This document provides an overview of imperfect competition. It discusses the key characteristics of monopolistic competition, oligopoly, and monopoly market structures. For each structure, it outlines the number of firms, ability to affect price, entry barriers, and examples. The document then examines pricing decisions under imperfect competition and provides examples of the De Beers cartel, which dominated the global diamond industry through controlling supply. In summary, the document analyzes different forms of imperfect competition and pricing models.
Students should be able to:
Understand the characteristics of this market structure with particular reference to the interdependence of firms
Explain the behaviour of firms in this market structure
Explain reasons for collusive and non-collusive behaviour
Evaluate the reasons why firms may wish to pursue both overt and tacit collusion
A market can be defined as a group of firms willing and able to sell a similar product or service to the same potential buyers.
Imperfect competition covers all situations where there is neither pure competition nor pure monopoly.
Perfect competition and pure monopoly are very unlikely to be found in the real world.
In the real world, it is the imperfect competition lying between perfect competition and pure monopoly.
The fundamental distinguishing characteristic of imperfect competition is that average revenue curve slopes downwards throughout its length, but it slopes downwards at different rates in different categories of imperfect competition.
Monopoly refers to the market situation where there is a
Single seller selling a product which has no close substitutes.
Monopolies are characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the existence of a high monopoly price well above the firm's marginal cost that leads to a high monopoly profit
The word “oligopoly” comes from the Greek “oligos” meaning "little or small” and “polein” meaning “to sell.” When “oligos” is used in the plural, it means “few” ,few firms or few sellers.
DEFINATION:
Oligopoly is that form of market where there are few firms and there is natural interdependence among the firms regarding price and output policy.
Tnx group 15
For downloading this contact- bikashkumar.bk100@gmail.com
Prepared by Students of University of Rajshahi
MD: AL AMIN
SAIFUL ISLAM
RUKSANA PARVIN RUPA
SHAMIM MIA
LIMA AKTER
Students should be able to:
Understand the characteristics of this market structure with particular reference to the interdependence of firms
Explain the behaviour of firms in this market structure
Explain reasons for collusive and non-collusive behaviour
Evaluate the reasons why firms may wish to pursue both overt and tacit collusion
A market can be defined as a group of firms willing and able to sell a similar product or service to the same potential buyers.
Imperfect competition covers all situations where there is neither pure competition nor pure monopoly.
Perfect competition and pure monopoly are very unlikely to be found in the real world.
In the real world, it is the imperfect competition lying between perfect competition and pure monopoly.
The fundamental distinguishing characteristic of imperfect competition is that average revenue curve slopes downwards throughout its length, but it slopes downwards at different rates in different categories of imperfect competition.
Monopoly refers to the market situation where there is a
Single seller selling a product which has no close substitutes.
Monopolies are characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the existence of a high monopoly price well above the firm's marginal cost that leads to a high monopoly profit
The word “oligopoly” comes from the Greek “oligos” meaning "little or small” and “polein” meaning “to sell.” When “oligos” is used in the plural, it means “few” ,few firms or few sellers.
DEFINATION:
Oligopoly is that form of market where there are few firms and there is natural interdependence among the firms regarding price and output policy.
Tnx group 15
For downloading this contact- bikashkumar.bk100@gmail.com
Prepared by Students of University of Rajshahi
MD: AL AMIN
SAIFUL ISLAM
RUKSANA PARVIN RUPA
SHAMIM MIA
LIMA AKTER
This PPT includes Oligopoly Market. It is explained in detail.
This is for educational purpose only. If you own any of the content please let me know. We are not here to hurt anyone's emotion. Please try to co-operate and use this for educational purposes only.
Price Discrimination, Types of Price Discrimination , Condition of Price Discrimination , When Price discrimination is possible, Degree of Price Discrimination, Dumping
In economics, the theory of the second best concerns the situation when one or more optimality conditions cannot be satisfied.
The economists Richard Lipsey and Kelvin Lancaster showed in 1956, that if one optimality condition in an economic model cannot be satisfied, it is possible that the next-best solution involves changing other variables away from the values that would otherwise be optimal.
