Tài liệu Microeconomics for MBAs 44 pdf

Chapter 13 Imperfect Competition and

Firm Strategy

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were a pure monopoly, it would not have to fear a loss of business to other producers

because of a change in price.) Inefficiency in this market is slightly greater than in a

monopolistically competitive market—see the shaded triangular area of Figure 13.3.

The Oligopolist as Price Leader

Alternatively, oligopolists may look to others for leadership in determining prices. One

producer may assume price leadership because it has the lowest costs of production; the

others will have to follow its lead or be underpriced and run out of the market. The

producer that dominates industry sales may assume leadership. Figure 13.4 depicts a

situation in which all the firms are relatively small and of equal size, except for one large

producer. The small firms’ collective marginal cost curve (minus the large producer’s) is

shown in part (a), along with the market demand curve, Dm. The dominant producer’s,

marginal cost curve, MCd, is shown in part (b) of Figure 13.4.

FIGURE 13.4 The Oligopolist as Price Leader

The dominant producer who acts as a price leader will attempt to undercut the market price established by

small producers (part (a)). At price P1 the small producers will supply the demand of the entire market, Q2.

At a lower price—Pd or Pc—the market will demand more than the small producers can supply. In part (b),

the dominant firm determines its demand curve by plotting the quantity it can sell at each price in part (a).

Then it determines its profit-maximizing output level, Qd, by equating marginal cost with marginal revenue.

It charges the highest price the market will bear for that quantity, Pd, forcing the market price down to Pd in

part (a). The dominant producer sells Q3-Q1 units, and the smaller producers supply the rest.

The dominant producer can see from part (a) that at a price of P1, the smaller

producers will supply the entire market for the product, say, steel. At P1 the quantity

demanded, Q2, is exactly what the smaller producers are willing to offer. At P1 or above,

therefore, the dominant producer will sell nothing. At prices below P1, however, the total

quantity demanded exceeds the total quantity supplied by the smaller producers. For