Monopoly Fim

ofa
Iheory

But in monopoly. the price

value. customers on the his ot thesr absty t NY N thc
any must
ANSUMe
of demand be greater than unity in Sate prtuct, then t K callk NNa Ne
lasticity if the elasticity of demand is
yuilibrium, Because discriminatton. Personal
unity th¹ monopol1st can ncrease his beomes possible ause of the graNe ot th
than
increasing his price. Consuer, little diiereNe n pre an the nar
by
Price Discrimination: In perfect comp- gods and servies For instare. ackNY argng
(1) discrimination. ditterent fees for the sans vNotoNatn fhyw
possibility of price h
there is
eithon
no
because a fim produces only a homogeneous and oor patients
s
Thisis Besides this, it is also because a pertextty
product. (2) Geographical Price Discrimination: Wbn
ompetitivefirm is only a price
taker. Contrary to it a a monopolist charges titterent prves n hterent
monopolistcan indulge in
price discrimination. It is areas for the sane pnxtw, then tt is a1n erae t
because a monopolist is a price maker.
sinply geographical prve tsernmnat For exanqde. an
(12)
Allocative Eficiency: It ovus when epoter mar charge a tettennt pr e
onsumer surplus and producer surplus a r market than in the hom marke, as n the ca
naximiscd. It is an obvious phenomenon under pertect dumping".
ompetition. In case of monopoly, on the other hand, (3) Price Discrimination acvording to |e
-weight loss
Amedead- is an obvious social cOst. When a monopolst charges dtteent
or Discriminating ditlerent uses ot a px then it IN cali
Price piscrimination discrimination or trade diseimnattn wng
Monopoly
Price discrimination occus when the same - domestic use is me than ùr agrvulural use.
mmodity is soldI at more than one price. A monopolist (4) Prive Diserimination avording to Time:
oten charges difterent prices ot the same produet Many public honopoists sell the sae prntwt at
iom different buyers or for ditterent uses thom the ditterent prives at ditterent times For ekample.
saIme buyer. This price polhey of the monopolist is telephone department charges kow rates tir late night
calld price diserimination. The monopolist pract- calls.
0sing it is called Discriminating Monopolist.
and earty moutg calls and high rties hr tav tme
What is Price Discrimination? Degrees of Price Discrimination
It is a situation of the market in whicha seller
charges different price from different buyers rot.
of the same product. It becomes possible Pigou has divided the degvs o n atisen
when there is no competition in the market mination into the tollow ing thrw categoies
and different buyers show different elasticity () Discrimination of the istDege: Ihe
of demand for the product.
diserimination ot the tirNt deg is that siuatt n
In the wonds of J.S. Bains, Price dise rimination which the monopolist charges cach suner a
Ndens stricth to the' practie by a seller to charing diterent price. He changes the nnavimum pve whwh
ierent prices from ditterent buyvrs for the same gON. a consuner is willg to rIy tùr cach anwnt ot th
According to Koutsoyiannis, "Price diserimin comodity. lu this case the nsumer willnorN able
don exists when the same product is sold at ditterent lo enjey ny cnsuner's suplus.
prices to ditterent buvers.
Types of Price
Discrimination
Price diserimination is mainly of tour ypes:
(2) Diseriminatiou of the SNeond Degree: he
diserimination ot thesonddegris the situaion
() Personal Price a which the onopolist charges ditemt pives
Discrimination: When
Monopolist charges different prices from ditterent diterent units ot the same mmodity. tr eanmple,
 dition
discrimination samethe is hewhere
fear monopolist the demand Price often of necessary and must competition following Essential generally instance, and the Consumption. thatsuplus.
enjoys
some electricity 34
geographically,
services
personal market. discrimination.
geneous prices not sellerDiscrimination
must forcign
product subsequent initial
Inboards
generally
can
market
(4) of (3) (2) be (1) Price charges cntire (3)
for discrimination charge can be possess
is discrimination
No
any demand
increase
Difference two able than Existence market. Discrimination in
units
the Separate not found
change where will wil be for elasticity
product of others. conditions
discrimination the amarket
Possibility different or to Conditions of
existence be diseriminating a able
monopoly monopolist different the
will is keptmore single charge domestic
in his differentfix by In in It
just
demand
ininelastic branding because
demand Perfectly
is tothe real this is of
different higher of under
a power
demand. total in such
is prices separate.
markets Markets: charge
absence prevail product
of not pricedifferent Monopoly life. kind prices
possible the power market of
price of revenue. isandprice in as is charging whichThird supply
Re-sale: be elastic. different EIasticity doctors or competitive
tends by some possible
in for of charge
lower
for which
monopoly from into
possible.
discrimination markets If lower per by of if case.
this
elasticity when the time. This Another definitionprices monopoly it the discrimination and
Price two Degree: a It and
There In unit to customers Power: is
market. higher
lower each monopolist
price same or may can to only higher
rates
Another this markets. in oflawvers The prevail practise or
then ofwill per the elasticity be is for
firms group. three rates
way Demand: service. separatedcondition perfect
markets of a power, when price price consumer
suppliers be that A refers to
demand that in groupsdivides for
iscon price be market
alone unit done there in homowouldhigher priceseller
that no in The also t he the the of For for the
of a is a
elasticitysame, demand profitable toless
revenue-market.
less-marginal-
be
makes also ofwill
elasticity willsame,Profitable?
marginal If elasticity from when a price.
When highfaces
requires
whothe among of low dear marketone to
nurchased movemarketservice.
othercommodity the
marginal
revenue of price
explained in be
demand
also notdiscrimination In Lipsey,
"The price original
Suppose then profitable Price cheap market.
.e., price different.
the short,
unit buyers words, from to
for revenue be ofelasticity be is of that It
of price market from high-pricedcould can be
Rs. other. equal.
in profitable. Price demand purchaser
demand
monopoly
discrimination
MR
AR
with
=revenue-market
the demand market of
the price low
the
is No expensive unit
10. two discrimination goods the the
theproductThus,
transfer It On of of that re-selling
key high to of not
in
Inwill the
product the Discrimination commodity is to price acheap other. possible
is help markets
the in demand differentdiscrimination to demand be
such It different expensive discriminationcannot cannot
2two difference be product two is to market,
market
low-price
transfertaa
from
and price in contrary, is being price
profitable. of commoditytrohme more the otherwise
shouldmarketshould
markets
5 -1 the
E4 two a
is markets so in be tonor re-sale onl.
