7(Q 2M)-(Om OM) F((ex 兀00,9o
QC,QM QM,QM 1 QM,QM QO,QO
The amount that you lose when you revert to oligopoly has got to be more than the amount that you can gain by cheating. This gives us the comparative static type implications that cooperation can only be sustained by the patient or if the non-cooperative outcome is really bad Stigler(1962)instead focuses on monitoring. Firms observe only overall prices- not what the other firm is producing. This means that they can only infer that another firm is cheating if the prices fall a lot. This means that there is an inference problem- it also means that you may want to have price wars that only last a limited time One way to handle this is to have a policy of price matching -this gets customers to
The amount that you lose when you revert to oligopoly has got to be more than the amount that you can gain by cheating. This gives us the comparative static type implications that cooperation can only be sustained by the patient or if the non-cooperative outcome is really bad. Stigler (1962) instead focuses on monitoring. Firms observe only overall prices– not what the other firm is producing. This means that they can only infer that another firm is cheating if the prices fall a lot. This means that there is an inference problem– it also means that you may want to have price wars that only last a limited time. One way to handle this is to have a policy of price matching– this gets customers to
tell you when other firms are cheating Firms may end up trying to cheat with various rebates
tell you when other firms are cheating. Firms may end up trying to cheat with various rebates
Price discrimination Certainly among the most interesting sets of things in L.O. is price discrimination Assume a monopoly and that the demand curve comes from heterogeneous consumers with different valuation for the good Assume further that the marginal cost of is denoted f(v) then markup will equa.o the good is C If the density of consumer f(P)P 1-F(P) A(P)P -F(P) Obviously the monopolist would like to get some of the consumer surplus which is
Price discrimination. Certainly among the most interesting sets of things in I.O. is price discrimination. Assume a monopoly and that the demand curve comes from heterogeneous consumers with different valuation for the good. Assume further that the marginal cost of the good is c. If the density of consumers is denoted f(v) then markup will equal: P c fPP 1FP fPP 1FP 1 c 1 Obviously the monopolist would like to get some of the consumer surplus which is
equal to (P-c)dF(v) The best outcome for the monopolist is to just charge some consumers more than others For example- discounts for the elderly or for other forms of consumers f consumers are separable along some obvious dimension then it makes sense to set Pi= 2c-bigger markups on less elastic customers This might explain why lower wage groups (students, the elderly, tend to have lower prices
equal to VP P cdFv The best outcome for the monopolist is to just charge some consumers more than others. For example– discounts for the elderly or for other forms of consumers. If consumers are separable along some obvious dimension then it makes sense to set Pi i i1 c– bigger markups on less elastic customers. This might explain why lower wage groups (students, the elderly, tend to have lower prices