Mba1014 oligopoly & monopolistic competition 250513

Go Global !Go Global !Managerial Economics :Managerial Economics :Oligopoly & Monopolistic Oligopoly & Monopolistic CompetitionCompetition

By

Stephen OngStephen OngVisiting Fellow, Birmingham City UniversityVisiting Fellow, Birmingham City UniversityVisiting Professor, College of Management, Visiting Professor, College of Management,

Shenzhen UniversityShenzhen UniversityMay 2013May 2013

AgendaAgenda

1.1. Market CharacteristicsMarket Characteristics

2.2. Monopolistic PricingMonopolistic Pricing

3.3. Non-price CompetitionNon-price Competition

Learning objectivesLearning objectives

contrast monopolistic contrast monopolistic competition and oligopolycompetition and oligopolydescribe the role that mutual describe the role that mutual interdependence plays in setting interdependence plays in setting prices in oligopolistic marketsprices in oligopolistic marketsexplain how non-price factors explain how non-price factors help firms to differentiate their help firms to differentiate their products and servicesproducts and services

11Oligopoly & Monopolistic Oligopoly & Monopolistic

CompetitionCompetition

OverviewOverview

Monopolistic competitionMonopolistic competition

OligopolyOligopoly

Pricing under oligopolyPricing under oligopoly

Competing in imperfectly Competing in imperfectly competitive marketscompetitive markets

Strategy: the challenge for Strategy: the challenge for firms in imperfect competitionfirms in imperfect competition

IntroductionIntroduction

Imperfect competitionsome market power but not

absolute market power

firms have the ability to set prices within the limits of certain constraints

mutual interdependence: interaction among competitors when making decisions

IntroductionIntroduction

PerfectPerfect Monopoly Monopolistic Oligopoly Monopoly Monopolistic Oligopoly

Competition Competition Competition Competition

Market power?Market power? No No Yes* Yes Yes Yes* Yes Yes

Mutual interdependence No No No YesMutual interdependence No No No Yesamong competing among competing firms?firms?

Non-price competition? No Optional Yes Yes Non-price competition? No Optional Yes Yes

Easy market entry Yes No Yes NoEasy market entry Yes No Yes No

or exit ? or exit ?

* subject to government regulation * subject to government regulation

Monopolistic CompetitionMonopolistic Competition

A market structure A market structure characterized by a characterized by a large large number of small firms number of small firms that have some market that have some market power from producing power from producing differentiated productsdifferentiated products..

Characteristics of Characteristics of Monopolistic CompetitionMonopolistic Competition

Product differentiationProduct differentiation exists exists among firmsamong firms

There are a There are a large number large number of of firms in the product groupfirms in the product group

No interdependence No interdependence exists exists among firmsamong firms

Entry and exit by new firms Entry and exit by new firms is is relatively easyrelatively easy


Monopolistic competition: Monopolistic competition: characteristicscharacteristics

many firmsmany firmsrelatively easy entryrelatively easy entryproduct differentiation: can set product differentiation: can set

price at a level higher than the price price at a level higher than the price established by perfect competitionestablished by perfect competition

use MR = MC rule to maximize profituse MR = MC rule to maximize profit


If earning above-normal profits, If earning above-normal profits, newcomers will enter the marketnewcomers will enter the market

market supply curve shifts market supply curve shifts out and to the rightout and to the right

firm’s demand curve shifts firm’s demand curve shifts down and to the leftdown and to the left

ultimately, in the long run, ultimately, in the long run, firms earn only firms earn only normal profitnormal profit

Monopolistic Competition – Monopolistic Competition – Short-RunShort-Run

At QAt Q11::

MR = MCMR = MC

P > ATCP > ATC

P > MCP > MC

ATC ATC Not at Not at Minimum PointMinimum Point

$$

QQ

MRMR

MCMC

DD

ATCATCPP11

QQ11

Monopolistic Competition – Monopolistic Competition – Long-RunLong-Run

At QAt Q22 : :

MR = MCMR = MC

P = ATCP = ATC

P > MCP > MC

ATC ATC Not at Not at Minimum PointMinimum Point

MCMC ATCATC

DDMRMR

PP22

QQ22

Examples of Monopolistically Examples of Monopolistically Competitive BehaviourCompetitive Behaviour

DrugstoresDrugstores

Hardware Hardware StoresStores

BookstoreBookstoress

OligopolyOligopoly Oligopoly is a market dominated by a relatively Oligopoly is a market dominated by a relatively

small number of large firmssmall number of large firms

Herfindahl-Hirschman index (HH) Herfindahl-Hirschman index (HH) measures measures market concentration market concentration

(max HH = 10,000; (max HH = 10,000;

unconcentrated markets have HH < 1,000)unconcentrated markets have HH < 1,000)

n = number of firms in the n = number of firms in the industryindustry

SSii = firm’s market share = firm’s market share

n

iiSHH

1

2

Examples of Oligopolistic Examples of Oligopolistic IndustriesIndustries

AirlinesAirlinesSoft DrinksSoft DrinksDoughnutsDoughnutsParcel and Parcel and

Express DeliveryExpress Delivery

Oligopoly ModelsOligopoly Models

NoncooperativeNoncooperative oligopoly models are oligopoly models are models of interdependent models of interdependent oligopoly behaviour that oligopoly behaviour that assume that firms pursue assume that firms pursue profit-maximizing profit-maximizing strategies based on strategies based on assumptions about assumptions about

rivals’ behaviour rivals’ behaviour and and the impact of this the impact of this behaviour on the given behaviour on the given firm’s strategies.firm’s strategies.

CooperativeCooperative oligopoly models are oligopoly models are models of models of interdependent interdependent oligopoly behaviour oligopoly behaviour that assume that firms that assume that firms

explicitly or explicitly or implicitly implicitly cooperate cooperate with each with each other to achieve other to achieve outcomes that benefit outcomes that benefit all the firms.all the firms.

Noncooperative Noncooperative Oligopoly ModelsOligopoly Models

The Kinked Demand Curve The Kinked Demand Curve ModelModel

Game Theory ModelsGame Theory Models

Strategic Entry DeterrenceStrategic Entry Deterrence

Predatory PricingPredatory Pricing

Kinked Demand CurveKinked Demand Curve

The kinked demand The kinked demand curve model of curve model of oligopoly incorporates oligopoly incorporates assumptions about assumptions about interdependent interdependent behaviour and behaviour and illustrates why illustrates why oligopoly prices may oligopoly prices may not change in reaction not change in reaction to either demand or to either demand or cost changes.cost changes.

