ANNOUNCEMENT:
SCHEDULE OF EXAMS (Tentative):
o TEST #1 –– DONE!
oTEST #2 – Jan. 28,
2011 (Friday).
o TEST #3 – February, 2011 (TBA).
o FINAL EXAM – Announced during
FINAL EXAM WEEK
1/21/2011
Econ 11 -- Lecture #17
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Lecture 17: SUMMARY:
MARKET STRUCTURES
OLIGOPOLY
SUMMARY OF MARKET
STRUCTURES
SPECIAL STUDY: MARKET
STRUCTURE OF A WHOLE
INDUSTRY
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Econ 11 -- Lecture #17
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OLIGOPOLY
THERE ARE A FEW SELLERS.
EACH SELLER IS SIGNIFICANT RELATIVE
TO THE MARKET.
COMPETITION IS INTENSE (& RUINOUS)
o PRICE COMPETITION
o QUANTITY COMPETITION.
A COLLUSION AMONG SELLERS COULD
RESULT ( CARTEL)
o STEADY PRICE.
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Econ 11 -- Lecture #17
o STEADY MARKET SHARING.
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OLIGOPOLY (KINKED
DEMAND
HYPOTHESIS):
Illustration
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Econ 11 -- Lecture #17
Price
D
d
MC
P0
mr
d
MR
0
4
dd, or flat (or elastic)
demand schedule, for price
increases; DD or steep (or
inelastic) demand schedule
for price decreases. This
makes price at P0 stable or
rigid.
D
Quantity
Q0
The kinked demand schedule in oligopoly
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Price
MC
D
d
P0
mr
d
MR
0
Q0
In this situation, the MC
schedule intersects the MR
where it falls in the kink of
the demand schedule. At
that point, the MR is
indeterminate. Still the firm
maximizes profit here.
D
Quantity
The kinked demand schedule in oligopoly
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2
See Table 9-2.
SUMMARY: TYPES
OF MARKET
STRUCTURE
SUMMARY: NUMBER OF
SELLERS
Pure competition – very plentiful
Monopolistic or differentiated
competition – many
Oligopoly – few
Monopoly – only one
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Econ 11 -- Lecture #17
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SUMMARY: DEGREE OF PRODUCT
DIFFERENTIATION
Pure Competition – Product is homogeneous
Monopolistic or Differentiated Competition –
Seller attempts to make the product unique
and “different” (but it has many subsitutes)
Oligopoly – Product could be differentiated
or homogeneous
Monopoly – Often homogeneous, but the
monopolist attempts to differentiate it
through price discrimination and other
means
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Econ 11 -- Lecture #17
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3
SUMMARY: DEGREE OF FIRM’S
CONTROL OF EQUILIBRIUM
OUTCOME
Pure Competition – No control
Monopolistic or Differentiated Competition –
Very little control, although at times possible
Oligopoly – Control depends on the intensity
of competition
Monopoly – Complete control except in
regulated monopolies
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Econ 11 -- Lecture #17
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SUMMARY: METHOD OF
MARKETING THE PRODUCT
Pure Competition – Market determines
the price and the demand
Monopolistic or Differentiated
Competition – Advertising; Service
differentiation
Oligopoly – Advertising, Public relations
Monopoly – Advertising, Public relations
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Econ 11 -- Lecture #17
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TWIGGY – THE BRITISH MODEL WHO
RULED ADVERTISING PHOTOS FOR TWO TO
THREE DECADES SINCE THE 1960s.
4
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Econ 11 -- Lecture #17
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TWIGGY’S WRINKLES
ARE BRUSHED OUT SO
SHE LOOKS YOUNGER!
TRUTH IN ADVERTIZING –
BRITISH GOVERNMENT
BANS THE
SHOWING OF THIS AD IN THE
UNITED KINGDOM
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Econ 11 -- Lecture #17
A RECENT CASE –
Econ 11 -- Lecture #17
MODEL FOR A
SPECIALTY STORE
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15
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SUMMARY: PREVALENCE IN
THE ECONOMY
Pure Competition – Very common –
products in the farm, in auction markets, in
basic commodities
Monopolistic or Differentiated Competition –
Very common: Products are branded,
Service is often differentiated
Oligopoly -- Common
Monopoly -- Common
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Econ 11 -- Lecture #17
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SUMMARY: EXAMPLES
PURE COMPETITION
Basic commodities (staple agricultural
foods)
Public “wet” markets
Is the UP shopping center for various
student needs competitive?
“Auction” markets
International currency markets
Etc.
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Econ 11 -- Lecture #17
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SUMMARY: EXAMPLES –
MONOPOLISTIC COMPETITION
Restaurants
Grocery markets
Department store goods
Shopping malls in Metro Manila
Branded consumer items (detergents,
soap, toothpaste)
Personal Care products (medicines)
Etc.
