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1、Chapter 3 MonopolyECNU Oriental Real Estate College3.1 Market structure: classification, characteristic and measure3.1.1 Determinants Market concentration ratio Product differentiation Barriers to entry and exit Price elasticity Short-term cost structure1、Market concentration ratio：firm is output, s
2、ale, assets amount, employee number，etc. Herfindahl-Hirschman indexX size of the industry Xi firm is sizeSi market share of firm i n number of firms2、 Product differentiation Cross price elasticity Advertising density= AD/SLAD= sum of advertisingSL= product sale 植草益（1997，31 industries）AD/SL3.5% or A
3、D 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 differentiation3、 Barriers to entry and exit Barriers to entryBarriers to entry is the advantage shared by current firms that means incum
4、bents 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 barrie
5、r strategic barrierBarriers 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 access
6、(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 entry workable competition Oligopoly High industry concentration Produ
7、cts nearly homogenous or comparatively high differentiation Comparatively high barriers to entry and exitMonopolistic Competition Comparatively lower industry concentration High products differentiation Comparatively lower barriers to entry and exit2、Bains classificationconcentration ratioMarket str
8、uctureC4 value(%)C8 value(%)Oligopoly 85 C4 Oligopoly 75 C4 85or 85 C8 Oligopoly 50 C4 7575 C8 85 Oligopoly 35 C4 5045 C8 75 Oligopoly 30 C4 3540 C8 45 competitionC4 30C8 403、植草益（1982）：市场结构C8 值（%）产业规 模状况（亿日元）粗分细分大规模小规模寡占型极高寡占型70 C8年生产额 200年生产额200高、中寡占型40 C8 70年生产额 200年生产额200竞争型低集中竞争型20 C8 40年生产额 200
9、年生产额200分散竞争型C8 20年生产额 200年生产额2003.2 Behavior in monopoly Single product monopolyAssumption: Product fixed and consumers know about its quality No price discrimination ps: the conclusion is suitable for monopsony caseOne product monopoly Demand function q=D(p), adverse demand function p(q) = a-bq Cos
10、t function Demand function differentiable, D(p) 0 Supply function differentiable, C(q) MC0Monopoly pricing monopoly price Objective function： max = R- C First-order condition： MR=MCnamelyget So monopoly profit is Monopoly firms optimal solution It shows that even monopoly firm is subjected to factor
11、s such as demand, fixed cost and so on, 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 sele
12、ction of regulation methodauction of 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 pricingelasticityprice（p-MC）mark up(%)Gross profit rate(%)钱诺5号-1.111.010.0100091惠特曼-1.862.161.1611
13、654奥里马斯克-12.01.090.0998表3-4 我国房地产开发建设房屋造价与售价比较年份19951996199719981999200020012002商品房销售价 格15911806199720632053211221702250房屋造价9111111117512181152113911281184售价与造价之差68069582284590197310421066来源：中国统计年鉴，2003，苗天青整理3.3 Multiple products monopolyAssumption： Firm has monopoly status to all products. Prices o
14、f 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 separability first-order condition： in it,Products substitute case Then cros
15、s-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 force. Products complementary case Then Lerner index is less than reciprocal of self-price ela
