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3 edition of Distance, demand, and oligopoly pricing found in the catalog.

Distance, demand, and oligopoly pricing

Robert C. Feenstra

Distance, demand, and oligopoly pricing

by Robert C. Feenstra

  • 41 Want to read
  • 1 Currently reading

Published by National Bureau of Economic Research in Cambridge, MA .
Written in English

    Subjects:
  • Diversification in industry -- Econometric models.,
  • Oligopolies -- Econometric models.,
  • Pricing -- Econometric models.

  • Edition Notes

    StatementRobert C. Feenstra, James A. Levinsohn.
    SeriesNBER working paper series -- working paper no. 3076, Working paper series (National Bureau of Economic Research) -- working paper no. 3076.
    ContributionsLevinsohn, James Alan.
    The Physical Object
    Pagination33 p. :
    Number of Pages33
    ID Numbers
    Open LibraryOL22436933M

    The Bertrand Duopoly differs from the Cournot model in that the firms’ strategies are assumed to be prices rather than quantities. The set of players remains {1, 2}. We continue to assume there is an aggregate demand function D(p) that is finite at p = 0, zero for p ≥ p-, downward-sloping on p ∈ [0, p-], and upper semicontinuous; and that firm i has a lower semicontinuous cost function . The Kinked Demand Curve. Some economists claim that because of the interdependence between rival oligopoly firms, there are two demand curves to consider. Let’s suppose that the current price of a product sold by oligopoly firm X is $8, and the firm sells 5 products at this price.

    Kinked demand curve: non-co-operative model of oligopoly: Explain price rigidity (2) 1. if the price is increased, demand is price elastic and demand falls; if the price is cut, demand is price inelastic and revenue falls i.e. any price change leads to a fall in revenue and so firms leave price . In other words, if one day every firm in an oligopoly industry decides without coordination to cut its output in half and thereby raise prices, that may not be illegal. But if even a single text message from a manager of one firm to a manager of another firm is found saying that the firms should enter into a cartel, that is illegal and enough.

    Price setter The opposite of a price taker; a price setter has the power to set prices. For instance, a firm who faces a downward sloping demand curve can choose price. Socially optimal Describes points at which social surplus is maximized, social surplus being the combined utilities of the firms and the public. Oligopoly. Oligopoly Models There is no generally accepted model of oligopoly, but rather there are a number of models that will be touched on in the following sections. In principle, one can calculate and graph an oligopoly’s cost and revenue curves, and determine its profit maximizing level of output and price in the same way as we did with monopoly.


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Distance, demand, and oligopoly pricing by Robert C. Feenstra Download PDF EPUB FB2

Distance, Demand, and Oligopoly Pricing Robert C. Feenstra, James A. Levinsohn. NBER Working Paper No. Issued in August NBER Program(s):International Trade and Investment, International Finance and Macroeconomics We demonstrate how to estimate a model of product demand and oligopoly pricing when products are multi-dimensionally by: Get this from a library.

Distance, demand, and oligopoly pricing. [Robert C Feenstra; James Alan Levinsohn; National Bureau of Economic Research.]. Distance, Demand, and Oligopoly Pricing. Article () method to calculate welfare gains based on data about price changes and the rate of adoption of.

We demonstrate how to estimate a model of product demand and oligopoly pricing when products are multi-dimensionally differentiated.

We provide an empirical counterpart to recent theoretical work on product differentiation. Using specifications informed by economic theory, we simultaneously estimate a demand system and price-cost margins for products differentiated. Distance, Demand, and Oligopoly Pricing.

By Robert C. Feenstra and James A. Levinsohn. Abstract. We demonstrate how to estimate a model of product demand and oligopoly pricing when products are multi-dimensionally differentiated. We provide an empirical counterpart to recent theoretical work on product differentiation.

Using specifications Author: Robert C. Feenstra and James A. Levinsohn. The kinked‐demand theory of oligopoly illustrates the high degree of interdependence that exists among the firms that make up an oligopoly.

The market demand curve that each oligopolist faces is determined by the output and price decisions of the other firms in the oligopoly; this is the major contribution of the kinked‐demand theory.

