CAS EC 101 Lecture Notes - Lecture 19: Artificial Scarcity, Natural Monopoly, Price Drop

• School: Boston University
• Department: Economics
• Course: CAS EC 101
• Professor: Michael Manove

Document Summary

Perfect competition: one homogenous product, many buyers and sellers, voluntary exchange, perfect information, rational self-interested agents. Competition is imperfect when one or more of these features doesn"t apply. Various forms/degrees of imperfect competition can be defined when the perfect competition standards found above are modifies in different ways. Imperfect competition from a small number of sellers or from product differences: monopoly (one dominant firm) De beers diamonds: duopoly (two dominant firms) Mastercard and visa: oligopoly (a few firms) Ford, gm, honda, toyota, chrysler, : monopolistic competition (many firms with differentiated products. These firms can raise prices above the competitive equilibrium. Imperfect competition from limited information: adverse selection: bad products or bad customers that cannot be identifies, moral hazard: customers who can"t be supervised consume too much (or behave badly) when other are paying, ex: used cars. Used cars often have hidden problems (adverse selection) Owners wont sell good cars because they think they can get more for them.