MC

$

Q

D2: Rivals don’tfollow

D1: Rivals do follow

MR1

MR2

P1

Q1

Pricing in an oligopolistic Pricing in an oligopolistic marketmarket

Mutual interdependence: Mutual interdependence: relatively relatively few sellers create a situation where few sellers create a situation where each is carefully watching the others each is carefully watching the others as it sets its priceas it sets its price

Implication: Implication: kinked demand curve kinked demand curve modelmodel Basic assumption is that Basic assumption is that competitor will competitor will follow a price follow a price decreasedecrease but will not make a change but will not make a change in reaction to a price increasein reaction to a price increase


If reduce price and If reduce price and competitors match the competitors match the price cut then move price cut then move along more inelastic along more inelastic demand segment Ddemand segment Dii

If increase price and If increase price and competitors do not competitors do not follow then move along follow then move along the more elastic the more elastic segment Dsegment Dff

marginal revenuemarginal revenue curve has kink (at A)curve has kink (at A)

Competitors do not match price increases

Competitorsmatch

price cuts


Price leader: Price leader: one firm in the one firm in the industry takes the lead in changing industry takes the lead in changing prices, and assumes that other prices, and assumes that other firms: firms: • will follow a price increasewill follow a price increase• but will not go even lower in order but will not go even lower in order

not to trigger a price warnot to trigger a price warNon-price leader: Non-price leader: firm that leads firm that leads

the the differentiationdifferentiation of products on of products on other, non-price attributesother, non-price attributes

Game Theory ModelsGame Theory Models

A set of mathematical tools A set of mathematical tools for analyzing situations in for analyzing situations in which players make various which players make various strategic moves and have strategic moves and have different outcomes or different outcomes or payoffs associated with payoffs associated with those moves.those moves.

Dominant Strategies and Dominant Strategies and the Prisoner’s Dilemmathe Prisoner’s Dilemma

This payoff matrix This payoff matrix shows the various shows the various prison terms for prison terms for Bonnie and Clyde Bonnie and Clyde that would result that would result from the from the combination of combination of strategies chosen strategies chosen when questioned when questioned about a crime about a crime spree.spree.

Prisoner’s Dilemma – Prisoner’s Dilemma – Dominant StrategyDominant Strategy

A dominant A dominant strategy is one strategy is one that results in the that results in the best outcome or best outcome or highest payoff to highest payoff to a given player a given player no no matter what matter what action or choice action or choice the other player the other player makes.makes.

Nash EquilibriumNash Equilibrium

Nash equilibrium is Nash equilibrium is a set of strategies a set of strategies from which all from which all players are players are choosing their best choosing their best strategy, strategy, given the given the actions of the other actions of the other players.players.

Strategic Entry DeterrenceStrategic Entry Deterrence

Limit pricing Limit pricing is is a policy of a policy of charging a charging a price lower price lower than the profit-than the profit-maximizing maximizing priceprice to keep to keep other firms other firms from entering from entering the market.the market.

$

Q

DMR

MC

ATCPπmax

Qπmax

PLP =ATCEN

QLP

Predatory PricingPredatory Pricing

Predatory pricing:Predatory pricing:

Japanese share of Japanese share of market Qmarket QPP - Q - QUSUS = = NM = RGNM = RG

Loss per unit to Loss per unit to Japanese firms Japanese firms PPCC - P - PPP = NR = NR

Total loss to Total loss to Japanese firms Japanese firms NRGMNRGM

$

Q

PUS

PJ

PC

PP

QUS QcQJ QP

K

L

J G

MN

E

R S

T

Cooperative Oligopoly ModelsCooperative Oligopoly Models

CartelsCartelsTacit Tacit

CollusionCollusion

Cartels - ExamplesCartels - Examples

OPECOPECDiamond Diamond

CartelCartel

Cartel BehaviourCartel Behaviour

A cartel is an organization A cartel is an organization of firms that of firms that agree to agree to coordinate their behaviour coordinate their behaviour regarding pricing and regarding pricing and output output decisions in order to decisions in order to maximize the joint profits maximize the joint profits for the organization.for the organization.

Model of Joint Profit MaximizationModel of Joint Profit Maximization

MC2

D

MCMC11

$$ $$$$

QQ QQ QQ

MCMC22 MCMCcc

MCMCccMCMC11

PPCC

MRMRQQCCQQ2*2*QQ1*1*

Firm 1Firm 1 Firm 2Firm 2 CartelCartel

Success in CartelsSuccess in Cartels

A cartel is likely to be the most A cartel is likely to be the most successful when:successful when:It can It can raise the market price raise the market price without without

inducing significant competition from inducing significant competition from noncartel members.noncartel members.

The expected The expected punishmentpunishment for forming the for forming the cartel cartel is low is low relative to the expected relative to the expected gains.gains.

The The costs of establishing and enforcing costs of establishing and enforcing the agreement are low the agreement are low relative to the relative to the gains.gains.

Tacit CollusionTacit Collusion

Because cartels are illegal Because cartels are illegal in the United States due to in the United States due to the antitrust laws, firms the antitrust laws, firms may engage in tacit may engage in tacit collusioncollusion, coordinated , coordinated behaviour that is achieved behaviour that is achieved without a formal without a formal agreement.agreement.

Practices that facilitate Practices that facilitate tacit collusiontacit collusion

Uniform pricesUniform prices

A penalty for price discountsA penalty for price discounts

Advance notice of price changesAdvance notice of price changes

Information exchangesInformation exchanges

Swaps and exchangesSwaps and exchanges

Competing in imperfectlyCompeting in imperfectlycompetitive marketscompetitive markets

Non-price competitionNon-price competition: any effort : any effort made by firms in order to change the made by firms in order to change the demand for their product (other than demand for their product (other than the price)the price)

Non-price determinants of demand:Non-price determinants of demand:tastes and preferencestastes and preferencesincomeincomeprices of substitutes and complementsprices of substitutes and complementsnumber of buyersnumber of buyersfuture expectations of buyersfuture expectations of buyersfinancing termsfinancing terms


