# Imperfect Competition persaingan di pasar tidak sempurna monopoli, duopoli, triopoli, oligopoli dst Four models in imperfect competition to understand.

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Imperfect Competition persaingan di pasar tidak sempurna

monopoli, duopoli, triopoli, oligopoli dst

Four models in imperfect competition to understand the interaction between firms:

1) Bertrand model

2) Cournot model

3) Cartel model

4) Game Theory

Tujuan mencari model bagaimana memprediksi tingkah

laku daripada saingan kita2

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Bertrand model is a model of competition used in economics that describes interactions among firms (sellers) that set prices in order to maximize profits Each firm is assumed to be a price taker

The model rests on the following assumptions:a) There are at least two firms producing homogeneous products;

b) Firms do not cooperate;

c) Firms compete by setting prices simultaneously;

d) Consumers buy everything from a firm with a lower price.

If all firms charge the same price, consumers randomly select

among them.

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Quantity

Price

MC=AC

DMR

QC

PC

If each firm acts as a price taker, P = MCi so QC output is produced and sold at a price of PC

If p1 and p2 > MC, a firm could gain by undercutting the price of the other and capturing all the market If p1 and p2 < MC, profit would be negative

C

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Describes a situation in which two players (firms) reach a state of Nash equilibrium where both firms charge a price equal to marginal cost zero profit.

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Cournot model is an economic model used to describe an industry structure in which companies compete on the amount of output they will produce to maximize profit.

Contoh dari Bertrand Paradox change the Bertrand’s assumptions menjadi Cournot Model.

Cournot’ assumptions:a) There is more than one firm and all firms produce a homogeneous product

no product differentiation;

b) Firms do not cooperate;

c) Firms have market power each firm's output decision affects the good's price;

d) Firms compete in quantities, and choose quantities simultaneously.

In equilibrium, identical firms will produce the same share of output qi

= Q/n

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#q1

q2

a - c

The intersection of the firms’ best-response (BR) functions is the Nash equilibrium

a - c

BR1(q2)

BR2(q1)

2ca

2ca

3ca

3ca

The Nash equilibrium is where q1*=q2*=(a–c)/3yang dihitung dengan metode pada example 15.1.

E a = demand interceptc = market pricea-c = total output

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#q1

q2A change in a firm’s marginal cost will shift its best-response function

BR1(q2)

BR2(q1)

If firm 1’s marginal cost rises, its best-response-function will shift in and there will be a new Nash Equilibrium (E”)

E’E”

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Cournot model is particularly useful for policy analysis because it can represent the whole range of outcomes from perfect competition to perfect cartel by varying the number of firmsn = perfect competitionn = 1 perfect cartel / monopoly

total output = Q* = (1/2)(a – c)

P* = (1/2)(a + c)

total cartel profit = * = (1/4)(a – c)2

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Cartel produsen organization which determine policy for all firms in this cartel with purpose to maximize the profit.

Cartel model is an alternative assumption would be that firms act as a group and coordinate their decisions so as to achieve monopoly profits.

Ada 2 jenis:

1) Centralized cartel

2) Market-sharing cartel

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Quantity

Price

MC

DMR

QM

PM

If the firms form a group and act as a monopoly, MR = MCi so QM output is produced and sold at a price of PM

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Price

PM

PA

PC MC

CA

M

MR

D

QuantityQM QA QC012

Equlibrium Cartel model = MEquilibrium Cournot model = AEquilibrium Bertrand model = C

Total welfare C > total welfare ATotal welfare A > total welfare M

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Moving from price competition to quantity competition changes the outcome dramatically– an advantage of the Cournot model is the realistic implication

that the increases in the number of firms makes the market more competitive

• but real-world firms tend to set prices rather than quantities

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Consider a two-stage game– firms build capacity in the first stage– firms choose prices p1 and p2 in the second stage– sales of firms cannot exceed the capacity chosen in the first

stage If the cost of building capacity is sufficiently high, the

equilibrium of this game is the same as the Nash equilibrium of the Cournot model– firms choose the price at which quantity demanded equals

total capacity

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Firms often devote considerable resources to differentiating their products from those of their competitors:– quality and style variations– warranties and guarantees– special service features– product advertising Tujuannya - memenuhi keinginan konsumen

- membangun reputasi atas produk yang dihasilkan

- memberikan pelayanan yang baik

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SD is a simple model in which identical products are differentiated because of the location of their suppliers.

Contoh di example 15.5 Hotelling’s Beach examining the case of ice cream stands located on a beach.