Politically, the theory implies that if it is infeasible to remove a particular market distortion, introducing a second (or more) market distortion may partially counteract the first, and lead to a more efficient outcome.
Macro Economics
For downloading this contact- bikashkumar.bk100@gmail.com
Prepared by Students of University of Rajshahi
1)Musthakim Ahmed
2)Yousuf chowdrary
3)SK Reazul Islam
4) Aysha Akter
5) Sanjida Afrin kuheli
6) Thamanna Akter
This PPT includes Oligopoly Market. It is explained in detail.
This is for educational purpose only. If you own any of the content please let me know. We are not here to hurt anyone's emotion. Please try to co-operate and use this for educational purposes only.
Price Discrimination, Types of Price Discrimination , Condition of Price Discrimination , When Price discrimination is possible, Degree of Price Discrimination, Dumping
In economics, the theory of the second best concerns the situation when one or more optimality conditions cannot be satisfied.
The economists Richard Lipsey and Kelvin Lancaster showed in 1956, that if one optimality condition in an economic model cannot be satisfied, it is possible that the next-best solution involves changing other variables away from the values that would otherwise be optimal.
Politically, the theory implies that if it is infeasible to remove a particular market distortion, introducing a second (or more) market distortion may partially counteract the first, and lead to a more efficient outcome.
Macro Economics
For downloading this contact- bikashkumar.bk100@gmail.com
Prepared by Students of University of Rajshahi
1)Musthakim Ahmed
2)Yousuf chowdrary
3)SK Reazul Islam
4) Aysha Akter
5) Sanjida Afrin kuheli
6) Thamanna Akter
This Presentation is on Market Structure and its types. Including all the images of revenue, producer equilibrium, its elasticity, examples of all the market, characteristics and features of all the market. This presentation is very helpful in understanding the market structure and the types of market structure.
The market is presented as a form that is for the cultural advantage of the general public. The market structure comprises different types of markets, and the structures are portrayed by the nature and the level of competition that exists for the goods and services in the market. The forms of the market, both for the products market and the factor market or the service market, is to be decided by the idea of rivalry that is winning in a specific kind of market.
The Market structure is an expression that is resultant for the quality or the adequacy of the market competition that is winning in the market.
USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
Key Features of USDA Loans:
Zero Down Payment: USDA loans require no down payment, making homeownership more accessible.
Competitive Interest Rates: These loans often come with lower interest rates compared to conventional loans.
Flexible Credit Requirements: USDA loans have more lenient credit score requirements, helping those with less-than-perfect credit.
Guaranteed Loan Program: The USDA guarantees a portion of the loan, reducing risk for lenders and expanding borrowing options.
Eligibility Criteria:
Location: The property must be located in a USDA-designated rural or suburban area. Many areas in California qualify.
Income Limits: Applicants must meet income guidelines, which vary by region and household size.
Primary Residence: The home must be used as the borrower's primary residence.
Application Process:
Find a USDA-Approved Lender: Not all lenders offer USDA loans, so it's essential to choose one approved by the USDA.
Pre-Qualification: Determine your eligibility and the amount you can borrow.
Property Search: Look for properties in eligible rural or suburban areas.
Loan Application: Submit your application, including financial and personal information.
Processing and Approval: The lender and USDA will review your application. If approved, you can proceed to closing.
USDA loans are an excellent option for those looking to buy a home in California's rural and suburban areas. With no down payment and flexible requirements, these loans make homeownership more attainable for many families. Explore your eligibility today and take the first step toward owning your dream home.
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
Turin Startup Ecosystem 2024 - Ricerca sulle Startup e il Sistema dell'Innov...Quotidiano Piemontese
Turin Startup Ecosystem 2024
Una ricerca de il Club degli Investitori, in collaborazione con ToTeM Torino Tech Map e con il supporto della ESCP Business School e di Growth Capital
US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
where can I find a legit pi merchant onlineDOT TECH
Yes. This is very easy what you need is a recommendation from someone who has successfully traded pi coins before with a merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi network coins and resell them to Investors looking forward to hold thousands of pi coins before the open mainnet.