ExamplesExamples: of efforts by managers to : of efforts by managers to influence non-price demand influences:influence non-price demand influences:advertising and promotionadvertising and promotionlocation and distribution channelslocation and distribution channelsmarket segmentationmarket segmentationloyalty programsloyalty programsproduct extensions and new productsproduct extensions and new productsspecial customer servicesspecial customer servicesproduct ‘lock-in’ or ‘tie-in’product ‘lock-in’ or ‘tie-in’pre-emptive new product pre-emptive new product

announcementsannouncements


Equalizing at the margin: economic Equalizing at the margin: economic concept which managers can use to concept which managers can use to help make an optimal decisionhelp make an optimal decision

eg eg MR = MC is an example of MR = MC is an example of

equalizing at the marginequalizing at the margincan be used to decide the optimal can be used to decide the optimal

expenditure level on a non-price expenditure level on a non-price factorfactor

may occur over a may occur over a long period of timelong period of timefirm must adjust firm must adjust MR, MC for the time MR, MC for the time

value of moneyvalue of money


ExamplesExamples: the : the reality of ‘imperfect reality of ‘imperfect competition’competition’

auto industryauto industrysmall retailerssmall retailersglobal credit card global credit card

issuers issuers

Strategy for firms in Strategy for firms in imperfect imperfect competitioncompetition

How does How does industry concentration industry concentration affect the behaviour of firms affect the behaviour of firms competing in the industry?competing in the industry?

Strategy: the means by which an Strategy: the means by which an organization uses its scarce organization uses its scarce resources to relate to the resources to relate to the competitive environment in a competitive environment in a manner that is expected to achieve manner that is expected to achieve superior business performance over superior business performance over the long runthe long run

Strategy for firms in imperfect competition

Strategy is important when firms are Strategy is important when firms are price makers price makers and are faced with price and are faced with price and non-price competition as well as and non-price competition as well as threats from new entrants into the threats from new entrants into the marketmarket

More important for firms in More important for firms in imperfectly competitive markets than imperfectly competitive markets than those in perfectly competitive those in perfectly competitive markets or monopoly marketsmarkets or monopoly markets

Strategy for firms in Strategy for firms in imperfect imperfect competitioncompetition

Managerial economics: Managerial economics: the use of the use of economic analysis to make business economic analysis to make business decisions involving the best use of an decisions involving the best use of an organization’s scarce resourcesorganization’s scarce resources

Industrial organization: Industrial organization: studies the studies the way that firms and markets are way that firms and markets are organized and how this organization organized and how this organization affects the economy from the affects the economy from the viewpoint of social welfareviewpoint of social welfare

Strategy for firms in Strategy for firms in imperfect competitionimperfect competition

Structure-Conduct-Performance (S-C-P) Structure-Conduct-Performance (S-C-P) paradigm: says structure affects conduct paradigm: says structure affects conduct which affects performancewhich affects performance

structure: number of firms in industry, structure: number of firms in industry, conditions of entry, product conditions of entry, product differentiationdifferentiation

conduct: pricing strategies, conduct: pricing strategies, advertising, product development, advertising, product development, legal tactics, collusionlegal tactics, collusion

performance: maximization of society’s performance: maximization of society’s welfarewelfare

CriticismCriticism: weak empirical evidence of relationship : weak empirical evidence of relationship between observed concentration and profit levelsbetween observed concentration and profit levels


‘‘New’ Theory of Industrial Organization: says New’ Theory of Industrial Organization: says there is no necessary connection between there is no necessary connection between observed industry structure and performance observed industry structure and performance that uniquely leads to maximum social welfarethat uniquely leads to maximum social welfare

theory of contestable theory of contestable markets: performance by markets: performance by firms is ultimately influenced firms is ultimately influenced not by actual competition, not by actual competition, but by the but by the threat of potential threat of potential competitioncompetition

Strategy for firms in imperfect Strategy for firms in imperfect competitioncompetitionPorter’s Five Forces model: illustrates Porter’s Five Forces model: illustrates

the various factors that affect the the various factors that affect the ability of any firm in the industry to ability of any firm in the industry to earn a profitearn a profit


Porter’s generic strategies for Porter’s generic strategies for earning above-average return on earning above-average return on investmentinvestment

DifferentiationDifferentiation approach approach: for a : for a monopoly or monopolistically monopoly or monopolistically competitive market competitive market following MR following MR = MC rule, firm sets a = MC rule, firm sets a price on the price on the demand line that is above ACdemand line that is above AC


Porter’s generic strategies for earning above-average return on investment

Cost leadership approach: for perfect competition

maintain cost structure low enough so when P = MC, there is a positive difference between P and AC

Global applicationGlobal application

ExampleExample: world beer : world beer markemarke

neither pure neither pure monopoly nor pure monopoly nor pure competitioncompetition

US market leader US market leader Anheuser Busch Anheuser Busch controls 50% of controls 50% of marketmarket

mature market, with mature market, with merger activitymerger activity

22Monopolistic Pricing PoliciesMonopolistic Pricing Policies

OverviewOverview

Cartel arrangementsCartel arrangements

Price leadershipPrice leadership

Revenue maximizationRevenue maximization

Price discriminationPrice discrimination

Nonmarginal pricingNonmarginal pricing

Multiproduct pricingMultiproduct pricing

Transfer pricingTransfer pricing


A cartel is an arrangement where A cartel is an arrangement where firms in an industry cooperate and firms in an industry cooperate and act together as if they were a act together as if they were a monopolymonopoly

• cartel arrangements may be tacit or cartel arrangements may be tacit or formalformal

• illegal in the US: Sherman Antitrust illegal in the US: Sherman Antitrust Act, 1890Act, 1890

• examplesexamples: OPEC, IATA: OPEC, IATA


Conditions that influence the formation of cartelssmall number of large firms in the

industrygeographical proximity of the firmshomogeneous products that do not

allow differentiationstage of the business cycledifficult entry into industryuniform cost conditions, usually

defined by product homogeneity


In order to maximize profits, the cartel In order to maximize profits, the cartel as a whole should behave as a as a whole should behave as a ‘monopolist’‘monopolist’

the cartel determines the the cartel determines the outputoutput which equates which equates MR = MC MR = MC of the cartel of the cartel as a wholeas a whole

the MC of the cartel as a whole is the the MC of the cartel as a whole is the horizontal summation of the members’ horizontal summation of the members’ marginal cost curvesmarginal cost curves

price is set in the normal monopoly price is set in the normal monopoly way, by determining quantity way, by determining quantity demanded where demanded where MC=MRMC=MR and deriving and deriving P from the demand curve at that QP from the demand curve at that Q


MCMCTT is the horizontal sum of MC is the horizontal sum of MCII and MC and MCIIII