respectively.On u of following situation, in inbecause intwo in different
markets
incannot
one buyer
re-sold ablemarket
to different
in
these thesedifferent take and cheap
a different ifboth is Microeennomies
more-margina in one
price and to goods not could the
product A
This elasticity is markets when possible be who among
place
In re-sold
and market markets the equal when two transeerred
when
discriminate
by move
market he prodlet
faces the he
formua tactmarket will be elasticity
then markets markets the huver buyer wotts irom
is pnce prce in fom hiye
B. is and wil the then nrig onl, the the In
 yualproduce price ellng
consumers
of discrimination
price
ofmordiscrimination
e Analysis under Price 1.e., ime market wilmonopolist
equal,
become e sounimetsoenue shere also
nore Rs. whertransfer
clasticitymarginaldemand of AR
= MR - MRA SI
the
Lis AR
marginal
topoist,
upto discrimination
discrimination. '"
market
product a Discriminating
The
aim and
continue
as
the and Amarket
in marginal
8.
By elaast also ic
isity
le
(R
s
s. of
revenues in
clear in markets
in t
Of
he
that in conditions. can
order surplus. at
of
price isthe Output
of marginalselling
withdrawing helose
wi l
selling
Brevenue more
demand5). Market
that Market Ed Market aboveMonopolyFirm
Ed can
be
to of On on formula
cost.level two be
increase MR
MRB = of 1o B =
calculated A
to mademonopolist revenue the will Rs. one the (Rs.
demand the is account as
where
This different determination is less A
maximize Pigou in Determination
Hitherto samne gain commodity 5unit Rs. 8). other different well. and B
which with total but (2), marginal
condition
discriminating
his Each the Rs. less 5 So is = 2-1 as
Monopoly In of
calls
prices in in in by to hand,
the moremarginal there follows.
marginal werevenue
reference
market 8. market different 8
a resorting commodity
both
selling in market
his monopolist it study The monopolist revenuc
of pockets under market from (5), in are
profits. third thmonopolist
e
MR
revenue a to and B B revenue elasticities
market
situation to markets till one wheremarketmarginal A in
= tw o A
MC will
degree part by
a price profit. price such from unit the where both
is or it Awil B is
hefrom case, tfhoer MRA+B in OP2.more, OA is market
demand tequating
(MRA)
he A marginal curvesfoundhomogeneous,
monopolist MR1Sfor decisions: get much at demand. marketscontinue
aboutmonopolist marginal wil
monopolist revenue
markets (2) what
can both
units
more
MR Sold the (1
Since maximum)
market Suppose The curve be
get it For i.e How by whole
in. How price, the of is A appliedhim
output.
total the
equals elastic. in in of
will in the OBinmarket marketmonopolist
the cost
horizontally of He Discriminating () revenue
with
more to markets, market market we output and wil
A market this MRA MC andmuch iswil the output the much so the
withdraw and be combinedunits, This
marginal MC equal
produce tw o
wil profit, as his
by
marginal and of B
sell
profitable condition = AB at
=
monopolist
equate
assume
to to production. more is
total
sell
is
A MRg for inmeansA (MR). is the th e to MRA
to markets Airrespective to get be having his
market at less will what sell he sold output
thsome
e less it
cost), whole
MC combined
marginal
revenue.
+ that and adding Produce maximummonopolistproducts than in
revenue. same = has output a this must
than is MRA+B higher thatelastic Fig. maximise in MRg that indifferent market.
each
units for not to of
output price? level (MRA+B). B MC must to
MR B different We
be of at he 8the different = two of take produce. marginal
the in
in fulfilled.
must price,
0Q a will shows
and output
whole
with respectively.
MR of wi t h product
in the is ? profit.
=equated consider in
This
market ofmarket
the MC lower with his A+8 output
MR which the price assume
elasticities two
discriminating units i.e. market sell that
in This the
markets cost
processwill be
commodity profits
the
at combined and following In to So
B, Marginal B. with the price OP, less,ie. curve market the order (2) different that long he
where In (where market MR which MRp decide
same B The MC and how wil!
that MC and of the 35
of it in by 1s it to as
 revenue, total markets, B
OQquantity monopolist Acommodities
market. then Ifcombined inThe MR is of demand
combined
shown ARp position
B. A -poly become
equal 36
Inmonopoly. Price(3) continue
at and his two and Determination
produced
It In monopolist the
output is OP, MR
itmarkets demand
this Price
(11) clear i.e. in OBorder PRICE \REVENUE
monopoly fig.incurves B. is
market
price.
OA quantity will wil is equilibrium figure, shown
Asdetermination
of till
marginal by less Suppose
from
is to from be so A
8 is is
the OB +
Total A sell get inthat wil equal to OUTPUT MRA Market(A) (A of evident less equilibrium in marginal
equal fig.
monopolist. at inOA less-MR profitable one
MRso
fim and market ARsclastic
revenue wilbe market ARA market fig.
8 quantity OP; quantity this marketdistribute position curve
tothat
price marginal of tMC
heof wil B). A in
from 8.
under revenues
equaltheto each Obviously, is The
combined market for and be of and market
and the under
of (i) and B. of divided
BARR slopes discriminating
X
marginal of market his PRIdE \REVENUE
at both diagram in
both He him more
outputmore output totaloutput
total0Q. respectively. A
revenue, to point
Y the the both
markets
marginal output
total wil to in is CUrve discriminating
than
ofinto
cost
in l in more-MR
in selmarket
the toutput
he equilibrium markets inAR two shows the
market transfer
other.
same.
FigOUTPUT
.8 B Market(B) E
where armarket
e
is of two less the OÌ Tne the and parts mono markets
MR_ is the
atDumping
It givenmined
Domestic case,toameans sub-market
sub-markets
=discrimination.
marginal
marginal
equating costPrice
elasticities, can
a
priceDumping MR4+B.
aggregate
y
bethe canWe AR, 8 in
market priceBmarket
in
equaltequal.
otal of
monopolisthaslower
the
directly
selling sub-market Finally, revenue. divided
conclude X
cosT\REVENUE Y wil
to
It raised.
is possibility demand,market
sell Greatermarket price) The
market with so evidentA to(111)
the more be
than the a
is
fromcombined as monopolist, into OUTPUT Market
(A+B)
is more monopolimargi
st nal
the with and thein marginal
special price toThe less Accordingly
over product in allocation the equate sub-marketsmarketfor a from at of
the in output Total Ferguson's observation,
with quantity
soldand than elasticity low sell output.cost
alosing
face type sub-market
demandcunt each combined
monopoh
with
MC
fig. lower
whichdomestic marginal product
marginal MRA+B less morselewill
two in of is can market
the the revenue
he the price ofsales.sub-market allocated
profitablymonopolist
with produ that 8price. buyerselasticity
of (at with
types foreignmrk
B.monopolist
demand,
has market.
discriminatiot revenuerevenue determined isb elasticity
Thus, o
different highhigh nf
of will when hoth
monopo markes In is in
among
be in
of
greater price)
elasticity
Micrnecor

