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Oligopoli

Struktur pasar Oligopolistik


Pandangn Perusahaan Konsekwensinya, setiap perusahan harus mempertimbangkan reaksi pada rival pada harga, produksi, atau keputusdan produksi Reaksi ini saling berhubungan
Produk Heterogeneous atau Homogeneous

Contoh -- Pasar sepatu atlit


Nike mempunyai pasar 47% Reebok mempunyai pasar 16% Dan Adidasmempunyai pasar 7% 2005 South-Western Publishing

Slide 1

Nokias Keunggulan (Challenge) pada telepon selluler


Pangsa pasar berubaha pada oligopolis. Pada thn1998, pemimpin pasar pada telepon selularpada Motorola dengan 25% pangsa pasar dan Nokia second with 20% Pada thn 2002, kepeimpina pasarberubah: Nokia 37% pasar Motorola 17% Selanjutnya, perubahan teknologi pada telepon, membawa wireless web, photos, dan kecepatan teknologi G3 Perusahaan lain dan produk baru, seperti pada Dell, Palm, NEC serta and Panasonic merupakan ancaman pada profit margin Nokia Nokia harus memutuskan pada teknologi 3G ke depan. Pada perusahaan oligopoli memimipin tidak berarti memipin jangka panjang Slide 2

Cournot Oligopoli
Beberapa Models terikat pada asumsi aksi rivals pada kepuutusan harga . Augustin Cournot (1838) menemukan suatu model yang dasarnya Anti kebijakan -trust di US.
Asumsi Relatif: ketergantungan pada rival Membuat pemetaan gampang

Saling ketergantungan:

Cournot

Slide 3

Competition, Monopoly, and Cournot Oligopoly

A Numerical Example:

Let: P = 950 - Q and MC =50 IN COMPETITION


$500
$350 $50

P = MC, so 950 - Q = 50 PC = $50 and QM = 900

PM Pcournot

IN MONOPOLY
MR = MC, so 950 -2Q = 50 QM = 450 so PM = 950 - 450 = $500

PC

D QM QCournot QC
450 600 900

IN DUOPOLY Let Q = q1 + q2

Slide 4

Cournot Solusi:
Case of 2 Firms (Duopoly)
Asumsi setiap perusahaan memaksimumkan profit Asumsi setiap perusahaan percaya tiak akan berubah output.
Ini disebut : Asumsi Cournot

Dihitung setiap perusahaan pada MR = MC

Slide 5

Let Q = q1 + q2
P

= 950 - Q = 950 - q1- q2

dan MC = 50

TR1 = Pq1= (950- q1-q2)q1 =950q1 - q12 - q1q2 and TR2 = Pq2= (950- q1-q2)q2 =950q2 - q2q1 - q22

Set MR1= MC

&

MR2= MC
2 equations & 2 unknowns
Slide 6

950 -2q1 - q2 = 50 950 - q1 - 2q2 = 50

With 2 Equations & 2 Unknowns: Solve for Output 950 -2q1 - q2 = 950 - q1 - 2q2 So, q2 = q1 Then plug this into the demand
equation we find: 950 - 2q1 - q1 = 950 - 3q1 = 50.

Therefore

q1 = 300
P

The price is:

600 P = 950 - 600 = $350


Q
900 600 450 50 350 500
Cournots answer is between the other two.
Slide 7

and Q =

Competition Cournot Monopoly

N-Firm Cournot Model


For 3 firms with linear demand and cost functions: QC

Q = q 1 + q 2+ q 3

In linear demand and cost models, the solution is higher output and lower price QCournot = { N / (N+1) }QCompetition
THEREFORE, Increasing the Number of Firms increases competition. This is the historical basis for Anti-trust Policies

PC N
Slide 8

Example: Cournot as N Increases


N=3
If N = 3 Triopoly

N=5
If N = 5 P = 950 - Q and MC = 50 Then Q = (5/6)(900) Q = 750 P = $200

P = 950 - Q &
MC=50 Then, Q = (3/4)(900) Q = 675 P =$275

Slide 9

Kollusion versus Competisi?


Kadang-kadang koolusi berhasil Kadang-kadang kekuatan kompetisi tindakan kolektif Manakala kollusi sukses?
Ada 6 faktor mempengaruhi suksesnya kolluisi:
Slide 10

Factors Affecting Likelihood of Successful Collusion

1. Number and Size Distribution of Sellers.


products that are standardized or homogeneous

Collusion is more successful with few firms or if there exists a dominant firm.