Therefore other firms follow suit and cut-price as well. Therefore demand will only increase by a small amount. Therefore demand is inelastic for a price cut. Therefore this suggests that prices will be rigid in oligopoly; The diagram above suggests that a change in marginal cost still leads to the same price, because of the kinked demand curve.

Eight significant differences between monopoly and oligopoly are enclosed here. One such difference is that in monopoly as there is a sole seller of a product or provider of service the competition does not exist at all.

On the other hand, in oligopoly a slight competition is there among the firms. However, the main finding of comparing price-setting in oligopoly and other forms of competition is that since price competition in oligopolistic conditions is very challenging, the key is to differentiate the product so that the degree of mutual interdependence in pricing can be reduced, in other words, so that an individual demand curve is.

This is seen in the demand curve of a firm for any price below OP 0 or the PD segment of the curve is relatively inelastic. The low elasticity does not increase the demand significantly as a result of the price cut.

This asymmetrical behavioral pattern results in a kink in the demand curve and hence there is price rigidity in oligopoly markets. In an oligopolistic market, firms cannot have a fixed demand curve since it keeps changing as competitors change the prices/quantity of output.

Since an oligopolist is not aware of the demand curve, economists have designed various price-output models based on the behavior pattern of other firms in the this article, we will look at the kinked demand curve hypothesis.

Distance, demand, and oligopoly pricing / Robert C. Feenstra, James A. Levinsohn An experiment in noncooperative oligopoly / by James W. Friedman, Austin C.

Hoggatt Oligopoly and the impact of variable demand conditions on profits and the flexibility of techniques / Cl. 6 Quantity Price LRAC D 1 D 2 In the graph above, a demand equal to D 2 would result in a natural monopoly while a demand equal to D 1 would result in a natural oligopoly.

The natural monopoly results because only one large firm can always produce at a lower cost while at D. with a pricing “toolbox,” i.e., a set of pricing techniques, each of which might apply in some situations but not in others.

I begin with a discussion of markup pricing. Inyousaw how the profit-maximizing price-cost margin is inversely related to the firm’s price elasticity of demand. (If you have. The first section is about introduction in which the paper covers the introduction of oligopoly market along with price elasticity of demand.

In this part, it is covered that how does price changes affect in oligopoly market competition, also with pricing strategies in oligopoly market. A Kinked Demand Curve Consider a member firm in an oligopoly cartel that is supposed to produce a quantity of 10, and sell at a price of $ The other members of the cartel can encourage this firm to honor its commitments by acting so that the firm faces a kinked demand.

In an oligopoly, the demand curve of the market it called a kinked demand curve whereas in monopoly the demand curve is downward sloping. In the long-run in an oligopoly market structure the seller ends up making the normal profit in the industry as any change in the price will be counter set by the subsequent fall in the price of the rival firm.

The United States publishing market experienced outright collusion by an oligopoly when six book publishers engaged in price fixing of electronic books. The Department of Justice sued these book publishers in Characteristics of an Oligopoly.

Oligopoly Defining and measuring oligopoly. An oligopoly is a market structure in which a few firms dominate. When a market is shared between a few firms, it is said to be highly concentrated. Although only a few firms dominate, it is possible that many small firms may also operate in.

Following firms are price takers, so the dominant firm’s price is the following firms’ marginal revenue. Determine the market quantity demanded. Substitute 14 for price P in the market demand equation. So the dominant firm produces units of output at a price of $ The following firms produce an aggregate of 1, units.

A) Coordination tends to stabilize prices. B) According to the kinked-demand model, a firm will tend to become worse off if it increases or decreases its prices. C) Oligopoly firms cannot afford to let prices decrease since they incur large advertising expenses. D) Price changes are always matched by the oligopolist's competitors.

Collusion by an oligopoly occurred in the U.S. publishing market. Inthe Department of Justice sued six major book publishers for price-fixing electronic books. In a free market, price.These firms are price takers.

There is a medium between monopoly and perfect competition in which only a few firms exist in a market. None of these firms faces the entire demand curve in the way a monopolist would, but each does have some power to set prices. A small collection of firms who dominate a market is called an oligopoly.