QQTT is found at the intersection of MR is found at the intersection of MRTT and MC and MCTT

price is found from the demand curve at Qprice is found from the demand curve at QTT … … this is the price that maximizes total industry this is the price that maximizes total industry profitsprofits


to determine how much each firm should produce, draw a to determine how much each firm should produce, draw a horizontal line back from the MRhorizontal line back from the MRTT/MC/MCTT intersection intersection

where this line intersects each individual firm’s MC where this line intersects each individual firm’s MC determines that firm’s output, QI and QII. Note that the determines that firm’s output, QI and QII. Note that the firms may produce different outputsfirms may produce different outputs

Key point: the MC of the last unit produced is equated Key point: the MC of the last unit produced is equated across both firmsacross both firms


Profits for each firm are shown as rectangles Profits for each firm are shown as rectangles in blue in blue

Firms may earn Firms may earn different levels of profitdifferent levels of profit, , though combined profits are maximized though combined profits are maximized


Problem: incentive for firms to cheat on Problem: incentive for firms to cheat on agreement, thus cartels are unstableagreement, thus cartels are unstable

Additional costs facing the cartelAdditional costs facing the cartel

formation costsformation costsmonitoring costsmonitoring costsenforcement costsenforcement costscost of punishment by authoritiescost of punishment by authorities

weigh the benefits against these weigh the benefits against these costscosts

Cartel arrangementsCartel arrangementsExamples: price

fixing by cartels

GE, Westinghouse

Archer Daniels Midland Company

Sotheby’s, Christie’s

Roche Holding AG, BASF AG


Barometric price leadershipBarometric price leadership

one firm in an industry will one firm in an industry will initiate a initiate a price change price change in in response to economic conditions response to economic conditions

the other firms may or may not the other firms may or may not follow this leaderfollow this leader

leader may varyleader may vary

Price leadershipPrice leadershipDominant price leadershipDominant price leadership

one firm is the one firm is the industry leaderindustry leaderdominant firm sets price with the dominant firm sets price with the

realization that the smaller firms realization that the smaller firms will follow and charge the will follow and charge the same same priceprice

can force competitors out of can force competitors out of business or business or buy them out buy them out under under favourable termsfavourable terms

could result in investigation under could result in investigation under Sherman Anti-Trust ActSherman Anti-Trust Act


DDTT = demand curve = demand curve for entire industryfor entire industry

MCMCDD = marginal cost = marginal cost of the dominant firmof the dominant firm

MCMCRR = summation of = summation of MC of follower firmsMC of follower firms

in setting price, in setting price, dominant firm must dominant firm must consider the amount consider the amount supplied by all firmssupplied by all firms


Demand curve facing Demand curve facing the dominant firm is the dominant firm is found by subtracting found by subtracting MCMCRR from D from DTT

dominant firm dominant firm equates its MC with MR equates its MC with MR from its ‘residual from its ‘residual demand curve’ Ddemand curve’ DDD

the dominant firm the dominant firm sells A units and the sells A units and the rest of the demand (Qrest of the demand (QTT – – A) is supplied by the A) is supplied by the follower firmsfollower firms

Revenue maximizationRevenue maximization

Baumol model: Baumol model: firms maximize revenue firms maximize revenue (not (not profit) subject to maintaining a specific level of profit) subject to maintaining a specific level of profitsprofits

RationaleRationalea firm will become more competitive a firm will become more competitive when it achieves a when it achieves a large sizelarge size

management remuneration may be management remuneration may be related to revenue not profitsrelated to revenue not profits

ImplicationImplication: unlike the profit maximization : unlike the profit maximization case, a case, a change in fixed costs will alter price change in fixed costs will alter price and output and output (by raising the cost curve and (by raising the cost curve and lowering the profit line)lowering the profit line)

Price discriminationPrice discrimination Price discrimination: products with identical Price discrimination: products with identical

costs are sold in different markets at different costs are sold in different markets at different pricesprices

the ratio of price to marginal cost differs the ratio of price to marginal cost differs for similar productsfor similar products

Conditions for price discriminationConditions for price discriminationthe markets in which the the markets in which the

products are sold must by products are sold must by separated (separated (no resale no resale between between markets)markets)

the demand curves in the the demand curves in the market must have market must have different different elasticitieselasticities


First degree price discriminationFirst degree price discriminationseller can identify where each seller can identify where each

consumer lies on the demand curve consumer lies on the demand curve and charges each consumer the and charges each consumer the highest price the consumer is willing highest price the consumer is willing to payto pay

allows the seller to extract the allows the seller to extract the greatest amount of profitsgreatest amount of profits

requires a requires a considerable amount of considerable amount of informationinformation


Second degree price Second degree price discriminationdiscrimination

differential prices charged differential prices charged by by blocks of servicesblocks of services

requires requires metering metering of of services consumed by buyersservices consumed by buyers


Third degree price discriminationThird degree price discrimination

customers are segregated into customers are segregated into different markets different markets and charged and charged different prices in eachdifferent prices in each

segmentation segmentation can be based on any can be based on any characteristic such as age, location, characteristic such as age, location, gender, income, etcgender, income, etc


Third degree discrimination:Third degree discrimination:• assume the firm operates in two markets, A and Bassume the firm operates in two markets, A and B• the demand in market A is less elastic than the demand the demand in market A is less elastic than the demand

in market Bin market B• the entire market faced by the firm is described by the the entire market faced by the firm is described by the

horizontal sum of the demand and marginal revenue horizontal sum of the demand and marginal revenue curves …curves …


• the firm finds the total amount to produce by equating the firm finds the total amount to produce by equating the marginal revenue and marginal cost in the market as the marginal revenue and marginal cost in the market as a whole: Qa whole: QTT

• if the firm were forced to charge a uniform price, it if the firm were forced to charge a uniform price, it would find the price by examining the aggregate demand would find the price by examining the aggregate demand DDTT at the output level Q at the output level QTT

• the firm can increase its profits by charging a different the firm can increase its profits by charging a different price in each market …price in each market …


• in order to find the optimum price to charge in each market, draw in order to find the optimum price to charge in each market, draw

a horizontal line back from the MRa horizontal line back from the MRTT/MC/MCTT intersection intersection

• where this line intersects each submarket’s MR curve determines where this line intersects each submarket’s MR curve determines

the amount that should be sold in each market: Qthe amount that should be sold in each market: QAA and Q and QBB