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6
SUMMARY: EXAMPLES –
OLIGOPOLY
Banking (Metrobank, PNB, BPI, BDO,
CITIBANK)
Petron vs. Shell vs. Caltex (Others)
Coke vs Pepsi (vs Other softdrinks)
MacDonalds vs Jollibee (vs Other fast
foods)
Cellphone companies: Smart vs Globe vs
Sun
Cars – Toyota, Nissan, GM, Hyundai
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SUMMARY: EXAMPLES
MONOPOLY
“The only store in a town”
MERALCO –local electricity distributor in
Metro-Manila & parts of Southern Luzon
Electric power generator – National Power
Corporation
Telephone company – PLDT
MWSS (water system service in Metro Manila) –
MANILA WATER
Econ 11 -- Lecture #17
MAYNILAD WATER
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SPECIAL STUDY:
MARKET
STRUCTURE OF A
WHOLE INDUSTRY
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Econ 11 -- Lecture #17
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7
DIFFERENT STAGES OF ECONOMIC
ACTIVITY:
RICE, COCONUTS, VEGETABLES ETC.
AGRICULTURE – GROWING &
HARVESTING
PRODUCT MARKETING
o WHOLESALE TO INDUSTRIAL USERS
o RETAIL TO END USERS (OF FRESH OUTPUT)
INDUSTRY INDUSTRIAL USE OF
PRODUCT
INDUSTRY PRODUCT MARKETING
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Econ 11 -- Lecture #17
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CASE OF THE PHILIPPINE COCONUT
INDUSTRY
AGRICULTURE: MAIN PRODUCT – THE COCONUT FRUIT
–
PRODUCTS DERIVED FROM COCONUT
o
o
o
o
COPRA
DESSICATED COCONUT
BY –PRODUCT: HUSKS, SHELL
COCONUT OIL
INDUSTRIAL COCONUT OIL HAS MANY OTHER
INDUSTRIAL USES – FOOD (COOKING) OR OTHER
INDUSTRIAL USES – COSMETICS, CHEMICALS, ETC.
INTERNATIONAL TRADE OF ALL MAJOR PRODUCTS
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Econ 11 -- Lecture #17
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COCONUT INDUSTRY MARKET
STRUCTURE IS A COMPLEX
COMBINATION OF
PURE COMPETITION,
MONOPOLISTIC COMPETITION,
OLIGOPOLY,
AND MONOPOLY,
DEPENDING ON THE
STAGE OF THE ECONOMIC
ACTIVIY
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8
MARKET STRUCTURE OF THE
COCONUT INDUSTRY
AGRICULTURE: MAIN PRODUCT
COCONUT FRUIT
– THE
o FOR THE MOST PART, MAINLY PURELY COMPETITIVE
Firms are small farms planted to coconuts
Individual farm owners have no control over the
product price
But there may be large plantations in which output
is collected by paid workers and the farm owner
has some control over price (can negotiate with nut
wholesale buyers or owns part of the industrial
part of the industry – like copra making or coconut
oil milling)
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MARKET STRUCTURE OF THE
COCONUT INDUSTRY
PRODUCTS FROM THE COCONUT
o COPRA (INCLUDING BY-PRODUCTS LIKE SHELL AND HUSKS)
MAINLY PURELY COMPETITIVE MARKET –
MUCH OF THE COPRA MAKING ACTIVITY IS UNDERTAKEN IN
SMALL COMMUNITIES (SOMETIMES EVEN IN THE FARM) AND
THE OUTPUT IS COLLECTED, WAREHOUSED BRIEFLY AND SOLD
TO WHOLE SALE BUYERS)
o IMPORTANCE OF GOOD PRICE INFORMATION SO THAT COPRA
MANUFACTURERS (AS WELL AS COCONUT PRODUCE SELLERS)
KNOW THE MARKET PRICE.
o LACK OF INFORMATION LEADS TO MONOPOLY
OR
OLIGOPOLISTIC CONTROL OVER THE
PRODUCT BY BUYERS OF THE PRODUCT.
o 1/21/2011
DESSICATED COCONUT
– TO THE EXTENT THIS IS
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DONE IN SMALL FACTORIES, IT IS PURELY COMPETITIVE
MARKET STRUCTURE OF THE
COCONUT INDUSTRY
PRODUCT – COCONUT OIL
o Coconut oil manufacture uses copra as the INPUT. In
the country there are some coconut oil mills that buy
their copra supplies from small and large copra
traders.
o Large mills have some control over their input
(copra) price. There are few coconut oil mills in the
country. Therefore they are in an OLIGOPOLISTIC
MARKET.
o Some coconut oil mills are owned by single
corporations. These single owners can exert
MONOPOLY POWER or strong leadership of the
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Econ 11 -- Lecture #17
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oligopoly.
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MARKET STRUCTURE OF THE
COCONUT INDUSTRY
INTERNATIONAL TRADE – COCONUT
OIL AND COPRA
o PRICES OF COPRA AND COCONUT OIL IN THE
INTERNATIONAL MARKET ARE DETERMINED
BY A COMPLEX OF MARKET FORCES.
o LARGE TRADING COMPANIES AND
INDUSTRIAL USEERS CAN CONTROL PART OF
THE PRICE OF COPRA FOR THEIR BENEFIT.
o INDUSTRIAL POLICIES IN USER COUNTRIES
CAN FAVOR COCONUT OIL MILLERS BY
IMPOSING TARIFF DUTIES ON COCONUT OIL
WHILE ALLOWING DUTY FREE IMPORTATION
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Econ 11 -- Lecture #17
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OF COPRA.
End of today’s lecture.
Good day!
Lecture 17
☺
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Econ 11 -- Lecture #17
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