Lebih memilih stand ice cream A walaupun PA > PB

karena jarak stand ice cream A < jarak stand ice cream B

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Collusion which is not overt, on the other hand, is known as tacit collusion

Collusion is an agreement, usually secretive, between two or more persons to limit open competition  by deceiving, misleading, or defrauding others of their legal rights.

Collusion is an agreement among firms to divide the market, set prices, or limit production.

Contoh Tacit Collusion dalam Bertrand Model dan Cournot Model ada dihalaman 539-540

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What the firm loses in terms of flexibility may be offset by the value of being able to commit to the decision.

If a firm can commit to an action before others move, the firm may gain a first-mover advantage

Commitment is essential for a first-mover advantage

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A sunk cost is an expenditure on an investment that cannot be reversed and has no resale value.

Example….There is sometimes confusion between sunk costs and

what we have called fixed cost. Why ???

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The assumption of a constant marginal cost makes the price leadership model inappropriate for Cournot’s natural spring problem– the competitive fringe would take the entire market by

pricing at marginal cost (= 0)– there would be no room left in the market for the price

leader

There is the possibility of a different type of strategic leadership

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Firm 1 (the leader) choosing its ochoosing after observing firm 1’s outpututput first and then firm 2 (the follower)

Firm 2 chooses the output q2 that maximizes its own profit, taking firm 1’s output given q1 as given

In other words, firm 2 best responds to firm 1’s output

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Assume that firm 1 knows that firm 2 chooses q2 so that

q2 = (120 – q1)/2

Firm 1 can now calculate the conjectural variation

q2/q1 = -1/2

This means that firm 2 reduces its output by ½ unit for each unit increase in q1

Firm 1’s profit-maximization problem can be rewritten as

1 = Pq1 = 120q1 – q12 – q1q2

1/q1 = 120 – 2q1 – q1(q2/q1) – q2 = 0

1/q1 = 120 – (3/2)q1 – q2 = 0

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Solving this simultaneously with firm 2’s reaction function, we get

q1 = 60

q2 = 30

P = 120 – (q1 + q2) = 30

1 = Pq1 = 1,800

2 = Pq2 = 900

Again, there is no theory on how the leader is chosen

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See Figure 15.6

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In the Stackelberg game, the leader uses what has been called a “top dog” strategy, aggressively overproducing to force the follower to scale back its production.

A comparison of figure 15.6 dan 15.7 suggest the crucial difference between the games that leads the first mover to play a “top dog” strategy in the quantity game and a “puppy dog” strategy in the price game

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The benefit is that it operates alone in the market and has market demand to itself.

Deterring entry is relatively easy for the first mover if the second mover must pay a substantial sunk cost to enter the market.

Entry deterrence is always accomplished by a “top dog” strategy whether competition is in quantities or prices, or (more generally) whether best-response functions slope down or up.

If firm 1 wants to accommodate entry, whether it should pay a “puppy dog” or “top dog” strategy depend on the nature of competition –in particular, on the slope of the best-response functions

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The ability to signal may be a plausible benefit of being a first mover in some settings in which the benefit we studied earlier-commitment-is implausible.

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See Figure 15.8

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The incomplete-information model of entry deterrence has been used to explain why a rational firm might want to engage in predatory pricing, the practice of charging an artificially low price to prevent potential rivals from entering or to force existing rivals to exit

The predatory firm sacrifices profits in the short run to gain a monopoly position in future periods

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If barriers to entry prevent free entry and exit, the results of this model must be modified barriers to entry can be the same as those that lead to

monopolies or can be the result of some of the features of oligopolistic marketsproduct differentiationstrategic pricing decisions

The completely flexible type of hit-and-run behavior assumed in the contestable markets theory may be subject to barriers to entry some types of capital investments may not be reversible demanders may not respond to price differentials quickly

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In general, the long run equilibrium number of firms, n*, may be greater or less than the social optimum, n**, depending on two offsetting effects: the appropriability effect and the business-stealing effect.

This appropriability effect would lead a social planner to choose more entry than in the long-run equilibrium: n**>n*

The entrant “steals” some market share from existing firms-hence the name business-stealing effect: n**<n*

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• A feedback effect is that the more profitable the market is for a given number of firms, the more firms will enter the market, making the market more competitive and less profitable than it would be if the number of firms were fixed.

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Dissipation effect: Competition dissipates some of the profit from innovation and thus reduces incentives to innovate

The dissipation effect is part of the rationale behind the patent system

Replacement effect : firm gain less incremental profit, and thus have less incentive to innovate, if the new product replaces an existing product already making profit than if the firm is a new entrant in the market

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New firm are not always more innovative than existing firm.

The dissipation effect may counteract the replacement effect, leading old firms to be more innovative.

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