deter as practice demon

s Meach the prig less marke of prefarprie mark
dema in
 3 Phce),Marginal
Opetition Ve
(ARw) PD
0) REVENUEICOST
e
sknl innolist
maximum.
shownmarginal
nerfectenjoys
fim NO
be
markets:
Dumpiosundengr
tagram. an (iv) (m) Pricaen.d sdeticimtieasnd.of()ulucts Arkets
9 () ConarativMgele y Accordsiwehrnlergls. y.ail
To omestic and
because i.e.
Tevenue It and
explained To 10 To To
: is.
reate actaogekempete market toreign Monopoly Firm
ARyrevenue horizontal in
prevails. in revenue
the Profits
wil
domesticdrawn output
monopoly get take
achieving
severalto cadvaant
of =
curve MRw. is
the following
competition
be
in
advantage r idOutput
demand out lower
monopoly
is
equal
foreign line Fig. OUTPUT
In
refers
9
M
MC
equal
isWil
equilibrium market
in the
onwith
determination
hel
thp
e
Determination the
of
increasing foreign
rivals
returnsof
rmarinevenuegmaihenralket
but
this diagram: be the
assumption for prnce.foreign can where
ARH thein tomarket MRH of
to ARyMRw = maximumto in
domestic and the surplus the market.thein
market average
Average ARH D total objectives, Dumping l charge is he
domestic
which whenforeign foreign of
under difference product market
where to
marginal that the stocks of
his higher
compete wi th
situation revenue when market there dumping
market, revenue
slopes perfect market. market.following
profits
in
foreign to resorted price
ie. is hashe to
cost his in
but marketsare the the domestic scaleand
operation
output. Production
does Monopoly goodsmarket dumping in
in sell low that market
(TM). than output because
domestic domestic Out
It the Obviously, monopoly by
market In
domestic ANTDmarginaldeterminc Output Cuts
depends th e
on
Ouiput. slopes downward
it price Instretch.
Suppose
not is fromshould price inthat horizontal line tional
to understand
monopolist a must
aYou
In the marginal
of it,
of incur an wil the some fixed
case be sort at is this AN
has represents in
the MC
extreme foreign betweendomestic downward situation market price then
market How downward
mining, market. of output, fim beenmarket,with it is revenue both combined refers
the cost Price be betradersdumping, by
of
perfect price OP, the his and
le ss of him in price same. only therefore cost the the foreign
total much
monopolist market no in and the joined. combined point to
a situationof
market Therefore, dumping the of (LN) in inoutput.
fountain
production with domestic than avail. buy for sloping
competition foreign the marginal (MC) marginal markets marginal
output and
domestic and The LM firm cach markets. marginalwhere
into the it the a equals domestic LM outputproduces ANTD NTD
is
has
wherein Zero Accordingly, abroad for monopolist
foreign monopolist wi l curve below
AR#.
of the costmarket alongwith AR while market marginalmarket in He his acost
water a for domestic happens, Ifit a
profit. market, to output revenue sell revenue
portion wi l It monopolist
mine. Cost of at cUrve in curve such revenue is
producing the importing and cheapmarket the the MR whilemarket foreign
in
OLOMat is
distribute this marginal curve
springs monopolist curveMRyalso
During of difference price
must a is seller
interna
straightshown he at wil inoutput total point is curve revenueequal. way a pointthatwil
of
market. foreign is in intersected the
faces is OPsell both wil of
out. the the ensure
not is foreign MR higherprice. market, output. T.foreign Inthat the curves cost
the and so a in of
curve. fig. produce the
curve
in OL the the The the total total
his of
9 37
 Chamberlin imperfect
Imperfect -woAomiCxctrse,nmerse.all ife market:
competition.
tade monopolistic which in What nodelsellers.number;
monopolistic
Mamnples
Competition.Ieatures ype pettion.
Hrepsodent, of offered to lICanderentiation
Manyfacilities txample,
almarks,
so
Dnerentiation Selproduct
lersin theof
Monopolistic
Competition,
laree: AllowingMenonolistic
competitionpublished subjhecaemcte a thBuet the So
of Cxamples (2)
is ofthisIn(3) published
Robinson far
market,
of different
be respect one or there monopolistic Oligopoly,
Monopolistic situations
namely we
THEORY
monopoly
has
It
a
producing
Colgate,
Firms difference
can
the
in
manifests
form brands the
is
each are
Competition
sellermany
Duopoly, wherein
chapter Competitions" is
Competition
a
study
Thi
itsinof is
s
situation
perfect
have
studied
Chapter 4
elements firm be
sellers.the wherein the of
we wi de competitive Imperfect
competition.
cited of in differs
sellers where market: his is
is consumners shape, characteristic
itself term her only
after competition the two
someand ofCibaca,
characterised
of variety
difference
to of
the in other. from of is
the
Competition? develop
wi l number
the
book,
in in
their
"The
book between
midway
eco t
OF
thisIn explain colour there that England Competition.In extreme
America.
competition.
monopoly Babool, of by in
product, several
product This
commodity, market
a a sellers of (1)
"The 1933market
MONOPOLISTIC
Thus. that Chamberlin's are sellers
Monopolistic includes, monopoly.and
monopolisticservices
features toothpastes, the and ways, feature of only are Imperfect Economics
Theory
Breeze ofand when
situations
by different productotherthestructure situation
because Choice, quality: few is
some and two quite Prof. Mrs. these
under
for but the
of in of
buyers.firms
number of Competition
