competition & marginal analysis
TRANSCRIPT
![Page 1: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/1.jpg)
COMPETITION &
MARGINAL ANALYSIS
GROUP 3
Aarathi L R, A18 | IES Abhijeet Bansode, A15 | IPoS
Ashutosh Singh, A16 | IPS Pankaj Kumawat, B62 | IPS
Rohit Naagar, A14 | ISS Saumya Sakshi, A11 | ISS
Suman W M Sivachar, B38 | IFS Vasundhara Gulhane, A18 | IPoS
![Page 2: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/2.jpg)
CONTENTS • Competition – crucial in price determination
• Market Structure
• International Trade
• Marginal & Incremental Analysis - marginalism over incrementalism
• References
![Page 3: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/3.jpg)
COMPETITION
It’s nice to have a valid competition; it pushes you to do better
Gianni Versace
![Page 4: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/4.jpg)
MARKET STRUCTURE
• Perfect competition
• Monopolistic competition
• Monopoly
• Bilateral monopoly
![Page 5: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/5.jpg)
PERFECT COMPETITION
• Characterized by the complete absence of rivalry
Assumptions
• Large number of buyers and sellers – cannot affect the price by changing the supply
• Product homogeneity-graph - demand curve infinitely elastic: AR=MR=P
• Free entry and exit of firms
• Profit maximization
• No government regulation
AR (Average Revenue) = MR (Marginal Revenue) =
P (Price)
![Page 6: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/6.jpg)
PERFECT COMPETITION
EQUILIBRIUM OF THE FIRM
MC (Marginal Cost) = MR (Marginal Revenue)
Slope of MC > Slope of MR
![Page 7: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/7.jpg)
PERFECT COMPETITION The Firm as a Price Taker
![Page 8: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/8.jpg)
PERFECT COMPETITION In the Short Run
![Page 9: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/9.jpg)
PERFECT COMPETITION In the Long Run
![Page 10: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/10.jpg)
MONOPOLY
• Single seller
• No close substitutes for the commodity
• Barriers to entry
Government regulations e.g. Patents, copyrights and licensing
Natural monopoly
![Page 11: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/11.jpg)
MONOPOLY
![Page 12: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/12.jpg)
MONOPOLISTIC COMPETITION
• Large number of buyers and sellers
• Differentiated products, yet they are close substitutes
• Free entry and exit of firms
• Profit maximization
• Firm has limited control on price determination
E.g. cloth stores, shoes, furniture
![Page 13: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/13.jpg)
BILATERAL MONOPOLY
• Market consisting of single seller and single buyer
E.g. Indian Airlines – IOC (before 1991)
OLIGOPOLY
• market consisting of few sellers
E.g. OPEC
![Page 14: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/14.jpg)
MARKET STRUCTURE
Extent of competition plays a very important role in PRICE determination
![Page 15: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/15.jpg)
INTERNATIONAL TRADE
![Page 16: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/16.jpg)
INTERNATIONAL TRADE
Basis
Gains to be made from exchange of goods and services
Immediate cause
Differences in price of goods and services between countries
• Trade widens the market - brings in competition - more competitive price
• Source • comparative cost advantage • comparative price advantage • different factor endowments • E.g. Non-availability of resources
![Page 17: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/17.jpg)
INTERNATIONAL TRADE
S
P S
D D
Foreign Country Home country
PF
PA
P Exports
Imports
![Page 18: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/18.jpg)
WTO
• A regulatory body to oversee a fair and free competition and trade practices between nations
• Looks into • Trade negotiations
• Dispute resolution
![Page 19: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/19.jpg)
ANTI-TRUST LAWS
• Sherman Act 1890, USA
• Clayton Act 1914, USA
• Competition Act 2002, India & Competition Commission of India
![Page 20: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/20.jpg)
• OPEC cartel
• De beers diamond prices monopoly
• Banana wars
• Microsoft
• Small weapons – duopoly
• Too big to fail banks - Banking in recession
INTERNATIONAL TRADE
![Page 21: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/21.jpg)
• Big monopoly
• Till 2000, only company to control 80% of the suppliers
CASE STUDY
![Page 22: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/22.jpg)
• Coal India Limited
• DLF
DOMESTIC UNFAIR PRACTICES
![Page 23: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/23.jpg)
MARGINALISM & INCREMENTALISM
![Page 24: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/24.jpg)
MARGINALISM & INCREMENTALISM
Marginal Principle
• Defined in terms of unit changes
• Reference to one independent variable
• An important concept in economics
Incremental Principle
• Defined in terms of bulk changes
• More than one independent variable can be considered at a time
• Important in decision making
![Page 25: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/25.jpg)
REFERENCES
• Koutsoyiannis, A.(1975). Modern Microeconomics. Macmillan Press Ltd
• Mankiw, Gregory,N.(2012). Principles of Economics 6e. Cengage Learning India Pvte Ltd
• De Beers Diamond Dilemma MIT Sloan case study
ATTRIBUTIONS
• CC 3.0 BY-SA : Icons made by Freepik from flaticon.com
• Images from Pixabay.com
![Page 26: COMPETITION & MARGINAL ANALYSIS](https://reader034.vdocument.in/reader034/viewer/2022051919/628537f32afb82203368d82d/html5/thumbnails/26.jpg)
Thank you.