1、Chapter 2 Market Power,ECNU Oriental Real Estate College,第一部分主要讨论垄断性行为单一产品和多产品定价、质量选择、价格歧视、纵向控制等。 这些部分较一般的讨论垄断力量的运作，即只要企业拥有一定程度的市场力量下的行为，并不要求它拥有完全的垄断地位。这里考察的大部分情况即使在存在竞争者的情况下也会出现。,2.1 Measure of market power,What is market power?Simply,market power may be defined as the ability to set prices above c
2、ost, specifically above incremental cost or marginal cost, that is, the cost of producing one extra unit. In some maening, central questions of IO are Is there market power? How do firms acquire and maintain market power? What are the implication of market power? Is there a role for public policy re
3、garding market power?,m,m,m,m,m,Monopoly pricing p monopoly price Objective function： max = R- C first-order condition： d/ d p = 0so p - C(D(p ) = - D(p ) / D(p ) Common expression：MR=MC,Lerner index （Abba Lerner,1934）derived from first-order condition (elasticity rule)：L =( - MC) / = 1 / is demand
4、elasticity wherein monopoly price (positive value)= (dD/dp)*(p/D) Lerner index can be used to measure all kinds of firms market power.,m,Lerner index of monopoly firm,p,Q,Lerner index is similar as rate of marginal gross profit. In more cases, we use similar score to measure Lerner index,namely use
5、unit cost replace MC,p,MC,MR,D,Marginal gross profit,Monopoly price must in area wherein 1 Why?,m,p, is in inverse ratio with monopoly power(垄断势力)p,q,q,p,m,MC,MC,q,m,p,q,m, in left chart is lower than in rights,Monopoly and monopoly force,It seems that is more reasonable than market share used to de
6、fine monopoly force. For example, in the chart 2.1,firm in the left has 90% market share while the right has 100%,perfect monopoly. So, according to market share index, the right firm is closer to the position of monopoly firm, but in monopoly force angle, is the left. And depends on much factors, s
7、ome is static and others are dynamic.,Table 2-1 Lerner index of some industries in USA,2.2 Source of market power,Control scarce resource Seek supports of stake-holders, such as forbiddon of market entry Some anti-entry strategy (example of USA airline) Economy of scale and scope Learing effect R&D,
8、2.3 Welfare analysis of market power,General welfare or general surplus equals to consumer surplus plus suppliers surplus. When consumer price equals to MC, general surplus is maximal.Deadweight loss represents only what we can get when transformed from monopoly to perfect situation. It sets the upp
9、er limit for efficiency through rectifying monopoly pricing.,Consumer Surplus,Dupit(1844) firstly introduced another name：Marshall consumer surplusrepresents choke-off price(阻断价格), namely minimum price with no demand.is nest consumers surplus. And general CS equals to plus payment D( ).,0,Measure of
10、 consumer surplus,p,q,0,q = D (p),Another maening of demand curve：Reservation price CS：the part that consumers would like to pay for than actual paymentIn continuous function assumption, CS = area of triangle,Suppliers surplus SS is defined as manufacturers profit in this industry. Profit equals to
11、sales income subtracts cost, and cost is the integral of marginal cost. So industry profit equals to the area between marginal curve and horizontal curve of .,Comments on market power,MR,D,MC,Nest CS,deadweight loss,度量标准的问题 使用CS和SS的前提是需求和供给曲线不仅代表私人收益和成本，而且代表所有的社会收益和成本。如果存在外部性，情况就不同了。 当使用总剩余变化的衡量标准时，
12、意味着我们不在意收益在消费者和生产者之间的分配。但这个假设并不一定能被广泛接受，例如人们可能认为消费者剩余的增加比生产者剩余的增加更重要。,Comments on market power,Liebenstein,1966 X- inefficiencyX- inefficiency exists in any organization, namely producing under production possibility curve.Monopoly firms have no incentive to reduce cost, and X- inefficiency in it is
13、 more serious than in competitive case. High cost can be partly imputed to consumers through its monopoly force. Example in our country：telecom industry, electric power industry etc.,Only if positive monopoly profit exists, firms have the incentive to grab, maintain and use market power spending som
14、e of the profit. Thats so-called rent-seeking activities. Posner,1957 Rent dissipation theory If rent seeking activities is competitive, in zero-profit equilibrium, Tullock Quadrangle is dissipated utterly. Baumol,1990 In different institutions, entrepreneurship may be productive, unproductive even
15、destructive. Monopoly profit is a kind of rent essentially. Rent seeking activities will reduce general social welfare.The largest harm of monopoly especially institutional monopoly may be that it distorts peoples behaviors and brings on nonproductive or destructive activities.,Comments on market po
16、wer ,O,p,D,A,E,B,Constant MC = 0,Deadweight = ABE (Harberger triangle, 1954) Experiential study shows Deadweight loss measured by Harberger triangle is lower than 1% of GNP. Rent seeking activities：direct nonproductive activities to get rent of Tullock Quadrangle (OAEP) (Tullock,1967),Payout of rent
17、-seeking,Strategic payout Managing payout,表2-2 1995-1998/9年中国部分垄断行业的租金估算（过勇，胡鞍钢，2002）,2.4 Public policy on market power,Monopoly price is higher than marginal cost. In another saying, output set by monopoly is lower than optimal output. That means increase of output will add welfare, because margina
18、l willing-payment is higher than marginal cost. Policies ：Regulation、Antitrust、Industrial Policy（case of antitrust，eg）If scale economics is large, competition may be not feasible choice. In natural monopoly case (only one monopoly), direct regulation to monopoly is the best choice.,Marginal cost pri
19、cing,D,q,Naturally, the first solution is to make price equals to MC.C= + tso, t = C- 0 Profit = -FSubsidy F：new tax imposition Regulatory capture：people being regulated invest to influence regulators decision so that it be propitious to firms profit maximization not social welfare maximization.,C=
20、F+ cq Profit= - F,Average cost pricing,Price=average cost,p,D,AC,q,c,=F,E,Firm is obliged to price minimum in condition profit be no negative, namely price equals to average cost. One solution between marginal cost pricing and monopoly pricing. In USA, rate-of-return regulation is used wildly in pub
21、lic utilities. That is close to ACP. In this regulation, firms have no motivation to reduce cost. Regulation gap(规制时滞).,Low-power incentive mechanismprice varies with cost in the same rate, with the lowest incentive to reduce cost. High-power incentive mechanismPrice set beforehand and fixed regardl
22、ess of cost varying.Reduce one-dollar cost means gaining one-dollar profit. Government opportunism and firms rational expectation. Helpless in incentive of firms to improve product or services quality.,Gain of monopoly,Economy of scale and scope Innovation (Schumpeter)Innovation activities is cost-large and risky, so is large monopoly who has possibility to invest in innovation. Tradeoff：Patent institution and patent term.Negative externalityWhen negative externality exists, competitive output is higher than social optimal value, while monopoly output is closer to it.,