I will leave the telegram contact of my personal pi merchant to trade with
@Pi_vendor_247
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
1. Imperfect Competition
Dr Murari Premnath Sharma
Asso. Prof.
PDVVP Foundation’s
Institute of Business Management and
Rural Development
Vilad Ghat, Ahmednagar.
Maharashtra. India
2. Market structure
2
Number
of firms
Ability to
affect
price
Entry
barriers
Example
Perfect competition
Imperfect competition:
Monopolistic competition
Oligopoly
Monopoly
Many
Many
Few
One
Nil
Small
Medium
Large
None
None
Some
Huge
Fruit stall
Corner shop
Cars
Post Office
3. Imperfect Competition
• Imperfectly Competitive Firms
– Have some control over price
– Price may be greater than the cost of production
– Long-run economic profits are possible
4. Imperfect Competition
• Various Forms of Imperfect Competition
– Pure Monopoly (most inefficient)
• The only supplier of a unique product with no close
substitutes
– Oligopoly (more efficient than a monopoly)
• A firm that produces a product for which only a few rival
firms produce close substitutes
– Monopolistic Competition (closest to perfect
competition)
• A large number of firms that produce slightly differentiated
products that are reasonably close substitutes for one
another
– Duo Poly Competition (only two competition)
• Two firms that produces products
Slide 4
5. The Essential Difference Between Perfectly and
Imperfectly Competitive Firms
The perfectly competitive firm faces a perfectly elastic
demand for its product.
The imperfectly competitive firm faces a downward-sloping
demand curve
In perfect competition
Supply and demand determine equilibrium price.
The firm has no market power.
At the equilibrium price, the firm sells all it wishes.
With imperfect competition
The firm has some control over price or some market
power.
The firm faces a downward sloping demand curve.
6. Pure Monopoly
Meaning:-
Monopoly is the form of market organization
in which there is a single firm selling a
commodity for which three are no close
substitutes”.
D. Salvatore
The price is under the full control of the
monopolist but not the demand is
determined by purchasers.
7. Pure Monopoly
Characteristic
• Only one seller in market and large number of
buyers.
• No Close Substitutes
• Product totally differentiated
• No free entry or exit/ Barriers to Entry.
• Full Control over price
• Price discrimination (different price to different Consumer)
• Imperfect information
• Where a perfectly competitive firm is a price taker,
the monopolist is a price searcher.
8. Advantages/Disadvantages of
Monopoly
Advantages
1) Research and Development
2) Economic of Scale
3) Competition for corporate control
Disadvantages
1. Prices and costs
2. Power and wealth.
9. Basic Assumption of Monopoly
Assumptions:-
1) There is one seller or producer of a homogeneous product.
2) 2) There are no close substitutes for the product.
3) The is pure competition in the factor market so that the price of
each input he buys is given to him.
4) The monopolist is a rational being who aims at maximum profit
with the minimum of costs.
5) There are many buyers on the demand side but non is in the
position to influence the price of the product by his individual
actions. Thus the price of the product is given for the consumer.
6) The monopolist does not charge discriminating price. He treats
all consumers alike and charges a uniform price for his product
7) Monopoly price is uncontrolled. Three are no restrictions on the
power of the monopolist.
8) There is no threat of country of other forms.
10. Monopoly prices during short-run
1) Super Normal Profit
2) Normal Profit
3) Minimum Loss
16. Monopolistic Competition
Monopolistic competition refers to market situation where
there are many firms selling a differentiated products. “ There is
competition which is keen, through not perfect, among g many
firms making very similar products”
“ Monopolistic competition is a market structure where there is
large number of small sellers, selling differentiated but close
substitute products”
J.S Bains
“The term monopolistic completion refers to the market
structure in which the sellers do have a monopoly (they are the
only sellers) of their own product, but they are also subjects to
substantial competitive pressures from sellers of substitute
products”. Baumol
17. 17
Monopolistic competition
Characteristics:
• Many sellers in market / many firms/ Large No of Sellers
• Differentiated products /product differentiation
• Ease of entry or exit / no barriers to entry/ Freedom of Entry
or Exit.