2. Product Heterogeneity. Collusion is more successful with

3. Cost Structures. Collusion is more successful when the


4.
costs are similar for all of the firms in the oligopoly. Size and Frequency of Orders. Collusion is more successful with small, frequent orders.

5. Secrecy and Retaliation. Collusion is more successful when it is difficult to give secret price concessions. 6. Percentage of External Orders. Collusion is more

successful when percentage of orders outside of the cartel is small.

Slide 11

Oligopolies & Incentives to Collude


When there are just a few firms, profits are enhanced if all P reduce output But each firm has incentives to cheat by selling more
MC

MC

incentive to cut price

q
Representative firm

Industry

QM

MR
Slide 12

Examples of Cartels
Ocean Shipping -- maritime exemption from US Antitrust Laws DeBeers -- diamonds 1950s Electrical Pricing Conspiracy -- GE, Westinghouse, and Allis Chalmers OPEC - oil cartel, with Saudi Arabia making up 33% of the groups exports Siemens and Thompson-CSF -- airport radar systems NCAA - intercollegiate sports, also Major League Baseball
Slide 13

Kepemimipnan Harga
B arom etric P ric e L ead er D om in an t F irm P ric e L ead er

Barometric:

One (or a few firms) sets the price

One firm is unusually aware of changes in cost or demand conditions The barometer firm senses changes first, or is the first to ANNOUNCE changes in its price list Find barometric price leader when the conditions unsuitable to collusion & firm has good forecasting
abilities or good management
Slide 14

Barometric Price Leader Example:


Citibank & Prime Rate Announcements
Banking: 6,000 banks and falling, but there are still many banks. New York, center of Open Market activities of the Fed Reserve Citibanks announcement represents changes in interest rate conditions to other banks tolerably well.
Slide 15

Dominant Firm Price Leadership


Dominant Firm: 40% share of market or more. No price or quantity collusion Dominant Firm (L) expects the other firms (F) to follow its price and produce where

MC F

DT
leaders demand

MC F = PL
Net Demand Curve: DL

DL

= DT - MCF
Slide 16

Graphical Approach to Dominant Firm Price Leadership MC

Find leaders demand curve, DL = (DT - MC F) Find where MRL = MCL

DL
MRL

DT

Slide 17

Graphical Approach to Dominant Firm Price Leadership MC

PL

DL
MRL

At QL, find the MCL leaders price, PL Followers will supply the remainder of Demand: D (QT - QL) = QF

QL
Slide 18

Graphical Approach to Dominant Firm Price Leadership MC

MCL

PL

DL
MRL

QL

QT

Followers will supply the remainder of Demand: (QT - QL) = QF


Slide 19

Implications of Dominant Firm Price Leadership


Market Share of the Dominant Firm Declines Over Time
Entry expands MC F, and Shrinks DL and MRL

Profitability of the Dominant Firm Declines Over Time profits


TIME

Market Share of the Dominant Firm is PROCYCLICAL


rises in booms, declines in recessions
Slide 20

Numerical Example of Dominant Firm Price Leadership


Aerotek is the leader, with 6 other firms, given the following: 1. P = 10,000 10 QT is the market demand 2. QT = QL + QF is the sum of leader & followers 3. MCL = 100 + 3 QL and MCF = 50 + 2 QF

What is Aeroteks price and quantity?

From 2 above, QL = QT QF and From 1, QT = 1,000 - .1P Since followers sell at P=MC, From 3, P = 50 + 2 QF, which rearranged to be QF = .5P - 25 So, QL = (1,000 - .1P) (.5P - 25) = 1,025 -.6 P, which can be rearranged to be P = 1,708.3 1.67 QL MRL = 1,708.3 3.34 QL And MRL = MCL where: 1,708.3 3.34 QL = 100 + 3 QL The optimal quantity for Aerotek, the leader is QL 254 P = 1,708.3 1.67 QL = 1,708.3 1.67(254) $1,284.
Slide 21

Historical Example:

U.S. Steel (USX)


In early 1901 negotiations among J. P. Morgan, Elbert Gary, Andrew Carnegie, and Charles M. Schwab created United States Steel. 66% market share in 1901 46% market share by 1920 42% share by 1925

profits in a profits dominant firm when model using a


lower price

normal profits

Time

Coke ovens in. 1912 in Gary, IN

Slide 22

Kinked Oligopoly Demand Curve


Belief in price rigidity founded on experience of the great depression no one follows a price increase
P

Price cuts lead to everyone following


highly inelastic

Price increases, no one follows


highly elastic

everyone follows price cuts

a kink at the price


Slide 23

A Kink Leads to Breaks in the MR Curve Although MC rises, the optimal price remains constant D MC2 Expect to find price MC1 rigidity in markets with kinked demand QUESTION:
D

Where would we more likely find KINKS and where NOT?