monopolistic Characteristics
Monopolistic
tition of sellers)
Subshiute
produCI. closedifferentiation.
to the substitute
products.
competition competition
num- theproduce soaps
allowscompetition demand
enjoys
other other
However Lux. curve.For control
product
substantial
(1) Main sellers In According to Also,market
producing ber under firm monopoly
Large are of the partial substitute etc. monopolydifferentiation
over COMPETITION
characteristics as their dowords of it and
under: refers small is is to In their the
competition
number competitive own have market
similar there the
control
countrythe
differentiated firms
to ofsellers,
differentiated
selling extent of own
other
right faces cachprice
a
product, Baumol, "The is example,
a structure
"Monopolistic Bains,
J.S. Lux
of monopoly the to trade-mark,
over freedom can firm of
that words,
soap. on the
provides
thereFirms of pressures market monopoly
manufacture can the
but price
product monopolistic where there
there
It trade-mark Hindustan product.
name
are and theystructure
(they term of is
monopolistic through entry similar are such negatively
sloped the
large from are to
andBuyers:
there is
also are the and many soap Accordinglyfirms
number freedom as, Lever
also sellersof the in is extent to
product Hamam, Lux.
Under compe exit. perfect bathing as
subject which a firms
large only large limited
but Ltd.
of it in to No as
 complete over price.price more case limited
monopolistic expenses product Withcompetition.
and newspapers, funds -polisticfims term Hereleave case Colgate, Irom Oher brands PToduct 44
monopolistic
competition amongproduct
durability,
etc.
differentiation However, large situation diferentiation the hanon is
(5) (4) 'group' itthe of(3) their Why consUmer
the Product per units marginal of a on producing Product
- Product?
Because: but the words, Product(2)
monopoly. control Partial view may perfect
Freedom market
share. in Product
control
price.
over
Choice, other and
control price unit. of advertisement
so it Selling industry differentiation, their wherein a
incurred
cinemas,
gives be
Producers Similarly, soaps. quality, their
bathing qualin salient
to rather arisesproducts one product wil in
differentiation Orcompetition , its revenue Control on selling differentiated
competition,
noted differentiation
differentiation Babool, products the
of product only wide Costs: of size, gradations Differentiation: befeature
over its It the than under Entry due waybuyers offered
means are that
price journals, Prefer etc. such etc. to differ differentiationor means
thatany
product.
the less curves over calledpublicity more and Each 'industry' monopolistic
Chamberlin differences
There
are th e of
to can will slope it fims and among as, in can wi d e a
price enables if of publicity
and facilitates allows close other. monopolistic
have be a Price:
its sellingradio, firm products
are Exit to Lux, manyare onedistinguish any of
Unlike have
downwards firm oÍ ofmore the substitutes. respect Number range at
islimited sold product. for Differentiate Pepsodent, given Product
a Each costs. T.V. its spends
of free of partial toothpastes.
Hamam. shape, in refers
not a at wants to the has Firms: increase
competition. ior of
firm thelower products units its under to instances a oneproduct. types, competition.
point
monopoly, a number
possible Average m firm etc. products. a used enter th e of
fimsproduct to styles, differen-
controlunderhigher tounder as of lot mono Cibaca,Rexona, colour, firmsProduct
due other. lack price time of
the sell has The the the and As that
in in of of in of is In
where.
limit
thatmarginal
maximises
firm cost
marginal demand competitive
AR itsMonopolistic as
each under
Competition
Determination Monopolistic
Competition non-price offering
undercompetition.
rotif and freeotherofonewashing pack compete ofwith factor
services
product must develop of because competition
different neitherthe
goods substitutes
e becausethe of
thpoiicy
product. to gift. ofSurf
monopolistic
th e differentiated
cUurve producer In more company (8)
services buy perfect (7) and (6)
under get tumbler. product. Non-price
revenue and maximum curve the Maximisation free In powder, are of itliking Imperfect Limitedpolicy each of
it
customers. this is services in
monopolistic with
profit as
firm situation gifts Excel competition that is also othereven knowledge not
(A
indicated R of way,
Likewise,
may one being irm the
MR has 'Surf Takeanother if for possible of availability
marginal orlesscurve
isCurve), differentiated a and Competition: not products
firms.
its to its is
firms give the aKnowledge: Mobility: are
minimises
partialprofit. of of Or Suchother for offered fully particular
price product influencedmarket,
competitors
company Excel' aboutperfectlyfactorsof
competitton than Since by monopolistic Price compete stainless
with
a instance
without
Similarly,
aware by to
revenue. are control
the or services a by isa compare Accordingly large
of
price negative Each and Equilibrium competition one and differentiation. a the
downwaro both product different other lit le brand
particular Under
in to
loss ver with steel pack may'Ariel'changing .firms Another about
owners
Buyersmobile.
price
the a
monopol1stica1 great number
production no
In(AR). the Output to giv e firms higher foiawide producs nf
the
of
MIcroeConom