• these quantities are then used to determine the price in each these quantities are then used to determine the price in each

market using the demand curves Dmarket using the demand curves DAA and D and DBB


ExamplesExamples of price of price discriminationdiscrimination

• doctorsdoctors

• telephone callstelephone calls

• theaterstheaters

• hotel industryhotel industry


Tying arrangement: a buyer of one product Tying arrangement: a buyer of one product

is is obligatedobligated to also by a related product to also by a related product from the same supplierfrom the same supplier

illegal in some casesillegal in some casesone explanation: a device to one explanation: a device to

‘meter’ demand for tied product‘meter’ demand for tied productother explanations of tyingother explanations of tying

quality controlquality controlefficiencies in distributionefficiencies in distributionevasion of price controlsevasion of price controls

Nonmarginal pricingNonmarginal pricing

Cost-plus pricing: price is set by first Cost-plus pricing: price is set by first calculating the variable cost, adding an calculating the variable cost, adding an allocation for fixed costs, and then allocation for fixed costs, and then adding a profit percentage or markupadding a profit percentage or markup

Problems with cost-plus pricingProblems with cost-plus pricing

calculation of average calculation of average variable costvariable cost

allocation of fixed costallocation of fixed costsize of the markupsize of the markup

Nonmarginal pricingNonmarginal pricing Incremental pricing (and costing) analysis: Incremental pricing (and costing) analysis:

deals with changes in total revenue and deals with changes in total revenue and total cost resulting from a decision to total cost resulting from a decision to change prices or productchange prices or product

Features:Features:incrementalincremental, similar to marginal , similar to marginal

analysisanalysisonly revenues and costs that will only revenues and costs that will

change due to the decision are change due to the decision are consideredconsidered

examples of product change: new examples of product change: new product, discontinue old product, product, discontinue old product, improve a product, capital equipmentimprove a product, capital equipment

Multiproduct pricingMultiproduct pricingWhen the firm produces two or more When the firm produces two or more

productsproducts

Case 1Case 1: products are : products are complementscomplements in in terms of demand terms of demand an increase in an increase in the quantity sold of one will bring the quantity sold of one will bring about an increase in the quantity about an increase in the quantity sold of the othersold of the other

Case 2Case 2: products are : products are substitutessubstitutes in in terms of demand terms of demand an increase in an increase in the quantity sold of one will bring the quantity sold of one will bring about a decrease in the quantity about a decrease in the quantity sold of the othersold of the other

Multiproduct pricingMultiproduct pricing

When the firm produces two or more When the firm produces two or more productsproducts

Case 3Case 3: products are joined in production : products are joined in production products produced products produced from one set of from one set of inputsinputs

Case 4Case 4: products : products compete for resources compete for resources using resources to produce one using resources to produce one product takes those resources away product takes those resources away from producing other productsfrom producing other products


Internal pricingInternal pricing: as the product moves : as the product moves through these divisions on the way to the through these divisions on the way to the consumer it is ‘sold’ or transferred from one consumer it is ‘sold’ or transferred from one division to another at a ‘transfer price’division to another at a ‘transfer price’

Rationale:Rationale:

• firm subdivided firm subdivided into divisions, each may be into divisions, each may be charged with a profit objectivecharged with a profit objective

• without any coordination, the final price of without any coordination, the final price of the product to consumers the product to consumers may not maximize may not maximize profitsprofits for the firm as a whole for the firm as a whole


Design of the optimal transfer Design of the optimal transfer pricing mechanism is complicated pricing mechanism is complicated by the fact thatby the fact thateach division may be able to sell each division may be able to sell

its product in its product in external markets external markets as well as internallyas well as internally

each division may be able to each division may be able to procure inputs from external procure inputs from external markets markets as well as internallyas well as internally

Transfer pricingTransfer pricingCase ACase A: no external markets: no external markets

no division can buy from or sell to an no division can buy from or sell to an external marketexternal market

the selling division will produce the selling division will produce exactly the number of components exactly the number of components that will be used by the purchasing that will be used by the purchasing divisiondivision

one demand curve and two MC one demand curve and two MC curvescurves

MC curves are summed verticallyMC curves are summed verticallyset production where set production where MR = Total MCMR = Total MC

Transfer pricingTransfer pricingCase BCase B: external markets: external markets

divisions have the opportunity to buy divisions have the opportunity to buy or sell in outside competitive marketsor sell in outside competitive markets

if selling division prices above the if selling division prices above the external market price, the buying external market price, the buying division will buy from outsidedivision will buy from outside

if selling division cannot produce if selling division cannot produce enough to satisfy buying division enough to satisfy buying division demand, the buying division will buy demand, the buying division will buy additional units from the external additional units from the external marketmarket

Other pricing practicesOther pricing practices

Price skimmingPrice skimmingthe first firm to introduce a product the first firm to introduce a product

may have a may have a temporary monopoly temporary monopoly and may be able to charge high and may be able to charge high prices and obtain high profits until prices and obtain high profits until competition enterscompetition enters

Penetration pricingPenetration pricingselling at a low price in order to selling at a low price in order to

obtain obtain market sharemarket share

Other pricing practicesOther pricing practices

Prestige pricingPrestige pricingdemand for a product may be higher demand for a product may be higher

at a at a higher price because of the higher price because of the prestige that ownership prestige that ownership bestows on bestows on the ownerthe owner

Psychological pricingPsychological pricingdemand for a product may be demand for a product may be quite quite

inelastic inelastic over a certain range but will over a certain range but will become rather elastic at one specific become rather elastic at one specific higher or lower pricehigher or lower price

Global applicationGlobal application

Example: decline of European cartels

carton-board

vitamin

copper pipe

elevator operators

22NonPrice CompetitionNonPrice Competition

BundlingBundlingPractice of selling two or more products as a package.Practice of selling two or more products as a package.

To see how a film company can use customer heterogeneity To see how a film company can use customer heterogeneity to its advantage, suppose that there are two movie to its advantage, suppose that there are two movie theaters and that their reservation prices for our two films theaters and that their reservation prices for our two films are as follows:are as follows:

If the films are rented separately, the maximum price that If the films are rented separately, the maximum price that could be charged for could be charged for WindWind is $10,000 because charging is $10,000 because charging more would exclude Theater more would exclude Theater BB. Similarly, the maximum . Similarly, the maximum price that could be charged for price that could be charged for GertieGertie is $3000. is $3000. But suppose the films are But suppose the films are bundledbundled. Theater . Theater AA values the values the pair of films at $15,000 ($12,000 + $3000), and Theater pair of films at $15,000 ($12,000 + $3000), and Theater BB values the pair at $14,000 ($10,000 + $4000). values the pair at $14,000 ($10,000 + $4000). Therefore, Therefore, we can charge each theater $14,000 for the pair of films we can charge each theater $14,000 for the pair of films and earn a total revenue of $28,000.and earn a total revenue of $28,000.

