs.

In competitive markets, average

cost will be equal to price,
eliminating excessive profits.
3 Price-Output

Example

Copper Price Rise by 400 Percent Contributes to Housing Bubble

Home prices across the United States rose to unsustainable heights in 2006–2008. Part of the
reason was demand-pull bid price pressure from lower interest rates on mortgages than ever
seen in post-war U.S. markets. But another reason was cost-push asking price pressure from
spiking commodity prices. A 2,100-square-foot home incorporates 440 pounds of copper
plumbing, sheathing, and wiring. Between 2003 and 2007, copper rose in price 400 percent.
Lumber prices have responded the same way in the fall of 2012 in the immediate aftermath of
Hurricane Sandy.
3 Price-Output

3.2 DETERMINATION UNDER MONOPOLISTIC COMPETITION

SHORT RUN
Just as in the case of pure competition, a monopolistically competitive firm may or may not generate a profit in the
short run. For example, consider a demand curve such as D’D’ in Figure 10.9, with marginal revenue equal to
MR’. Such a firm will set its prices where MR’= MC, resulting in price P3 and output Q3. The firm will earn a profit
of EC dollars per unit of output. However, the low barriers to entry in a monopolistically competitive industry will
not permit these short-run profits to be earned for long. As new firms enter the industry, industry supply will
increase, causing the equilibrium price to fall. This is reflected in a downward movement in the demand curve
facing any individual firm.
3 Price-Output

3.2 DETERMINATION UNDER MONOPOLISTIC COMPETITION

LONG RUN
With relatively free entry and exit into the competitive fringe, At this price, P1, and output, Q1, marginal cost is equal to
average costs and a firm’s demand function will be driven marginal revenue. Hence a firm selling perfume or beer is
toward tangency at a point such as A in Figure 10.9 producing at its optimal level of output. Any price lower or higher
than P1 will result in a loss to the firm because average costs will
exceed price. Because the monopolistic competitor produces at
a level of output where average costs are still declining (between
Points A and B in Figure 10.9), monopolistically competitive firms
produce with excess capacity. Of course, this argument
overlooks the extent to which idle capacity may be a source of
product differentiation. Idle capacity means a firm such as
Singapore Airlines can operate with high delivery reliability and
change-order responsiveness, which can be very important to
business travellers and that warrants a price premium relative to
competitive fringe airlines.
4 Selling and Promotional Expenses

4.1 Definition

Selling and Promotion Expenses means costs incurred consistent with the budget in the
Marketing Plan, and specifically identifiable to the sales and/or promotion of Collaboration
Products to all markets and to the operation and maintenance of the sales personnel.
4 Selling and Promotional Expenses

4.2 Determining the Optimal Level of Selling and Promotional Outlays

The determination of the optimal advertising outlay is a straightforward application of the marginal
decision-making rules followed by profit-maximizing firms.
Contribution Margin ( PCM ) = P - MC

The marginal cost of advertising (MCA) associated with the sale of an additional unit of output is
defined as the change in advertising expenditures (ΔAk) where k is the unit cost of an advertising
message, A, or
MCA = ΔAk / ΔQ

The optimal level of advertising outlays is the level of advertising where the marginal profit
contribution (PCM) is equal to the MCA, or
PCM = MCA
4 Selling and Promotional Expenses

4.3 Optimal Advertising Intensity

Optimal expenditure on demand-increasing costs like promotions, couponing, direct mail, and
media advertising can be compared across firms.
The reach of a TV ad is measured as audience thousands per minute of advertising message;
reach is directly related to the advertising message’s cost (k). A manager should fully fund in her
marketing budget any ad campaign for which
(P - MC) (ΔQ/ΔA) > k
4 Selling and Promotional Expenses

4.4 The Net Value of Advertising

Although advertising can raise entry barriers and

maintain market power of dominant firms, the economics
of information argues that by giving consumers
information, advertising can reduce the prices paid. The
discovery of price information may be costly and time
consuming in the absence of price advertising.
5 Competitive Markets Under Asymmetric Information

Example

Mail-order suppliers of computer components or

personal sellers of used cars often have an
informationally advantaged position relative to the
LIFE
INSURANCE buyers. The sellers know the machine’s capabilities,
deficiencies, and most probable failure rate, but
these are difficult matters for the buyer to assess
from reading magazine ads or kicking the tires. And
the typical 90-day warranty does nothing to alter this
information asymmetry. Both buyer and seller face
uncertainty against which they may choose to insure,
but one has more information or better information
than the other.
6 Conclusion

Monopoly is very popular in today's mayor. Most companies have their own price
adjustments, because their products are not identical to those of other companies.
However, companies with intrinsic monopoly power are quite rare. Because a few goods
are considered unique. Most are interchangeable, although not identical, but there is a
similarity.
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