produces
other by Sa dena slope uis behaves comptitlon attract each spoon of
is Arie' aWith produci mp fims
the feahure priceo of
the
than
firm. the and monopolimarket
etenm th e
called mor other asa freegit
ptis produ selle
words prnca may factor heThe ran: Bye
 Point MC equilibrium 2)the fimdemand
competition
diagrams:
following
Is s. firm surave wben buld1ng
factoryetc. ixed
equilibrium
indicates
EMR =
in
Super
(1) Normal three
In in
situationsequilibrium
from (i) theIn 4p ltiicmapretiooCompe
factors nductShorion t-rutiShorntiont-run astpereetnit onequiStuunddlyitbaontrsia,unms = ) Toy
MC
Its
of
marrMoagndninCooalpomlipsetiction
REVENUEICOST and
position
this for
short-period.
below.
its
available
ofcan
time of When it MR)
isProfit, time the MC is
Normal
Super
Profit
that
Normal
MC
explained
at product =
variable refers
of Equilibrium
be the
firm periatoteds:mptfiedm's
curvepoint period, : The
in MR productioneither
increased,
cost
MC
firm'sthe ofand (1) short and,(i1) a factors
to equilibrium
Fig.OUTPUT
1 M Profit: Super quantum to (i) makes curve is
cuts E, a the and firm that equal
MR
because (3) firm increase Short-run,
with period with
MR
MC
= MC MR Normal firms the will like onlyperiod
of time in production cuts to
output is Fig.l
equilibrium under of MC production.
in under
AC
curve theLosses.efficiency uponprofit be by position.
re
marginal
AR at
shows maydepends the
curve
machines,
in or
increasing
Monopolistic ference
and(ii)
MR
this
from monopolistic help Profit, monopolistic under curve
equilibrium decrease
face available
point that Short-run cuts to revenuc.
below. of any of plants, There which Long- two these trom
firm the underthe
the ofthe to MR monopolistic is
equivalent price
(-NM). output
produce minimum
equilibrium
MCthe firmlevelcurve
average Price indicatesMC=profit. BM BM OM.
firm profit
cquilibrium
fim As MR in1.c. (AM
(2) whenEquilibrium
Condition
ore
(AC = ofequilibrium (3) earns
is of under Price
OM In equivalent
underequilibrium AB
Average MR.
OM will loss Minimum touching cost t he REVENUEICOST that fig.Normal
MR
maximised and >
to > normal MR
monopolistic per BM). price of
NM is In be may equilibrium is and
AR). units of 2 =
monopoly equilibrium
OP
equilibrium in also OMfirm MC unit. Hence
- cost equilibrium thincur e AC MC Profit: MC. to AM
AM (FAM) of Loss:profit.
OP(=AM)).
output,
Normal
Profit
is is the
Hence, firm. curve wil cuts inmay
competition (or Equality Total
of
output. Fig.OUTPUT
2 M ABCP, is
=
the
loss In output MR
A
equilibrium
be In losses
competition or difference the output
AN and In the AR at MC=MR MR the super firm greater
the position, at of MC the perfect
per firm fig. point
is the
Price point fixedshort from short
firmaverage equal It is equilibrium are -A normal earns than is
shaded
unit. 3 OP AR
is it
period, A. so is AC
between OP(= C
suffersmore of E. cost. is below.point at
period, competition,also
minimised) Standard
the to AR(=
Hence, super
But equilibrium cost evident
At that because,
AC
X
normal
carn profit average
AM) area. AM).
the than firm this It a and profits
fim Point E AM
nornal
a is point is at output. where a of
price loss firm
the OC will the in the the and the and cost This
E
 existing
firms. when
from produce willnormalexplained
If as incurlong-run, both onlylong-run and exitindustry
super
is wil group a firms, differentiated differentiated has
monopolistic enter able Long-run
Competition loss 'A".Thus,
loss AVC cost of 46

new
enter (1) losses (i) demand normal exit into used Long-run
the to of ofequilibrium(AVC),
Firms neither although change the fixed from
competitors
closely into the are equilibrium inthe market.
firm in
follows. but uniform product for the the case as REVENUE\COST
the will (íi) firms profits. and monopolistic products. Equilibrium cost
related cam they term and
thecompetition the is
It the will
prevailing curveoutput MC
MR
=
productprofits
beingare
not earn under cost not may scale equivalent of
super group period be LOSS
try earn throughout However are isgroup. product
curves be NAPC,
equilibrium AVC OM
a There homogeneous. of M
products.group. only
monopolistic maximising situation of pointed their of isFig. 3
OUTPUT
to Super normal normal competitive Since price touchesequal
to
MR
take for such
is time in the AN
it freedom group' the plants MC
They outMonopolistic shaded per AM. thecurve average to
customersPrices earned, the all is in there firms in AR
Normal profits, firm
profits. producers assumed here which SAC
will competitiongroup. profits,which market, is Chamberlin product is and unit. is It X
AVC
new is
mustbegin Profits: free ofinstead
producing that to area. covers AR
This (ii) entry leave firms incurringThe at
away In that earn all entry under variable
firms total point
fall to nor the in the the orare
only
is or of
Output.
A output which revenue
pointcurve MR and explained firms because
quit demand,
fims group, down long substitutable
position
nogoods. continuefirm's
its the entry,normal
curve LMC In Price
the firm differentiated long-run.
is and get to total and run (2) It
tangent At and this all product.
profits.
which equilibrium is
REVENUE\COST
with and industry.
normal of
causing wi Firms
l by wil
equilibrium OP and diagram,
MR
long-run the earn supply leave also, super until
output losses incur the cause
(= LMC the profits normal the it wil Each InfirmsEntry
means to is Normal
Profit
A their product, normal
AM) marginal help wil loss competition
long-run is determination new being group.
of not firm other decline
that output point. marginal LAC
M
Fig. OUTPUT
4 profit goods be are of
iscutting MR MC
MR= of is price either.
better incur profits
Fig. equilibrium is words. nointo
LMC while
in the is attained. suffered thfirm
e
average OM, OM revenuelong-run to When forced in
once will 1f the
cquilibrium average
price MR cost;
AR
LAC 4.
in
rise losing for Loss:
someagain. and fall suffers
the
it
prOducing
rivals, competed
tO
are longer
ofhaving because
the curve AR demand
COst equiltbruof curve. average +X the point shor
firms firm n a a makingmarketMicroecOnomi
enabling the normal freedm of
equilibrium
situation currevenu
ve at
point MC averag
is long-nin ot
atthe In
looss
qut to\ongnun
monopdly w