GONE WITH THE WINDGETTING GERTIE’S

GARTER

Theater Theater AA $12,000$12,000 $3000$3000

Theater Theater BB $10,000$10,000 $4000$4000

Relative ValuationsRelative Valuations

Why is bundling more profitable than selling the films Why is bundling more profitable than selling the films separately? Because the separately? Because the relative valuations relative valuations of the two of the two films are reversed. films are reversed.

The demands are The demands are negatively correlatednegatively correlated—the—the customer customer willing to pay the most for willing to pay the most for Wind Wind is willing to pay the is willing to pay the least for least for GertieGertie..

Suppose demands were Suppose demands were positively correlatedpositively correlated——thatthat is, is, Theater Theater AA would pay more for would pay more for bothboth films: films:

If we bundled the films, the maximum price that could If we bundled the films, the maximum price that could be charged for the package is $13,000, yielding a total be charged for the package is $13,000, yielding a total revenue of $26,000, the same as by renting the films revenue of $26,000, the same as by renting the films separately.separately.

GONE WITH THE WINDGETTING GERTIE’S

GARTER

Theater Theater AA $12,000$12,000 $4000$4000

Theater Theater BB $10,000$10,000 $3000$3000

RESERVATION PRICESRESERVATION PRICES

Reservation Reservation prices prices rr11 and and rr22 for two goods are for two goods are shown for three shown for three consumers, consumers, labeledlabeled A A, , BB, and , and CC..Consumer Consumer A A is is willing to pay up willing to pay up to $3.25 for good to $3.25 for good 1 and up to $6 for 1 and up to $6 for good 2.good 2.

CONSUMPTION DECISIONS WHEN CONSUMPTION DECISIONS WHEN PRODUCTS ARE SOLD SEPARATELYPRODUCTS ARE SOLD SEPARATELY

The reservation The reservation prices of consumers prices of consumers in in region I exceed the region I exceed the prices prices PP11 and and PP22 for for the two goods, so the two goods, so these consumers buy these consumers buy both goods. both goods. Consumers in regions Consumers in regions II and IV buy only one II and IV buy only one of the goods, of the goods, and consumers in and consumers in region III buy neither region III buy neither good.good.

CONSUMPTION DECISIONS WHEN CONSUMPTION DECISIONS WHEN PRODUCTS ARE BUNDLEDPRODUCTS ARE BUNDLED

Consumers Consumers compare the sum compare the sum of their of their reservation prices reservation prices rr11 + r+ r22, with the , with the price of the price of the bundle bundle PPBB. .

They buy the They buy the bundle only if bundle only if rr11 + + rr22 is at least as is at least as large as large as PPBB..

RESERVATION PRICESRESERVATION PRICESIn (a), because demands are perfectly positively In (a), because demands are perfectly positively correlated, the firm does not gain by bundling: It would correlated, the firm does not gain by bundling: It would earn the same profit by selling the goods separately. earn the same profit by selling the goods separately.

In (b), demands are perfectly In (b), demands are perfectly negatively correlated. negatively correlated. Bundling is the ideal strategyBundling is the ideal strategy—all the consumer —all the consumer surplus can be extracted.surplus can be extracted.

MOVIE EXAMPLEMOVIE EXAMPLE

Consumers Consumers AA and and BB are two movie are two movie theaters. The theaters. The diagram shows diagram shows their reservation their reservation prices for the films prices for the films Gone with the WindGone with the Wind and and Getting Getting Gertie’s Garter. Gertie’s Garter. Because the Because the demands are demands are negatively negatively correlated, correlated, bundling pays.bundling pays.

MIXED VERSUS PURE BUNDLINGMIXED VERSUS PURE BUNDLING

Mixed BundlingMixed BundlingSelling two or more goods both as a package and Selling two or more goods both as a package and individually.individually.

Pure bundlingPure bundling : Selling products only as a package. : Selling products only as a package.

With positive marginal costs, With positive marginal costs, mixed bundling may be more mixed bundling may be more profitable than pure bundling. profitable than pure bundling. Consumer Consumer AA has a reservation has a reservation price for good 1 that is below price for good 1 that is below marginal cost marginal cost cc11, and consumer , and consumer DD has a reservation price for has a reservation price for good 2 that is below marginal good 2 that is below marginal cost cost cc22. . With mixed bundling, consumer With mixed bundling, consumer AA is induced to buy only good is induced to buy only good 2, and consumer 2, and consumer DD is induced is induced to buy only good 1, thus to buy only good 1, thus reducing the firm’s cost.reducing the firm’s cost.

Let’s compare three strategies:Let’s compare three strategies:1. Selling the goods separately at prices 1. Selling the goods separately at prices PP11 = $50 and = $50 and PP22 =$90. =$90.

2. Selling the goods only as a bundle at a price of $100.2. Selling the goods only as a bundle at a price of $100.3. Mixed bundling, whereby the goods are offered separately 3. Mixed bundling, whereby the goods are offered separately at prices at prices PP11 = = PP22 = $89.95, or as a bundle at a price of $100. = $89.95, or as a bundle at a price of $100.

TABLE 4 BUNDLING EXAMPLE

PP11 PP22 PP33 PROFITPROFIT

Sold Sold separatelyseparately $50$50 $90$90 —— $150$150

Pure Pure bundlingbundling —— —— $100$100 $200$200

Mixed Mixed bundlingbundling $89.95$89.95 $89.95$89.95 $100$100 $229.90$229.90

As we should expect, As we should expect, pure bundling is better than selling pure bundling is better than selling the goods separately because consumers’ demands are the goods separately because consumers’ demands are negatively correlatednegatively correlated. But what about mixed bundling?. But what about mixed bundling?

MIXED BUNDLING WITH ZERO MARGINAL MIXED BUNDLING WITH ZERO MARGINAL COSTSCOSTS

If marginal costs are zero, and if If marginal costs are zero, and if consumers’ demands consumers’ demands are not perfectly are not perfectly negatively correlated, mixed negatively correlated, mixed bundling is still more profitable than bundling is still more profitable than pure bundling.pure bundling. In this example, consumers In this example, consumers BB and and CC are are willing to pay $20 more for the bundle willing to pay $20 more for the bundle than are consumers than are consumers AA and and DD. . With pure bundling, the price of the With pure bundling, the price of the bundle is $100. With mixed bundling, the bundle is $100. With mixed bundling, the price of the bundle can be increased to price of the bundle can be increased to $120 and consumers $120 and consumers AA and and DD can still be can still be charged $90 for a single good.charged $90 for a single good.