• Independent Behaviour
• Products grops
• Selling Costs.
• Control over prices.
• Information is readily available
• Non-price competition usually occurs
• so the firm faces a downward-sloping demand curve
– The absence of entry barriers means that profits are
competed away...
18. Advantages & Disadvantages of Monopolistic
Competition
Advantages
1) There are no significant barriers to entry, therefore markets
are relatively contestable
2) Differentiation creates diversity, choice, and utility.
3) The market is more efficient than monopoly but less efficient
than perfect competition.
Disadvantages :-
1) Some differentiated does not create utility but generates
unnecessary waste. (Extra Packaging, Advertising Expenses)
2) Assuming profit maximization, there is locative inefficiency
in both the long and short run.
19. Price Output Determination in Monopolistic Competition.
(Short run Equilibrium of the Industry
Assumptions:-
1) The number of sellers is large and they act
independently of each other. Each is a monopolist
in his own sphere.
2) The product of each seller is differentiated from
the other products.
3) The firm has a determinate demand curve(AR)
which is elastic.
4) The factor services are in perfectly elastic supply for
the production of the product in question.
5) The short-run cost curves of each firm differ from
each other and
6) No new firms entre the industry.
21. Edward Chamberlin: Monopolistic
Competition
• Theory of Monopolistic Competition 1933
• Very different starting point from Robinson
• Not an issue with Marshall’s laws of return,
but a response to the existence of
advertising and product differentiation
• Firms have monopoly over their own
brands but there are many close substitutes
22. Monopolistic Competition: Large
Group
• Equilibrium for the individual firm is where mr
(derived from the dd curve) = MC
• For this to be consistent with equilibrium for the
group the firm must also be on its share of the
market demand curve
• In the long run all firms must just be making normal
profits due to free entry condition
• Long run equilibrium will be to the lest of min LRACT
23. Large Group Equilibrium
Short Run
d
d
mr
MC
p
q Q
P
D
D
Long run
LRATC
D
D
d
d
MC
mr
p
q Q
P
24. Small Group Model
• Small number of firms
• Barriers to entry
• If all firms charge the same price then each
firm only faces the DD demand curve
• Similar to monopoly equilibrium
D
p MC
D
MR
q Q
P
28. 28
Oligopoly
• A market with a few sellers./A few large firms
• The essence of an oligopolistic industry is the need for
each firm to consider how its own actions affect the
decisions of its relatively few competitors.
• Oligopoly may be characterised by collusion or by non-co-operation.
• A few large firms
• Products standardized or differentiated
• Difficult entry
• Knowledge not available to all firms
29. General Problem of Oligopoly
Analysis
• Problem of interdependence
• Cournot model of duopoly
• Stackelberg and price leadership models
• More recent game theory approaches–
oligopoly as a prisoners’ dilemma game
• Cournot-Nash equilibrium
• One shot and repeated games
• Evolutionary game theory and evolutionary
stable strategies
32. 32
The kinked demand curve
Q0
P0
Quantity
£
Consider how a firm may
perceive its demand curve
under oligopoly.
It can observe the current
price and output,
but must try to anticipate
rival reactions to any
price change.
33. 33
Q0
P0
Quantity
£
The kinked demand curve (2)
The firm may expect rivals
to respond if it reduces
its price, as this will be seen
as an aggressive move
… so demand in response
to a price reduction is likely
to be relatively inelastic.
The demand curve will
D be steep below P0.
34. 34
The kinked demand curve (3)
… but for a price increase
rivals are less likely to
react,
so demand may be
relatively elastic
above P0
so the firm perceives
that it faces a kinked
demand curve.
D
Q0
P0
Quantity
£
35. 35
The kinked demand curve (4)
Given this perception, the
firm sees that revenue will
fall whether price is increased
or decreased,
so the best strategy is to keep
price at P0.
Price will tend to be stable,
even in the face of an increase
in marginal cost.
