BEPP 250 Lecture Notes - Lecture 19: Price Elasticity Of Demand
13 Apr 2015
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Bepp 250 - business & economic public policy - lecture 19 imperfect competition (continued) Cournot (recap: write profits down, find the best response of firm 1, find the best response of firm 2, find nash equilibrium. New take on the lerner index for monopolies - the inclusion of market share. (p-mc) / p = (1/demand elasticity) (market share) As market share increases, markup increases as well (and vice versa) If competition drops out & firm gains market share it will raise prices -- demand elasticity won"t change. Earns higher profit than perfect competition but not as much as a monopoly. Cartel = group of firms that collude in their choice of price or q. Treat both companies as one large monopoly. Ex) (continued from last lecture) profit = y (p-mc) Profit = y (1. 50 - (y/200) - . 6) Profit" = 0 = . 9 - y/100. In the stackelberg model, one firm goes first, the decisions are not made simultaneously.