TABLE 5 MIXED BUNDLING WITH ZERO MARGINAL COSTS

PP11 PP22 PP33 PROFITPROFIT

Sold Sold separatelyseparately $80$80 $80$80 —— $320$320

Pure Pure bundlingbundling —— —— $100$100 $400$400

Mixed Mixed bundlingbundling $90$90 $90$90 $120$120 $420$420

MIXED BUNDLING IN MIXED BUNDLING IN PRACTICEPRACTICEThe dots in this figure are The dots in this figure are estimates of reservation prices estimates of reservation prices for a representative sample of for a representative sample of consumers. consumers. A company could first choose a A company could first choose a price for the bundle, price for the bundle, PPBB, such , such that a diagonal line connecting that a diagonal line connecting these prices passes roughly these prices passes roughly midway through the dots. midway through the dots. The company could then try The company could then try individual prices individual prices PP11 and and PP22. . GivenGiven P P11, , PP22, and , and PPBB, profits can , profits can be calculated for this sample of be calculated for this sample of consumers. Managers can then consumers. Managers can then raise or lower raise or lower PP11, , PP22, and , and PPBB and and see whether the new pricing see whether the new pricing leads to higher profits. This leads to higher profits. This procedure is procedure is repeated until total repeated until total profit is roughly maximized.profit is roughly maximized.

Bundling in PracticeBundling in Practice

THE COMPLETE DINNER VERSUS À LA CARTE: THE COMPLETE DINNER VERSUS À LA CARTE: A RESTAURANT PRICING PROBLEMA RESTAURANT PRICING PROBLEM

For a restaurant, mixed bundling means offering both For a restaurant, mixed bundling means offering both complete dinners (the appetizer, main course, and complete dinners (the appetizer, main course, and dessert come as a package) and an à la carte menu dessert come as a package) and an à la carte menu (the customer buys the appetizer, main course, and (the customer buys the appetizer, main course, and dessert separately). dessert separately).

This strategy allows the à la carte menu to be priced to This strategy allows the à la carte menu to be priced to capture consumer surplus from customers who value capture consumer surplus from customers who value some dishes some dishes much more highlymuch more highly than others. than others.

At the same time, the complete dinner retains those At the same time, the complete dinner retains those customers who have lower variations in their reservation customers who have lower variations in their reservation prices for different dishes (e.g., customers who attach prices for different dishes (e.g., customers who attach moderate values to both appetizers and desserts).moderate values to both appetizers and desserts).

THE COMPLETE DINNER VERSUS À LA CARTE: THE COMPLETE DINNER VERSUS À LA CARTE: A RESTAURANT PRICING PROBLEMA RESTAURANT PRICING PROBLEM

For a restaurant, mixed bundling means offering complete dinners and an For a restaurant, mixed bundling means offering complete dinners and an àà la carte menu. This la carte menu. This strategy allows the à la carte menu to be priced to capture consumer surplus from customers strategy allows the à la carte menu to be priced to capture consumer surplus from customers who value some dishes much more highly than others. Successful restaurateurs know their who value some dishes much more highly than others. Successful restaurateurs know their customers’ demand characteristics and use customers’ demand characteristics and use thatthat knowledge to design a pricing strategy that knowledge to design a pricing strategy that extracts as much consumer surplus as possible.extracts as much consumer surplus as possible.

TABLE 6TABLE 6 MIXED BUNDLING AT MCDONALD’S (2011)MIXED BUNDLING AT MCDONALD’S (2011)

INDIVIDUAL ITEMINDIVIDUAL ITEM PRICEPRICEMEAL (INCLUDES MEAL (INCLUDES SODA AND FRIES)SODA AND FRIES)

UNBUNDLED UNBUNDLED PRICEPRICE

PRICE OF PRICE OF BUNDLEBUNDLE SAVINGSSAVINGS

Chicken SandwichChicken Sandwich $5.49$5.49 Chicken SandwichChicken Sandwich $10.07$10.07 $7.89$7.89 $2.18$2.18

Filet-O-FishFilet-O-Fish $4.39$4.39 Filet-O-FishFilet-O-Fish $8.97$8.97 $6.79$6.79 $2.18$2.18

Big MacBig Mac $4.69$4.69 Big MacBig Mac $9.27$9.27 $6.99$6.99 $2.28$2.28

Quarter PounderQuarter Pounder $4.69$4.69 Quarter PounderQuarter Pounder $9.27$9.27 $7.19$7.19 $2.08$2.08

Double Quarter Double Quarter PounderPounder $6.09$6.09 Double Quarter Double Quarter

PounderPounder $10.67$10.67 $8.39$8.39 $2.28$2.28

10-piece Chicken 10-piece Chicken McNuggetsMcNuggets $5.19$5.19 10-piece Chicken 10-piece Chicken

McNuggetsMcNuggets $9.77$9.77 $7.59$7.59 $2.18$2.18

Large French Large French FriesFries $2.59$2.59

Large SodaLarge Soda $1.99$1.99

TyingTyingPractice of requiring a customer to purchase one good Practice of requiring a customer to purchase one good in order to purchase another.in order to purchase another.

Why might firms use this kind of pricing Why might firms use this kind of pricing practice? practice?

1.1.One of the main benefits of tying is that it One of the main benefits of tying is that it often allows a firm to often allows a firm to meter demandmeter demand and and thereby practice price discrimination more thereby practice price discrimination more effectively.effectively.2.2.Tying can also be used to extend a firm’s Tying can also be used to extend a firm’s market power.market power.3.3.Tying can have other uses. An important one Tying can have other uses. An important one is to protect customer goodwill connected is to protect customer goodwill connected with a with a brand namebrand name. This is why . This is why franchisesfranchises are are often required to purchase inputs from the often required to purchase inputs from the franchiser.franchiser.

EFFECTS OF EFFECTS OF ADVERTISINGADVERTISING

AdvertisingAdvertising

AR and MR are average and AR and MR are average and marginal revenue when the marginal revenue when the firm doesn’t advertise, firm doesn’t advertise, and AC and MC are average and AC and MC are average and marginal cost. and marginal cost. The firm produces The firm produces QQ00 and and receives a pricereceives a price P P00. .

