Level 1 - Economics - Market Structure

Market Structure

Measuring Concentration of market

Concentrate 指該市場主要被某幾個大集團所 dominate，有以下兩個 measure:

1.      Four-firm concentration ratio:

該市場四個最大的公司 market share / % of sales 的總和:
- 100% à Monopoly
- Close to zero à Highly Competitive
- < 40% à Competitive
- > 60% à Oligopoly

2.      Herfindahl Hirschman Index (HHI):

該市場的 50 大或全部公司的 sum of (market share²)
- 10000 à max value à Monopoly
- > 1800 à Not competitive
- 1000 – 1800 à Moderately Competitive
- < 1000 à Competitive

Perfect Competition

Characteristics:
- All suppliers selling the identical product
- Many sellers and they are small relative to the market
- Low barrier of entry
- Price is determined by market demand and supply à 市場上有一個公價，所以demand curve對於一個 supplier而言是水平的 (perfectly elastic)，只可根據市價出售 à Price Taker

Profit:
Price – Average Total Cost) * Quantity

以上的例子，紫色部份的是economic profit，但由於perfectly competitive market是沒有barrier of entry，economic profit 會吸引其他supplier加入，market supply 上升，會drive down market price，直到no economic profit

Monopoly

Characteristics:
- One Supplier only
- No close substitute
- High barrier of entry
- Price is determined by seller which maximizing its profit à Price searcher

Profit:

MR = marginal revenue，假設沒有 price discrimination，多賣一件，全部數量的價錢都會減低，所以它是 under demand curve 的

Monopoly就是用 MC 及 MR 的intersection 決定生產的數量以達到 profit maximization

Government Intervention

由於monopoly不是生產 equilibrium quantity à Deadweight Loss，所以政府會對 monopoly 的定價限制:

1. Average Cost Pricing

    Set price = Average Total Cost à no economic profit

2. Marginal Cost Pricing

    Set price where MC curve intersect with demand curve

*if the price level is below the average total cost, government will provide subsidy to cover the economic loss

 

Monopolistic Competition

Characteristics:

- Many independent sellers

- Slightly differentiated products

- Compete on price, quality and marketing

- Low barrier of entry

Profit:

In short run, 跟Monopoly 相似，可透過 set 價錢去maximize economic profit。Long term，由於economic profit 會吸引其他人加入，會令 demand curve shift to the left à 最後Price = ATC and no economic profit

不過，product innovation可以令product更有competitiveness，減低 substitute 的威脅，令 economic profit stay longer

 

Oligopoly

Characteristics:

- Few large sellers

- Interdependence between competitors

- Significant barrier of entry

Profit:

Sellers 可透過不同類型的合作或協調來 set price à Economic Profit，大部份industry 都會有一個leader 擔任set price 的角色，而其他的會 follow

Kinked Demand Curve

假如 oligopolies 之間是沒有任何形式的合作，其中一間 firm 加價，其他 firms 不會 follow，所以稍加價會令quantity大跌。如果其中一間 firm 減價，其他的都會 follow，所以即使減了價都 quantity 也不會大增