at cos which fims shon the

cloSe the in
the
sUREY
 Minimum.
Upimum capacity uapacity.
Competition optimum.
production neither
monopolistic al aaive under sach AR
ipacity oST which ESs Capacity
Excess point poinnegat Cuve optimum
Qgulibriupoimnthe ngs-irnunc,entive ses.
itCurve negiatat
t1ve zpaotcithy.er In rCnvenue
Tage jory
output.
that
capacity
iS
S
each capacity
point
Ihe
n firms
output
output
he long-runthe In
actual is
In
minimum monopolistic
Aslope
which
t
touches minimum
output
is
s
AR at
Another exit ThisRun?
of is
Why wil
be
mximtIascngcncy
With antdhe
revenuc d: Heloncng-e, run
of 1 of
higher firm
is because
is on
under
where
output
difference
the
the the
of wordsgroup
competition
as
shown isand horizontal LAC equilibrium
a curvenot is interesting because only firms,
for normal
old
no since the
curve,cost at firm
Monopolistic
Consider
thansituation aits
producing amonopolistic
equilibriumunder
at a
bit socurve words,
asNoormal
firms
incentive average
any aveerage A
monopolistic long firm in equilibrium competition, touches
higher point. In
firm is under of profits earns
LAC
these is in fact the of Competition
fig. 5. it run havebetweenthe
characterised of long-run this at line tangent to
firms newfor for firm other AR
could curve. its production
point. isfreedom Profits
not perfect only cost
its of do long-run than noticeable quit and
beenMansfield, U-shaped
figure. minimum parallel firmsall price
Here, output unused not average th e
perfect to making the incurring wouldbe normal are
be competition point AR LAC,
In regardedoptimum average so
isItcompetition. Longthe in cqual;
at produce minimum, U-shaped of industry than istheon
greater
the its at other eguilibrium. Thus, to in
capacity by nor LACcurve
competition,
X-axis, level full in entry enterto orthe profit.
profits i.c.,
firm in
is an COsti.s a point.
fig.
optimumaverage words "Excess because use long
run
at output excess costunder
is group,
in
have to curve is LAC is of 4. and AtAR
the the i.e., But not At th e are the
in be is of as its =
downward
Moreover
wasteful, inefficiency.
necessary
firm's to ifmore eachwasteful
capacity Is AC. ofAC
downward
equilibrium
U-shaped Excess minimum. curve.LMC
(OQ) ideal
capacity. the
Consequently there
be Excess
Itcompetitive
Because capacity
Excess
exists long-run
firms firm optimum Excess output The =
somewere is Capacity and MR
leads or REVENUEICOST
pointing sloping because controversial
produces
can not. sloping
In The
capacity equilibrium and
Production
overcrowding. no Capacity curve
only to other
actual of
equilibrium LMC=
exist to utilization in (showing =0Q1
-0QQQ1 difference
MR
some
present excess Some = the the
overcrowding firm the Optimum
out portion each AR words, AR OUTPUT
under
smaller
economists is firm IMR R
economists capacity. short or
Fig. 5 E
thatcapacity whether may only cruve
Wasteful? iscurve at
M
firm of
of is these the the normal
because Output- between actual LMC
at It (0Q) OQ, point
the its exhibit runlong a left can
Excess
Capacity
than is
is
higher
implies Thus, of plant. tangent AR
same average is
producing circumstances excess
believe even of be outputat LAC
believe itnot optimum the in indicates
optimum E.
runminimum profits Actual
tangent which
there group. At
total fully cost costwaste Since
capacity
that
less
concept.
pertectly
the
is to X

long OQ. th e this

than is than Output LAC
output utilised.
tocurve. on
be likely output excess to
only). output
excess
the and
than point
the run The LAC point
is 47
is is
 competingbes market
iterdependent, homogeneous
Ims harker dependence. marketDefinition murket hoth keciOligopolists
s0 iacision
de afim's lioopolist
aumut India,Ar wuatwher
iel tinavs)Indian ion e 2ans grwordseekno
According
not
situation
control
and
structure
great
-In
a the sellers
few -In
ofthe
dominated
conflict competitors. price with
to
do, of formulatesAutomobile several oligopoly
one or
of
Mabendra
homogenous In
aor
re
oontrol'.
Thus,
InOltrigoopolducytion
sellers.
and and faceinterdependence
the characterized
to
words
in deal differentiated that
onlywords
or
cooperation.
a of
by in firmBecause output
a
eye
an

Mahendra,
and examples
differentiated
products. formulating Oligoi' wordmarket
The is
a Chapter 5
OLIGOPOLY
market. which of they two which situation to producerslines,Air
Grinols,Mansfield, few P.C. depends influences its few
of their
interdependence. firms of policies
each
Dooley, of large oligopoly
influences
producers recognise sellers, there their effect oligopoly meanssituation
ofa An by products. is The on in among Ceilo). Airways,Jet
calleda which the (Maruti,
is
what regarding firmns few'
small small a
Oligopoly offering "An interdependence
special
opportunity sales on is
oligopolv their There only
with
few
its them. like 1s derived
number number oligopoly Duopoly'. other the and Hindustan. sell
There case rivals. Airlines, aand
mutual optimal profits price is market
is is
either
ofa
firms Each great Sahara India,either 'poly' from a
but of are for
decisions.
output a of a is Aor
considering firms
how,significantly feature
firms. automobiles,homogeneous
oligopoly.
imperfect theproduce
the Firms The caneither small industry.
Hyundai, characteristics
oligopoly:aOligopolyofFeatures rivalssituation in so
industry market Small
in (3) firms number
influence
(2) For following
(1) areThe
make Mutual of in be
cars.
turn,
Mutual Homogeneous a examplestructure Few that in
In
oligopoly homogenous
produce Oligopolistic homogenous TheCeilo the
other how theiraffected the
is ofthe Sellers or cachwhich
interdependence called or
buyers products and McConnel,
theseInterdependence: industry differentiated Characteristics
price in inand nnumber
firnms'
independent In is must
a a Tata, India, which its
in
monopoly by mutual differentiated pure productindustryoligopoly or and or sold Many
will is Differentiated policy.
price
consider
reactions each differentiated. mainthe
called or output produce by four few Oligopoly of
affectinterdependence products. firms
means perfect like may oligopolist Buyers:
decisions other's and will companies firms
differentiated A by the in
willother cemnent produce 90 of an
competition,
affect that very product
oligopoly.
be
their dominate
Oligopoly features reactions
If quite per industry is
fims price
and
important Product: Thefirms
without firms the
actions.
a
them. or cent
Maruti, market
and
of
like steel
firmseither large. firms
are the or can of the
If is
or
of/ is,
 imperfectcustomers
advertisingadvertisement
oligopoly,
matter,
advertised product.
rightlyprimarily at firm price high incur industry,
comparatively
much
less. persmall.
oligopoly
Some oligopolistic
monopolistically
competitive
markets. and
intoshort In
Thisubstitutes.
srivals oligopolists demandcalculate
attempts firm first cutdecrease.
its predict
tries s most increase, selldecisions. But
and firms.compete
upon
58