Slide 24

MR

Which industries are likely to have kinks and which have no kinks?
The GREATER the number of firms, likely more kinked Prices Likely More Rigid The more HOMOGENEOUS, likely more kinked Prices More Rigid heterogeneous

N=2

N = 10

homogeneous

Slide 25

Empirical Evidence vs. Predictions of the Model


Oligopolies with few firms were more rigid in FACT 2
FACT

Oligopolies with homogeneous products were MORE rigid in FACT 2


FACT

prediction

prediction

heterogeneous homogeneous
Slide 26

Are these Empirical Findings Surprising? A kink is a barrier to profitability Firms are in business to make profits and avoid barriers. Simple Alternative Explanations Exist:
More firms are more competitive More homogenous products act more competitively Collusion leads firms to fix prices. The rigid prices seen in oligopolies are signs of collusion.
Slide 27

Price Rigidities and Employment Impacts


Price rigidity will make business downturns worse Employment will be more volatile over the business cycle if there are price rigidities
if price changes with shifts in demand

A rigid price

D BUSTS
Q3 Q2 Q1

D BOOMS
OUTPUT Slide 28

Oligopolistic Rivalry & Game Theory


John Von Neuman & Oskar Morgenstern- Game Theory used to describe situations where individuals or organizations have conflicting objectives Examples: Pricing of a few firms, Strategic Arms Race, Advertising plans for a few firms, Output decisions of an oligopoly

Strategy--is a course of action


The PAYOFF is the outcome of the strategy. Listing of PAYOFFS appear in a payoff matrix.

A Strategy Game involves decisions with consciously interdependent behavior of two or more participants.
Slide 29

Two Person Game


Randle Each player knows his and opponents alternatives Guard Maraude Preferences of all players are known Single period game st Worst, 4th Better, 1 Each player can invade the territory Guard of the other (Maraude) or Guard his own territory Kahn Kahns payoff is given first, Maraude Randles payoff is second. Worse, 2nd Best, 3rd Randle ranks Guard above Maraude. Randle has a Dominant Strategy: a decision that maximizes welfare independent of the other players strategy choice We will get to {Guard, Guard} Knowing what Randle will do, Kahn which is an Equilibrium decides to Guard as well. An Equilibrium--none of the participants can improve their payoff
Slide 30

ASSUMPTIONS

Table 12. 4 page 537

Six or Seven Territories?


Table 12.5 on page 538
Sharp 6 territories 7 territories Sharp and Xerox compete in copiers. Payoffs for Xerox are in the lower triangle The payoffs depend on the number of territories in which they compete Sharp has a dominant strategy of 6 territories. What should Xerox do? We see we get to {6, 6} as the iterated dominate strategy.
Slide 31

Xerox

6 territories

$40

$70

$35

$55

7 territories

$30

$60

$45

$45

Other Strategic Games


These are viewed as single period, but businesses tend to be on-going, or multi-period games These are two-person games, but oligopolies often represent N-person games, where N is greater than 2 Some games are zero-sum games in that what one player wins, the other player loses, like a game of poker Other games are non-zero sum games where the whole payoffs depend on strategy choices by all players.
Slide 32

The Prisoners Dilemma


Often the payoffs vary depending on the strategy choices Noncooperative Solution
both confess: {C, C}

Cooperative Solution
both do not confess {NC,NC}

The Prisoners Dilemma

Two suspects are caught & held suspect 2 separately NC C Their strategies are 1 yr 0 yrs either to Confess (C) or NC 1 yr 15 yrs Not Confess (NC) 6 yrs a one period game suspect 1 15 yrs 0 yrs 6 yrs C
Suspect 1 in lower triangle (Bold Red)
Slide 33

Off-diagonal represent a Double Cross

Paradox?
The Prisoners Dilemma highlights the situation where both parties would be best off it the cooperated But the logic of their situation ends up with a non-cooperative solution The solution to cooperation appears to be transforming a one-period game into a multiperiod game. The actions you take now will then have consequences in future periods.
Slide 34