03 Jun uestion Week 5 Discussion: Monopolistically Competitive and Oligopolistic Product Markets
Question
Week 5 Discussion: Monopolistically Competitive and Oligopolistic Product Markets
John Nash
Oligopoly or Monopolistic Competition, and that means Team Work Again! You are asked to collude.You are asked to collaborate with at least one other classmate and that meansYour Study Group. Your Group needs to choose to post a thread for one of the two models below (Oligopoly or Monopolistic Competition).
Note: No need for your team to post in both, but it is necessary that you respond to your fellow classmates’ selections!
Option #1: If You Choose an Oligopoly.
How would a rational businessperson formulate production and pricing strategies in an oligopolistic market?
Review the key characteristics of oligopolistic markets in your text and the expected outcomes for the various situations described. You may find a payoff matrix helpful in understanding the mutual interdependence between producers in an oligopoly. John Nash (as played by Russell Crowe inA Beautiful Mind) certainly did.
Think about some real world markets which come close to the Oligopoly characteristics. Finally, what are the implications for efficiency and equity? You should note how price/cost margins in the long run equilibrium situations for these markets. Is price equal to average cost? If so, neither producer or consumer is unfairly ripped off. Is price equal to minimum average cost? If so then the engineers must be happy as there is no other output level yielding higher productivity and lower cost and we have productive efficiency. Is price equal to marginal cost? If so then there is no reallocation of resources which would make society better off and we have allocative efficiency. Alternatively, a given market is unfair to consumers if price is greater than marginal cost, productivity inefficient if price is greater than minimum average cost, and allocatively inefficient if price is greater than marginal cost since we value more of the good in question than other goods that are currently being produced with the same resources. Think about these things (characteristics of oligopoly, resulting behavior by business decisionmakers, consequent price/cost margins, and implications for efficiency and equity).
Option #2: If you Choose a Monopolistic Competition Market.
How would a rational businessperson formulate production and pricing strategies in a monopolistically competitive market?
Review the key characteristics of monopolistically competitive markets in your text and the expected outcomes for the various situations illustrated above. Think about real world products and services which come close to those characteristics. In fact, you will find that most of what you probably buy on a daily basis are monopolistically competitive products.You should note how price/cost margins in the long run equilibrium situations for these markets. Is price equal to average cost? If so, neither producer or consumer is unfairly ripped off. Is price equal to minimum average cost? If so, then the engineers must be happy as there is no other output level yielding higher productivity and lower cost and we have productive efficiency.Is price equal to marginal cost? If so, then there is no reallocation of resources which would make society better off and we have allocative efficiency. Alternatively, a given market is unfair to consumers if price is greater than marginal cost, productivity inefficient if price is greater than minimum average cost, and allocatively inefficient if price is greater than marginal cost since we value more of the good in question than other goods that are currently being produced with the same resources.
Here’s what I would like you to do:
1. As a TEAM,identify a market that your team believe is “oligopolistic” or “monopolistic competition.” Your text can help you with this. You can NOT pick a product that was selected last week or this week by yourself, classmate or another team (well not if you want credit for it anyways).
2. Tell us why the market you selected meets the criteria of an oligopoly or monopolistic competition. Then tell us what that means for rational business price and production decisions.
3. Evaluate the result in (2) from perspectives of efficiency and equity drawing upon price/cost margins for your explanation. Click on the highlighted terms above if you are unclear on this.You may want to also consider issues involving the stability of collusive cartels. Please start with your assigned study teams. If you find yourself solo after Tuesday midnight (C.S.T.) because of team inactivity, you may join with another solo classmate.As always, you will profit by reading and responding to your fellow budding economists’ postings.
Due Date Reminder:
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