(6) (5) cent (4) consideration own firm. likely. of

is crossmuch
rigidity, For fims rigidity
mutual while that an
the If
Element where remarks, The Advertisement:
to in Lack profits.
is toother
how toSo, oligopolistic
one s cachwithSince
oligopoly, driftingbudget
advertising product. elasticity whileexample, may is Inthbute firm'
shifting promote expenditure small lack interdependence determining firms very otherlower such
expenditure the of markets before firm
a fully in
firm comes, into
Uniformity: of high In firms their sales lowers price
of of of only car
the uniformity the
be th e because a oligopoly,
other
the
Monopoly: to its which can
In
the his of very from actions between
the oligopoly, the deciding situation, of and firm
firms competitors I this way
demand segment
share share its lowerprices,
wil the the the
rival onsales on An oligopoly effects other
becomelife
fails isdemand
context
advertisement open oligopoly
large
monopolistic, price the
to price,price salessmall a
cannot
products. advertisement. of the the
enjoy only of
Maruti and Another
firms inof and react
firmswil cut too. firns
In to by for
Ceilo of
in and products the cross their of of take
keep a its Prof. advertising in to
the the reactions firmproducts its theThen other charged its number
onc
some
differential in favour production th e others policies.
output prices, in own
may Udyog size distinguishes profits
firms the independent
fim
up
profits
deathand
own.
oligopoly, oligopolist firm automobile or characterised
competitive
feature bymarket has areelasticity reactions
monopoly find is Tata of perfectly the
the industry sales by of
depend
with Baumol aimed may of to of will,
Under of Given has is firms. ta ke close of price other irms
the his and hi s the of on and first the WIl
or its the to is 86 be of
can that brand. loyalty'" Brand
creates power.
maximisation
equilibrium levelof security
of oligopoly
maximisation, ligopolistic
under 8market. of
already inprediction be Oligopolyuniquemoves
dependence constantitselfwatch the among sO Sothe tries wiloligopolistic
result, rivals stick change termfeature customers.
profit current made. rival Small there raise
(10) (9) Keen(8) to not to (7) brand.
and counter to on thatrivals. raise wil its price
of the No
only. and sellers. is be t he The
maximisation it Existence economic Uncertainty: It
about is, struggle
counter
the firm wil also price. oligopoly
rigidity Existence
other Every
is any price its of Moreover,
risk It
existence.
difficult
therefore,
of is activities Under any firmprices. price
not it. Asmove price, retaliate firm
cxistence
ma y th e firms To Competition: the If firm
has
havemay foundmoves. as an oligopoly, advantage
firm awil Since means is of
price.and minimisation,
output a by lose
etc. not of changesbehaviour the market result,
of other can
Non-Profit So to onIn oligopolist, the one presence its by not existence Price earn the
becomes In always that of
the other uncertainty
calculate oligopoly, each highest inThis rival each seller the
customerS firms reducing tries
oligopolistic an benefit
any
monopoly firms the on
otherconditions to to firms monopoly its product
absenceoutput aim on of
form
kind
of it. reduce change Rigidity: of the
dificult the different type ofbusiness fims fim number oligopolyTheis
immediately wil through
motives Motive: at the other, keen and not
Likewise their the would
price
product
afferentiatim
MicroecINoies

