ANNOUNCEMENT:

SCHEDULE OF EXAMS (Tentative):

o TEST #1 DONE!

oTEST #2 Jan. 28, 2011 (Friday).

o TEST #3 February, 2011 (TBA).

o FINAL EXAM Announced during FINAL EXAM WEEK

1/21/2011 Econ 11 -- Lecture #17 1

Lecture 17: SUMMARY: MARKET STRUCTURES OLIGOPOLY SUMMARY OF MARKET STRUCTURES SPECIAL STUDY: MARKET STRUCTURE OF A WHOLE INDUSTRY
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OLIGOPOLY
THERE ARE A FEW SELLERS. EACH SELLER IS SIGNIFICANT RELATIVE TO THE MARKET. COMPETITION IS INTENSE (& RUINOUS)
o PRICE COMPETITION o QUANTITY COMPETITION.

A COLLUSION AMONG SELLERS COULD RESULT ( CARTEL)

o STEADY PRICE. 1/21/2011 Econ 11 -- Lecture #17 o STEADY MARKET SHARING.
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OLIGOPOLY (KINKED DEMAND HYPOTHESIS): Illustration

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Price d P0 mr d D MC

dd, or flat (or elastic) demand schedule, for price increases; DD or steep (or inelastic) demand schedule for price decreases. This makes price at P0 stable or rigid.

MR 0 Q0

D Quantity
5

The kinked demand schedule in oligopoly

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Price d P0 mr d D MC

In this situation, the MC schedule intersects the MR where it falls in the kink of the demand schedule. At that point, the MR is indeterminate. Still the firm maximizes profit here.

MR 0 Q0

D Quantity
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The kinked demand schedule in oligopoly

See Table 9-2.

SUMMARY: TYPES OF MARKET STRUCTURE

SUMMARY: NUMBER OF SELLERS Pure competition very plentiful Monopolistic or differentiated competition many Oligopoly few Monopoly only one
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SUMMARY: DEGREE OF PRODUCT DIFFERENTIATION

Pure Competition Product is homogeneous Monopolistic or Differentiated Competition Seller attempts to make the product unique and different (but it has many subsitutes) Oligopoly Product could be differentiated or homogeneous Monopoly Often homogeneous, but the monopolist attempts to differentiate it through price discrimination and other means
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SUMMARY: DEGREE OF FIRMS CONTROL OF EQUILIBRIUM OUTCOME

Pure Competition No control Monopolistic or Differentiated Competition Very little control, although at times possible Oligopoly Control depends on the intensity of competition Monopoly Complete control except in regulated monopolies
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SUMMARY: METHOD OF MARKETING THE PRODUCT

Pure Competition Market determines the price and the demand Monopolistic or Differentiated Competition Advertising; Service differentiation Oligopoly Advertising, Public relations Monopoly Advertising, Public relations
1/21/2011 Econ 11 -- Lecture #17 11

TWIGGY THE BRITISH MODEL WHO

RULED ADVERTISING PHOTOS FOR TWO TO THREE DECADES SINCE THE 1960s.

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Econ 11 -- Lecture #17

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TWIGGYS WRINKLES ARE BRUSHED OUT SO SHE LOOKS YOUNGER!

TRUTH IN ADVERTIZING
BRITISH GOVERNMENT BANS THE SHOWING OF THIS AD IN THE UNITED KINGDOM
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A RECENT CASE Econ 11 -- Lecture #17 MODEL FOR A SPECIALTY STORE

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SUMMARY: PREVALENCE IN THE ECONOMY

Pure Competition Very common products in the farm, in auction markets, in basic commodities Monopolistic or Differentiated Competition Very common: Products are branded, Service is often differentiated Oligopoly -- Common Monopoly -- Common
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SUMMARY: EXAMPLES PURE COMPETITION

Basic commodities (staple agricultural foods) Public wet markets Is the UP shopping center for various student needs competitive? Auction markets International currency markets Etc.
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SUMMARY: EXAMPLES MONOPOLISTIC COMPETITION

Restaurants Grocery markets Department store goods Shopping malls in Metro Manila Branded consumer items (detergents, soap, toothpaste) Personal Care products (medicines) Etc.
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SUMMARY: EXAMPLES OLIGOPOLY

Banking (Metrobank, PNB, BPI, BDO, CITIBANK) Petron vs. Shell vs. Caltex (Others) Coke vs Pepsi (vs Other softdrinks) MacDonalds vs Jollibee (vs Other fast foods) Cellphone companies: Smart vs Globe vs Sun Cars Toyota, Nissan, GM, Hyundai
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SUMMARY: EXAMPLES MONOPOLY

The only store in a town MERALCO local electricity distributor in Metro-Manila & parts of Southern Luzon Electric power generator National Power Corporation Telephone company PLDT MWSS (water system service in Metro Manila)
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MANILA WATER Econ 11 -- Lecture #17 MAYNILAD WATER

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SPECIAL STUDY: MARKET STRUCTURE OF A WHOLE INDUSTRY

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DIFFERENT STAGES OF ECONOMIC ACTIVITY: RICE, COCONUTS, VEGETABLES ETC.

