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ECON306: Industrial Organization

Unit 2: MARKET STRUCTURES AND WELFARE MEASURES   In this section, we will review different market structures and their characteristics.  At this point in the course, it is important to recall how firms set their prices under each market structure in order analyze the degree of market power that they wield in different kinds of markets.  We will also study Industrial Concentration, its causes, and its consequences, as well as learn about the index used to measure the level of concentration in an industry. 

Unit 2 Time Advisory
Time Advisory: This unit will take you 9 hours to complete.
·        Subunit 2.1: 2.5 hours
·        Subunit 2.2: 3 hours (Note: The web media is a 0.5 hour lecture.)
·        Subunit:2.3: 0.5 hours
·              Subunit:2.4: 2 hours
·        Subunit 2.5: 1 hour
·        Guest Lecture (optional): 18 minutes video.

Unit2 Learning Outcomes
Upon successful completion of this unit, students will be able to:
·        Describe and calculate the profit maximizing behavior of firms.
·        Describe and explain the characteristics of a perfectly competitive firm.
·        Identify a perfectly competitive firm's short-run and long-run shut down decisions.
·        Define Quasi-rents and distinguish it from economic profits.
·        Describe a competitive firm's supply curve, the market supply curve and the market equilibrium.
·        Define, graphically identify, and calculate the following: Consumers surplus, willingness to pay, producers surplus, and the total surplus.
·        Define Pareto Optimality and identify conditions that lead to a pareto optimal situation.
·        Analyze the problems associated with assessing efficiency on the basis of changes in total surplus.
·        Define "market power", analyze what gives rise to market power, and  distinguish between supply side substitution and demand side substitution.
·        Analyze the characteristics that constitute a monopoly especially with respect to pricing, elasticity, and efficiency concerns.
·        Define product differentiation and the dimesions along which products may differ.
·        Describe the forces that may promote the increase or decrease of product differentiation.
·        Define Oligopoly and analyze the characteristics that constitute an oligopoly.
·        Explain the meaning of collusion and identify different kinds of collusion and their consequences.
·        Analyze the measurement and determinants of a firms market power.
·        Derive the Lerner index, explain its components and analyze its relationship with the elasticity of demand.
·        Analyze how the inefficiency related to market power depends upon the time frame.
·        Describe the factors that determine the size of dead-weight loss.

2.1 Perfect Competition and Its Efficiency   - Reading: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach:"Chapter 2, Sections 2.1: Profit Maximization, 2.2: Perfect Competition, and 2.3: Efficiency" Link: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach: "Chapter 2, Sections 2.1: Profit Maximization, 2.2: Perfect Competition, and 2.3: Efficiency" (PDF)
 
Instructions: If you have not saved this PDF file, you will need to download the PDF file of the book by clicking on the "Download" tab on the right hand side of the webpage.  Please scroll through the document to the sections listed above to read about perfect competition and how it is the ideal form of market structure in terms of economic efficiency.
 
Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.
 

2.2 Monopoly Pricing and Its Inefficiency   - Reading: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach:"Chapter 2, Section 2.4.1: Market Power and Pricing" Link: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach: "Chapter 2, Section 2.4.1: Market Power and Pricing" (PDF)
 
Instructions: If you have not saved this PDF file, you will need to download the PDF file of the book by clicking on the "Download" tab on the right hand side of the webpage.  Please read the introduction under section 2.4 and then proceed to section 2.4.1 to review how prices are determined under monopoly and the inefficiencies associated with it.  Please pay attention to Exercise 2.1 to see how monopoly output and price can be determined given constant marginal costs and a linear demand function.
 
Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.
 

  • Reading: Annenberg Media's Learner.org: Economics U$A:“19. Monopoly” Link: Annenberg Media's Learner.org: Economics U$A: “19. Monopoly” (Adobe Flash)
     
    Instructions: Please scroll down the webpage until you reach video 19 titled Monopoly.  Then, click on the VoD tab to the right side of program 19: "Monopoly" to view this 30 minute video on three case studies that demonstrated monopoly in the USA.
     
    Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.
                

2.3 Monopolistic Competition and Product Differentiation   - Reading: Kwanghui.com: Professor Joshua Gans’s Managerial Economics Online: “Pricing Strategies” Link: Kwanghui.com: Professor Joshua Gans’s Managerial Economics Online: “Pricing Strategies” (HTML)
 
Instructions: As you read along, please click on the hyperlinks to learn more about the examples of each form of pricing strategy.
 
Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.
 

  • Reading: California State University, San Bernardino: Professor Eric Nilsson's Capitalism Text: “Chapter 13: Product Differentiation and Competition” Link: California State University, San Bernardino: Professor Eric Nilsson's Capitalism Text: “Chapter 13: Product Differentiation and Competition” (PDF)
     
    Instructions: Please click on the hyperlink titled Chapter 13: Product Differentiation and Competition to open the PDF file of this chapter.  Then, read the chapter in its entirety.
     
    Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.

2.4 Oligopoly Markets   - Web Media: Annenberg Media's Learner.org: Economics U$A:“20. Oligopolies” Link: Annenberg Media's Learner.org: Economics U$A: “20. Oligopolies” (Adobe Flash)
 
Instructions: Please scroll down until you reach program 20: Oligopolies.  Then, click on the VoD tab to the right side of program 20: "Oligopolies" to view this 30 minute video on industries that are typically oligopolistic in nature. 
 
Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.
 

  • Reading: California State University, San Bernardino: Professor Eric Nilsson's Capitalism Text: “Chapter 19: Oligopoly” Link: California State University, San Bernardino: Professor Eric Nilsson's Capitalism Text: “Chapter 19: Oligopoly” (PDF)
     
    Instructions: Please click on the hyperlink titled Chapter 19: Oligopoly, and read it in its entirety to learn about oligopolies.
     
    Note on the Text: This reading introduces the concept of oligopoly mostly with examples and a few graphical illustrations.  We will study the models of oligopoly later in the course.
     
    Terms of Use:  Please respect the copyright and terms of use displayed on the web pages above.

2.5 Industrial Concentration   - Reading: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach:"Chapter 2, Sections 2.4.2: Measurements and Determinants of Market Power and 2.4.3: The Determinants of Deadweight Loss " Link: Berkeley Electronic Press: Jeffrey R. Church and Roger Ware's Industrial Organization: A Strategic Approach: "Chapter 2, Sections 2.4.2: Measurements and Determinants of Market Power and 2.4.3: The Determinants of Deadweight Loss" (PDF)
 
Instructions: If you have not saved this PDF file, you will need to download the PDF file of the book by clicking on the "Download" tab on the right hand side of the webpage.  Please read the text to learn how the extent of market power is determined and measured, and results in a deadweight loss to society.  This reading covers subunits 2.5.1-2.5.3.
 
Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.

2.5.1 Determinants of Concentration   Note: This subunit is covered by the reading assigned under Unit 2.5. 

2.5.2 Measurements of Concentration- The Lerner Index   Note: This subunit is covered by the reading assigned under Unit 2.5. 

2.5.3 Consequences of Industrial Concentration   Note: This subunit is covered by the reading assigned under Unit 2.5. 

  • Lecture: TED talks: “Yochai Benkler on the New Open-Source Economics” Link: TED talks: “Yochai Benkler on the New Open-Source Economics” (Adobe Flash)
     
    Instructions:  This is an optional lecture and not a requirement of the course.  Please listen to this guest lecture, in which the speaker discusses the emergence of a new type of market structure based on human organization, social production, and innovation. 
     
    Terms of Use: Please respect the copyright and terms of use displayed on the web pages above.