ECN 104 Lecture Notes - Lecture 12: Allocative Efficiency, Oligopoly, Price Fixing
13 Oct 2016
School
Department
Course
Professor
Document Summary
There is no one simple model to predict outcomes due to diversity and interdependence. Firms are likely to change prices together. Collusion: any agreement to fix prices, divide up the market, or otherwise restrict competition. Each firm acts as if it were a pure monopolist. Each frim finds it most profitable to charge p0. Cement firms in quebec: fined for price fixing in 1996. Conspiracy discovered by a newspaper that reported the cost of the city"a (cid:374)e(cid:449) Change the price of the product by shifting the demand curve by. Oligopolists prefer not to compete on price. Ad(cid:448)ertisi(cid:374)g reduces co(cid:374)su(cid:373)er"s search ti(cid:373)e a(cid:374)d (cid:373)i(cid:374)i(cid:373)izes. Introduction of new products -> compete with existing brands. Conveys little or no information about the price or quality. Consumers might pay higher prices for inferior goods. Claims for better products might be misleading. Brand name loyalty: more sales and higher profits enable more advertising. New entrants need to incur large advertising costs to establish.