D
Q0
P0
Quantity
£
36. Concentration Ratio
• A rough measure to gauge whether
or not an industry is an oligopoly
• % of market the largest firms control
• Usually 4-8 firms
37. The Growth of Firms
• Horizontal Mergers
• Combinations of firms in the same industry
• Vertical Mergers
• Two or more firms in different production or
marketing stages within the same industry.
• Conglomerate mergers
• Combinations of firms in unlike industries
38. Theories of Imperfect Competition
• Major Contributors:
– Piero Sraffa (1898-1983)
– Joan Robinson (1903-1983)
– Edward Chamberlin (1899-1967)
• Sraffa’s 1926 article on the laws of return
• Criticism of Marshall’s external economies
as a way of reconciling falling supply prices
with competition
• Need to focus on monopoly
39. Joan Robinson and Imperfect
Competition
• The Economics of Imperfect Competition
(1933)
• Introduction of marginal revenue curves
• Deals with an individual firm assuming the
firm has its own market and faces a
downward sloping demand curve
• In the absence of new entry, the analysis is
as for a monopoly
40. 40
Imperfect competition
• An oligopoly
– an industry with a few producers
– each recognising that its own price depends both on
its own actions and those of its rivals.
• In an industry with monopolistic competition
– there are many sellers producing products that are
close substitutes for one another
– each firm has only limited ability to influence its
output price.
41. 41
: Pricing under Imperfect Competition
Price
P
C
MC
C
MR
D
Quantity
per week
Q
0 C
42. 42
Pricing under Imperfect Competition
Price
P
M
P
A
P
C
MC
C
A
M
MR
D
Quantity
per week
Q
M
Q
A
Q
0 C
43. 43
Cartel Model
• A model of pricing in which firms coordinate
their decisions to act as a multiplant
monopoly is the cartel model.
• Assuming marginal costs are constant and
equal across firms, the cartel output is point
M (the monopoly output) in Figure 11.1.
– The plan would require a certain output by each
firm and how to share the monopoly profits.
44. 44
Cartel Model
• Maintaining this cartel solution poses three
problems:
– Cartel formations may be illegal, as it is in the U.S.
by Section I of the Sherman Act of 1890.
– It requires a considerable amount of costly
information be available to the cartel.
• The market demand function.
• Each firm’s marginal cost function.
45. 45
Cartel Model
– The cartel solution may be fundamentally
unstable.
• Each member produces an output level for which
price exceeds marginal cost.
• Each member could increase its own profits by
producing more output than allocated by the cartel.
• If the cartel directors are not able to enforce their
policies, the cartel my collapse.
46. 46
APPLICATION :- The De Beers Cartel
• In the 1870s the discovery of the rich diamond
fields in South Africa lead to major gem and
industrial markets.
• After a competitive start, the ownership of the
richest mines became incorporated into the
De Beers Consolidated Mines which continues
to dominate the world diamond trade.
47. 47
APPLICATION 11.1: The De Beers Cartel
• Operation of the De Beers Cartel
– Since the 1880s diamonds found outside of South
Africa are usually sold to De Beers who markets
the diamonds to the final consumers through its
central selling organization (CSO) in London.
– By controlling supply, the CSO maintains high
prices which have been estimated to be as much
as one thousand times marginal cost.
48. 48
The Cournot Model
• The Cournot model of duopoly is one in which
each firm assumes the other firm;s output will
not change if it changes its own output level.
• Assume
– A single owner of a costless spring.
– A downward sloping demand curve for water has
the equation Q = 120 - P.
49. 49
APPLICATION :-The De Beers Cartel
• Dealing with Threats to the Cartel
– This large markup promotes threat of entry with
any new diamond discovery.
– De Beers has used its market power to control
would-be-chiselers.
• They drove down prices when the former Soviet Union
and Zaire tried market entry in the 1980s.
• New finds in Australia were sold to the CSO rather than
try to fight the cartel.
50. 50
APPLICATION :- The De Beers Cartel
• The Glamour of D Beers
– De Beers controls most print and television
advertising, including “Diamonds Are Forever”.
– They convinced Japanese couples to adopt the
western habit of buying engagement rings.
– De Beers has attempted to generate a brand name
with customers to get consumers to judge De
Beers diamonds superior to other suppliers.