AGRICULTURE GROWING & HARVESTING PRODUCT MARKETING
o WHOLESALE TO INDUSTRIAL USERS o RETAIL TO END USERS (OF FRESH OUTPUT)

INDUSTRY INDUSTRIAL USE OF PRODUCT INDUSTRY PRODUCT MARKETING

1/21/2011 Econ 11 -- Lecture #17 22

CASE OF THE PHILIPPINE COCONUT INDUSTRY

AGRICULTURE: MAIN PRODUCT THE COCONUT FRUIT PRODUCTS DERIVED FROM COCONUT
o o o o COPRA DESSICATED COCONUT BY PRODUCT: HUSKS, SHELL COCONUT OIL

INDUSTRIAL COCONUT OIL HAS MANY OTHER INDUSTRIAL USES FOOD (COOKING) OR OTHER INDUSTRIAL USES COSMETICS, CHEMICALS, ETC. INTERNATIONAL TRADE OF ALL MAJOR PRODUCTS
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COCONUT INDUSTRY MARKET STRUCTURE IS A COMPLEX COMBINATION OF PURE COMPETITION, MONOPOLISTIC COMPETITION, OLIGOPOLY, AND MONOPOLY, DEPENDING ON THE

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STAGE OF THE ECONOMIC ACTIVIY

Econ 11 -- Lecture #17

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MARKET STRUCTURE OF THE COCONUT INDUSTRY AGRICULTURE: MAIN PRODUCT COCONUT FRUIT
THE

o FOR THE MOST PART, MAINLY PURELY COMPETITIVE

Firms are small farms planted to coconuts Individual farm owners have no control over the product price But there may be large plantations in which output is collected by paid workers and the farm owner has some control over price (can negotiate with nut wholesale buyers or owns part of the industrial part of the industry like copra making or coconut oil 1/21/2011 milling) Econ 11 -- Lecture #17 25

MARKET STRUCTURE OF THE COCONUT INDUSTRY

PRODUCTS FROM THE COCONUT

o COPRA (INCLUDING BY-PRODUCTS LIKE SHELL AND HUSKS)

MAINLY PURELY COMPETITIVE MARKET MUCH OF THE COPRA MAKING ACTIVITY IS UNDERTAKEN IN SMALL COMMUNITIES (SOMETIMES EVEN IN THE FARM) AND THE OUTPUT IS COLLECTED, WAREHOUSED BRIEFLY AND SOLD TO WHOLE SALE BUYERS) o IMPORTANCE OF GOOD PRICE INFORMATION SO THAT COPRA MANUFACTURERS (AS WELL AS COCONUT PRODUCE SELLERS) KNOW THE MARKET PRICE. o LACK OF INFORMATION LEADS TO MONOPOLY

OR

OLIGOPOLISTIC CONTROL OVER THE

PRODUCT BY BUYERS OF THE PRODUCT.

o 1/21/2011 DESSICATED COCONUT TO THE EXTENT THIS IS Econ 11 -- Lecture #17 26

DONE IN SMALL FACTORIES, IT IS PURELY COMPETITIVE

MARKET STRUCTURE OF THE COCONUT INDUSTRY PRODUCT COCONUT OIL

o Coconut oil manufacture uses copra as the INPUT. In the country there are some coconut oil mills that buy their copra supplies from small and large copra traders. o Large mills have some control over their input (copra) price. There are few coconut oil mills in the country. Therefore they are in an OLIGOPOLISTIC MARKET. o Some coconut oil mills are owned by single corporations. These single owners can exert MONOPOLY POWER or strong leadership of the 1/21/2011 Econ 11 -- Lecture #17 27 oligopoly.

MARKET STRUCTURE OF THE COCONUT INDUSTRY INTERNATIONAL TRADE COCONUT OIL AND COPRA
o PRICES OF COPRA AND COCONUT OIL IN THE INTERNATIONAL MARKET ARE DETERMINED BY A COMPLEX OF MARKET FORCES. o LARGE TRADING COMPANIES AND INDUSTRIAL USEERS CAN CONTROL PART OF THE PRICE OF COPRA FOR THEIR BENEFIT. o INDUSTRIAL POLICIES IN USER COUNTRIES CAN FAVOR COCONUT OIL MILLERS BY IMPOSING TARIFF DUTIES ON COCONUT OIL WHILE ALLOWING DUTY FREE IMPORTATION 1/21/2011 Econ 11 -- Lecture #17 28 OF COPRA.

End of todays lecture. Good day! Lecture 17

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