basis due of
competition keeps the in
rig1dity. profits. he
part
of
t or maximising prevalsconsequenct competin. ofnecessitate and of incurlos so. doprices, firm, price not
to maximisation,
detenie u likseales tmA facbof fimscancertan interto markets
no is
prerars
Competiton
seles if price Another
colusion
life a coe aafet Asfim a s0the will it bylike
a it an to
Under
is of
 e
COmpete
oigopoly perate
TheyCollusive no ne lhleader.
e lhe that iS type. other The there free.fim is market the isthat substitutes. which
differentiated purproduce
e oligopoly fims.
calclossification
egorOligopoly
ies: ofcapacity, inputs, old Are entry thin
e
nomieoslagoctpoelisrticsfiedrm ligopoly
price dominant
ecochar
Collusive (4) price industry. (3) barrier entry (2) () The
cachfollovw other situation is oligopoly. Barriers
Some(1)
ofwith in
with
oligopoly and The Partial barrier
of Open all
homogeneous Perfect oligopoly firms,
their
each whichother. a firmhand,dominant may But the
firms is e
preventive tc.
common each others This
in on situation
firm
oroligopoly that industry.
common
Such patent of
products.
the or dominantwhich or be the in Closed produce On or
other
Non-collusive is Full
other that is orprice that
Non-collusive
Oligopoly: follow the in situation
the Imperfect
may Indeterminate?also is
barriers rights,scale,
firm technological,entry
priceabsoluteent Somery
firms price in
and Oligopoly: situation thwhich e products. be
oligopoly in leader. situation that there Oligopoly: is
of
industry. differentiated that other classified
determine act policy orfirm
the in prevent control an
to
determining price. the is and
independently. there Oligopoly:
oligopoly and is a firm of market hand which It Entry:
in in price dominant
called Partial closed prevailing cost
Full legal The Open
is is in t h e
independently do which which in over barriers
leader the entry no situation imperfect also all the advantage of by
not entry of
the the oligopoly, the
oligopoly or
oligopoly
industry.
barrieron
oligopoly
but
known the following important barriers Usually
compete
is there firm of to
price. firms price of Perfect
They that fixes
any
close firms excess
is in the new
in as to
patterns duefollows: output such certainty
revenue
impossible The
oligopolists timeabout curve
competitor.curve
monopolist. downward firm
maximising model demand react
uncertainty. ththere
e worry mOn all thdemand e reactions
Ina affect actiondemand and dueunder price
output
oliogoply Is
Under
to(1) The inability firms that
reaction Price
The to There
interdependence, data of new athe because of will about
in are opoly perfectly competition and
theDifferent undermain
becomes data an it other
without
interdependence
the priceinteraction curve wayaffect a none. in wants(Revenue) (revenue)price
to oligopolist Wesloping model, will
circumnstances
oligopoly reasons pricefirms faced reaction assumption of is We Thus, the the of affectfirms
situations. output is and
determination
estimate ofoligopoly.that However, oligopoly is no
possible. anmade, can the the reaction competitive at considering
other of
Behaviour and cannot an th e firms
cannot oligopolist
by curve affects it the a generalOutput
foutput
or of amongoligopolist sayoligopolist." isother going firms curves.them. and commodity and determination
anthe a unit.
its about nothing because athe monopolist
there ofbecause how, make supply of Thus,
Invast a the
may determine
oligopolist. demand use firms
difficult Hence, rivals market indeterminate. the
demandrivals under model, Thus, theory
the We
a indeterminate
the
Patterns: even initial In how
verv
variety be firnm madehorizontal
a is the decisionsin
(cost).
firms. it
is
under
words interactions
oligopolists. interdependence of take
and is
about oligopolist
wide summarised as
in makes oligopolycurve
to
is We taskfirm.
which the since does price. each eachwords they turn,these determined said which
theory. an not cannot decisions in
of of In And and predict other
have that
th e fìrm In
It Oligopoly
profit
their assumption to by not In firm all
varien
behaviour
Baumol, oligopoly it causes This in actions can
price marginal
virtually or a draw definition of monopoly
without is demand
amongaEvery perfect demand isuse turn have th e
ignores can definite is
price kinds
Miller, firm's mainly explain
of and withborn. new not ofa pure by
the the wil sell will and of
a to its 59
 which indeterminate. sense problem thereoligopoly.
indeterminateness different solution
maximisation, the followed Strategies thenreactions
merely Maurice, Objective: indeterminate. reactions
beyond out,oligopolistic
curve affectother in causeoligopoly. output
under of follow death
pnce-output or other behaviourdecide 60
behavioural of monopoly well-known
oligopoly model the
monopoly. The firms (3) an
(2)
the it
reaches that is likely "The since oligopoly thefirms of reasons may cxtreme
obicctives
many no
above to Profit hope Indeterminate but a Even . to
there
"There in may enables
the of and firm of indeterminatencssothers. is widebreak get
single motives also byThe torivals. itfirm indeteminate because
name determination a ogetherpaterns
different There oligopoly,
a of price-output rival counter
different In
is explanation security have Maximisation firms
motive
of lead 's keeps
Because largevaricty they ifther so
direct attempt cannot must of down.
is a isthe solution
theory the firms Baumol,
to the indeterminateness may far
becomes
no no of enter
other firms in strategies an shifting actions closely Demand
variety of ty asand
solution. unique theorywords the maximisation
price analysis." to of patten. And
of to
makes problem. perfect of make outguess
interplay
have
the demand
curve.that of under into cooperateto the
perfect price the contribute to
objectives to profit has of ofagreement fighl l¡wposible.
general of of and have the inter-dependence, in a onewatch price oligopoly. There
the
price it competition is which correctly definite Curve:
models, oligopoly maximisation
But asNot demand The response models
agreements eachallows,
competitionFerguson is clear, output a ofone can the and in
solution said and etc.determinate in actions of is other thRivals
e
that like
oligopoly anticipated another
is drastically actions Eachoutput itAnother price not it or,
each
the
tangled pointed demand
analysng It a may pursuit
in output to since under These sales to issinge may
only curve and to
last the the at may
but or the and be the and are the an became veryfirm
of in
and one
oj
newtiation
hugedifferentiated able
innovation dominatethey numbercontrol f
restrictionsor Source of Those few
(OPEC) control
tholigopoly
e aslay firms total ancosts expensive namc. innovating then haveOligopoly major limitsemergence oligopoly. of
Oligopoly
EmergenceExist? of
Oligopoly
new (4) Organisation in output
amount firms Successful to(5) (3)
production. oe available cannot (2) The
can
have
ofControleconomes wil enabled,
maintain invention the (1)
establish over a
firms Legal controls Economies Innovations:
who
actually successfully to theyears. of and countries anmay tend equal otherfor isentry following
onproducts. thconsumer
e emergence essential be firm their the often
product patents.
particular
resource Restrictions
to result market.
to achieved
advertisement want original most of Thi s to or of
successfully Japanese enter. of oI be a reputationand innovating number
Differentiation: Petroleum Scale of firms dominance
may innovation. found are
entry make control
of
resource. because an Consequently too rather substantial Scale:
electronics
obtained Patents
Patents
Essential may in
Difficulty the
entry The product. of the unless to have in of
should firms
oligopoly and world' ans small.
sales Indevelop firmsmayindustries firms main
essentialExporting In apromote innovation The
to
compcte have more
usuccessfultheir
patents
provide
industry have or make Patents:
can
few
theResource:
promotion In
producing
per firm
issome
a established of
the to due
in to reasons MicroeconOmics
does
Why or
Some supply centage
addition the industries a industry.
dif icult.
to brands of been
exclusie it is resource. Countriesindustry. firms oligopoly.
oil
number comparable
establish started innovalions,
olligoFaly
an

with ditTh spendere- tirns onbecau abie for dithcul legalAnother oilof have An well there
as of
such
by
for
th low a The
ar . of the and a he