Its total profit Its total profit ππ00 is given by is given by the gray-shaded rectangle. the gray-shaded rectangle. If the firm advertises, its If the firm advertises, its average and marginal average and marginal revenue curves shift to the revenue curves shift to the right. right. Average cost rises (to AC′) Average cost rises (to AC′) but marginal cost remains the but marginal cost remains the same. same. The firm now produces The firm now produces QQ11 (where MR′ = MC), and (where MR′ = MC), and receives a price receives a price PP11. .

Its total profit, Its total profit, ππ11, is now , is now larger.larger.

The price The price PP and advertising expenditure and advertising expenditure A A to to maximize profit, is given by:maximize profit, is given by:

The firm should advertise up to the point thatThe firm should advertise up to the point that

== full full marginal cost of advertisingmarginal cost of advertising

Advertising leads to increased output.Advertising leads to increased output.

But increased output in turn means increased But increased output in turn means increased production costs, and this must be taken into account production costs, and this must be taken into account when comparing the costs and benefits of an extra when comparing the costs and benefits of an extra dollar of advertising.dollar of advertising.

First, rewrite equation as First, rewrite equation as follows:follows:

Now multiply both sides of this equation by Now multiply both sides of this equation by AA//PQPQ, the advertising-to-sales ratio., the advertising-to-sales ratio.

Advertising-to-sales ratio Advertising-to-sales ratio Ratio of a firm’s advertising expenditures to its sales.Ratio of a firm’s advertising expenditures to its sales.

Advertising elasticity of demand Advertising elasticity of demand Percentage change in quantity demanded resulting from a 1-percent Percentage change in quantity demanded resulting from a 1-percent increase in advertising expenditures.increase in advertising expenditures.

A Rule of Thumb for AdvertisingA Rule of Thumb for Advertising

ADVERTISING IN PRACTICEADVERTISING IN PRACTICEConvenience stores have lower price elasticities ofConvenience stores have lower price elasticities of

demand (around −5), but their advertising-to-salesdemand (around −5), but their advertising-to-salesratios are usually less than those for supermarketsratios are usually less than those for supermarkets(and are often zero). (and are often zero). Why?Why?

Because convenience stores mostly serve customers Because convenience stores mostly serve customers who live nearby; they may need a few items late at night who live nearby; they may need a few items late at night or may simply not want to drive to the supermarket.or may simply not want to drive to the supermarket.Advertising is quite important for makers of designer Advertising is quite important for makers of designer

jeans, who will have jeans, who will have advertising-to-sales ratios as advertising-to-sales ratios as high as 10 or 20 percent.high as 10 or 20 percent.Laundry detergents Laundry detergents have among the highest advertising-have among the highest advertising-

to-sales ratios of all products, sometimes to-sales ratios of all products, sometimes exceeding 30 exceeding 30 percentpercent, even though demand for any one brand is at , even though demand for any one brand is at least as price elastic as it is for designer jeans. What least as price elastic as it is for designer jeans. What justifies all the advertising? A very large advertising justifies all the advertising? A very large advertising elasticity.elasticity.

ADVERTISING IN PRACTICEADVERTISING IN PRACTICE

TABLE 7TABLE 7 SALES AND ADVERTISING SALES AND ADVERTISING EXPENDITURES FOR LEADING BRANDS EXPENDITURES FOR LEADING BRANDS OF OVER-THE-COUNTER DRUGS (IN OF OVER-THE-COUNTER DRUGS (IN MILLIONS OF DOLLARS)MILLIONS OF DOLLARS)

SALESSALES ADVERTISINGADVERTISING RATIO (%)RATIO (%)

Pain Pain MedicationsMedications

TylenolTylenol 855855 143.8143.8 1717

AdvilAdvil 360360 91.791.7 2626

BayerBayer 170170 43.843.8 2626

ExcedrinExcedrin 130130 26.726.7 2121

AntacidsAntacids

Alka-SeltzerAlka-Seltzer 160160 52.252.2 3333

MylantaMylanta 135135 32.832.8 2424

TumsTums 135135 27.627.6 2020

ADVERTISING IN PRACTICEADVERTISING IN PRACTICE

TABLE 11.4

SALES AND ADVERTISING EXPENDITURES FOR LEADING BRANDS OF OVER-THE-COUNTER DRUGS (IN MILLIONS OF DOLLARS) (continued)

SALESSALES ADVERTISINGADVERTISING

RATIO RATIO (%)(%)

Cold Remedies (decongestants)Cold Remedies (decongestants)

BenadrylBenadryl 130130 30.930.9 2424

SudafedSudafed 115115 28.628.6 2525

Cough Cough MedicineMedicine

VicksVicks 350350 26.626.6 88

RobitussinRobitussin 205205 37.737.7 1919

HallsHalls 130130 17.417.4 1313

TABLE 7TABLE 7 SALES AND ADVERTISING SALES AND ADVERTISING EXPENDITURES FOR LEADING BRANDS EXPENDITURES FOR LEADING BRANDS OF OVER-THE-COUNTER DRUGS (IN OF OVER-THE-COUNTER DRUGS (IN MILLIONS OF DOLLARS) MILLIONS OF DOLLARS) (continued)(continued)

ConclusionConclusion

““It is in rare moments It is in rare moments that I see my business that I see my business clearly … why do I still lie clearly … why do I still lie awake at night? I’m awake at night? I’m trying to figure the damn trying to figure the damn strategies of my strategies of my competitors!”competitors!” A ManagerA Manager

Core ReadingCore Reading

• Keat, Paul G. and Young, Philip KY (2009) Managerial Economics, 6th edition, Pearson

• Samuelson, William F. and Marks, Stephen G.(2010) Managerial Economics, 6th edition, John Wiley

• Pindyck, Robert S. and Rubinfeld, Daniel L.(2013) Microeconomics, 8th edition, Pearson

• Samuelson, P.A. and Nordhaus, W. D. Samuelson, P.A. and Nordhaus, W. D. (2010)(2010)“Economics”“Economics” Irwin/McGraw-Hill, 19Irwin/McGraw-Hill, 19thth EditionEdition

• Porter, Michael E. (2004)Porter, Michael E. (2004)“Competitive Strategy – “Competitive Strategy – Techniques for Analyzing Industries and Competitors”Techniques for Analyzing Industries and Competitors” Free PressFree Press

Questions?Questions?

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