1、Chapter 3 Monopoly,ECNU Oriental Real Estate College,3.1 Market structure: classification, characteristic and measure,3.1.1 Determinants Market concentration ratio Product differentiation Barriers to entry and exit Price elasticity Short-term cost structure,1、Market concentration ratio：firm is outpu
2、t, sale, assets amount, employee number，etc. Herfindahl-Hirschman indexX size of the industry Xi firm is sizeSi market share of firm i n number of firms,2、 Product differentiation Cross price elasticityAdvertising density= AD/SLAD= sum of advertisingSL= product sale 植草益（1997，31 industries）AD/SL3.5%
3、or AD 2 billion yen very high product differentiation 1%AD/SL3.5% or 1billion yen AD2 billion yenhigh product differentiation AD/SL1% or AD 1billion yenmedium product differentiation,3、 Barriers to entry and exit Barriers to entryBarriers to entry is the advantage shared by current firms that means
4、incumbents can keep price higher than competitive level without entry of new firms. (Bain)Barriers to entry be defined as a kinds of additional cost burdened by entrant while incumbent is needless. (Stigler) componentsabsolute cost advantage scale economics capital barrier technological barrierlaw b
5、arrier strategic barrier,Barriers to exit Assets speciality and sunk cost Severance pay Law restriction,Classification of market structure： 1、 Robinson J.（1933）,Core assumptions of Perfect competition Very low industry concentration/atomicity Product homogeneity Perfect information Free entry Equal
6、access (any firm can get all producing technology) agriculture goods markets or mature futures markets. eg.,Perfect Monopoly Industry concentration 100%, only one corporation supplying product No replaceable product Very high barriers to entryworkable competition,Oligopoly High industry concentratio
7、n Products nearly homogenous or comparatively high differentiation Comparatively high barriers to entry and exit,Monopolistic Competition Comparatively lower industry concentration High products differentiation Comparatively lower barriers to entry and exit,2、Bains classification,3、植草益（1982）：,3.2 Be
8、havior in monopoly Single product monopoly,Assumption: Product fixed and consumers know about its quality No price discrimination ps: the conclusion is suitable for monopsony case,One product monopoly Demand function q=D(p), adverse demand function p(q) = a-bq Cost function Demand function different
9、iable, D(p) 0 Supply function differentiable, C(q) MC0,Monopoly pricingmonopoly price Objective function： max = R- C First-order condition： MR=MCnamelygetSo monopoly profit is,Monopoly firms optimal solution It shows that even monopoly firm is subjected to factors such as demand, fixed cost and so o
10、n, not be sure to make profit.,Lerner index，(Abba Lerner,1934)we can get Lerner index (also called elasticity rule)：L = ( - MC) / = -1 / namelyIts easily seen that monopoly price is independent of fixed cost, but related with marginal cost.The conclusion and selection of regulation methodauction of
11、3G license in HongKong，eg Monopoly price is the cost-plus of marginal cost, and the rate is determined by demand elasticity.,Table 3-3 demand elasticity and monopoly pricing,表3-4 我国房地产开发建设房屋造价与售价比较,来源：中国统计年鉴，2003，苗天青整理,3.3 Multiple products monopoly,Assumption： Firm has monopoly status to all produc
12、ts. Prices of n products： p=( , ) sales quantum： q=( , ), and = (p) product is demand function Cost function C( , ),Profit maximization,Object functionmax =first-order condition：,Extreme case 1 interdependent demand, separable cost,Cost separabilityfirst-order condition：in it,Products substitute cas
13、e,Then cross-price elasticity is less than 0, so Lerner index of every product exceed reciprocal of self-price elasticity. That means if firm composed by n parts and every part set its own profit-maximization price, all of each price is too low in the entire firms angle.It strengths the monopoly for
14、ce.,Products complementary case,Then Lerner index is less than reciprocal of self-price elasticity. One interesting phenomenon：one or several product will be sold in price lower than its marginal cost (so Lerner index here may be negative) , for increasing demand on other products.Print cartridge and printer. eg,
