斯科特微观经济学课件Chapter 20 - Market entry and the emergence of perfect competition

• Equilibrium - not subgame perfect equilibrium
• Monopolist
– Keep same output level
• Not best choice – If new firms enter
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Figure 20.6
The entry-prevention game
– Incumbent firm - deter entry
• Policy - best for monopolist
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Figure 20.2
Residual demand for the potential entrant: a case of blockaded entry
Price MC AC Once the incumbent firm has set its output level at qm, the potential entrant faces a residual demand curve of p= (A-bqm)-bqe. In this case, because the average cost curve is above the demand curve for all output levels, profitable entry is impossible.
v+s
v
0
K
Output
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Entry Prevention, Overinvestment, and the Dixit-Spence Model
• Overinvestment strategy
– Entry-prevention strategy – Incumbent monopolist
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pe
Criticisms of the Bain, Modigliani, Sylos-Labini Model: Subgame Perfection
• Bain, Modigliani, Sylos-Labini model
– Limit-pricing strategy for entry prevention – Game theory
• Limit pricing
– Established firms
• Deter entry
• Set output
• Remaining demand – too low – New entrants – no profit
3
Figure 20.1
Limit pricing: Bain, Modigliani, Sylos-Labini model
32 0
36 0
32 0
ห้องสมุดไป่ตู้28 0
32 0
28 0
Backward induction leads to high output in period 1, entry, and both firms’ choosing M in the last stage
Entry Prevention, Overinvestment, and the Dixit-Spence Model
4
Limit Pricing
• Residual demand curve
– Demand curve
• Remaining demand for potential entrant • After: incumbent firm - set its output
• Blockaded entry
• Dixit-Spence model
– Model of entry prevention – Incumbent monopolist
• Overinvest in production capacity • Entry – unprofitable
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Entry Prevention, Overinvestment, and the Dixit-Spence Model
pe
MR 0
qe
D
Quantity (qe)
6
Impeding Market Entry
• Impeded entry
– Monopolist
• Sets - less advantageous level of output • To deter entry – New firms into market
• Production capacity – K
– If output < K (excess capacity)
• Marginal cost = v
– If output > K (no excess capacity)
• Marginal cost = v+s
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Figure 20.8
Marginal cost function for a capacity-constrained firm
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Figure 20.7
The Donut game
H M Mrs. Donut L Freddie’s In
Out
In
Out
In
Out
Play entry game
H
M L
Play entry game
H
M
L
Play entry game
H
Mrs. Donut M
L
24 0
15
40 0
36 0
Criticisms of the Bain, Modigliani, Sylos-Labini Model: Subgame Perfection
• No subgame perfect equilibrium
– If new entry – Rational incumbent
• First period – Output – Monopoly price – Maximize profits • Next period – Abandon output set in first period
Marginal cost At output levels that are lower than the firm’s installed capacity of K, the marginal cost is merely the variable marginal cost of ν. At higher output levels, the marginal cost also includes the cost of additional capacity, s.
– Block entry – Otherwise: lower profits
2
Limit Pricing
• Bain, Modigliani, Sylos-Labini model
– Incumbent firm - pricing strategy
• Unprofitable - potential competitors
• Cost function – incumbent monopolist
if q K vq F , Ci(q, K ) vq s(q K ), if q K
• Impede entry
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Figure 20.5
The residual demand for the potential entrant: a case of impeded entry
Price
MC A-bqL AC Instead of setting the monopoly quantity of qm and the monopoly price of pm, the incumbent firm sets the limit quantity of qL and the limit price of pL. This lowers the residual demand curve so that it is tangent to the potential entrant’s average cost curve, making profitable entry impossible. MR 0 qe D Quantity (qe)
1
Set output of q Incumbent Set output of q qL
Potential Entrant
Enter market Incumbent Keep output q= q 3
qm
2
Don’t Enter market
Potential Entrant
The incumbent firm moves first by choosing a quantity level in the set (q, q). The entrant then moves by choosing either to enter the market or to stay out. Finally, the incumbent firm moves by choosing its best response to the entrant’s output level.
Chapter 20
Market Entry and the Emergence of Perfect Competition
Need for Entry-Prevention Strategies
• Monopolist – extra-normal profit • Other firms – want to enter the market • Monopolist