MANECO Chapters 7-11 PDF

MANECO CHAPTER 7 Conduct - refers to how individual firms behave in the market; it involves pricing Market Structure - factors that affect decisions, advertising decisions, and decisions managerial decisions,...

MANECO CHAPTER 7 Conduct - refers to how individual firms behave in the market; it involves pricing Market Structure - factors that affect decisions, advertising decisions, and decisions managerial decisions, including the number to invest in research and development, of firms competing in a market, the relative among other factors. size of firms, technological and cost considerations, Dansby-Willig Performance Index - ranks demand conditions, and the ease with which industries according to how much social firms can enter or exit the industry. welfare would improve if the output in an industry were increased by a small amount. Concentration Ratios - measure how much of the total output in an industry is produced by Causal View - of industry asserts that market the largest firms in that industry. structure “causes” firms to behave in a certain way. Four-firm Concentration Ratio - is the fraction of total industry sales produced by MANECO CHAPTER 8 the four largest firms in the industry. Perfectly Competitive Market - a market in Herfindahl-Hirschman Index (HHI) - the sum which of the squared market shares of firms in a 1. There are many buyers and sellers in the given industry multiplied by 10,000. market, each of which is “small” relative to the market. Rothschild Index - a measure of the 2. Each firm in the market produces a sensitivity to price of a product group as a homogeneous (identical) product. whole relative to the sensitivity of the 3. Buyers and sellers have perfect quantity demanded of a single firm to a information. change in its price. 4. There are no transaction costs. 5. There is free entry into and exit from the Lerner Index - a measure of the difference market. between price and marginal cost as a fraction of the product’s price. Firm Demand Curve - the demand curve for an individual firm’s product; in a perfectly Integration - refers to uniting productive competitive market, it is simply the market resources. price. Merger - in which two or more existing firms Marginal Revenue - the change in revenue “unite,” or merge, into a single firm. attributable to the last unit of output; for a competitive firm, MR is the market price. Vertical Integration - refers to a situation where various stages in the production of a Monopoly - a market structure in which a single single firm serves an entire market for a good product are carried out in a single firm. that has no close substitutes. Vertical Merger - is the integration of two or Economies of Scale - exist whenever long-run more firms that produce components for a average costs decline as output increases. single product. Diseconomies of Scale - exist whenever long- Horizontal Integration - refers to the merging run average costs increase as output of the production of similar products into a increases. single firm. Economies of Scope - exist when the total Horizontal Merger - reduces the number of cost of producing two products within the firms that compete in the product market. same firm is lower than when the products are produced by separate firms. Conglomerate Merger - involves the integration of different product lines into a Cost Complementarities - exist when the single firm. marginal cost of producing one output is reduced when the output of another product Performance - refers to the profits and social is increased. welfare that result in a given industry. Patent System - gives the inventor of a new Structure - of an industry refers to factors product the exclusive right to sell the product such as technology, concentration, and for a given period of time. market conditions. Deadweight Loss of Monopoly - the Cournot Oligopoly - an industry in which consumer and producer surplus that is lost 1. There are few firms in the market serving due to the monopolist charging a price in many consumers. excess of marginal cost. 2. The firms produce either differentiated or homogeneous products. Monopolistic Competition - a market in 3. Each firm believes rivals will hold their which output constant if it changes its output. 1. There are many buyers and sellers. 4. Barriers to entry exist. 2. Each firm in the industry produces a differentiated product. Best-response Function - also called a 3. There is free entry into and exit from the Reaction Function, defines the profit- industry. maximizing level of output for a firm for given output levels of the other firm. Differentiated Products - the key difference between perfect competition and Cournot Equilibrium - situation in which monopolistic competition is the assumption neither firm has an incentive to change its that firms produce output given the other firm’s output. Comparative Advertising - a form of Isoprofit Curve - a function that defines the advertising where a firm attempts to increase combinations of outputs produced by all the demand for its brand by differentiating its firms that yield a given firm the same level of product from competing brands. profits. Brand Equity - the additional value added to Stackelberg Oligopoly - an industry in which a product because of its brand. 1. There are few firms serving many consumers. Niche Marketing - a marketing strategy 2. The firms produce either differentiated or where goods and services are tailored to homogeneous products. meet the needs of a particular segment of 3. A single firm (the leader) chooses an the market. output before all other firms choose their outputs. Green Marketing - a form of niche marketing 4. All other firms (the followers) take as given where firms target products toward the output of the leader and choose out puts consumers who are concerned about that maximize profits given the leader’s environmental issues. output. 5. Barriers to entry exist. Brand Myopic - a manager or company that rests on a brand’s past laurels instead of Bertrand Oligopoly - an industry in which focusing on emerging industry trends or 1. There are few firms in the market serving changes in consumer preferences. many consumers. 2. The firms produce identical products at a MANECO CHAPTER 9 constant marginal cost. 3. Firms engage in price competition and Oligopoly - a market structure in which there react optimally to prices charged by are only a few firms, each of which is large competitors. relative to the total industry. 4. Consumers have perfect information and there are no transaction costs. Duopoly - an oligopoly composed of only two 5. Barriers to entry exist. firms. Contestable Market - a market in which Sweezy Oligopoly - an industry in which 1. All producers have access to the same 1. There are few firms in the market serving technology. many consumers. 2. Consumers respond quickly to price 2. The firms produce differentiated products. changes. 3. Each firm believes rivals will cut their prices 3. Existing firms cannot respond quickly to in response to a price reduction but will not entry by lowering price. raise their prices in response to a price 4. There are no sunk costs. increase. 4. Barriers to entry exist. Sunk Cost - a cost that is forever lost after it has been paid. MANECO CHAPTER 11 Randomized Pricing - pricing strategy in which a firm intentionally varies its price in an Price Discrimination - the practice of attempt to “hide” price information from charging different prices to consumers for the consumers and rivals. same good or service. First-degree Price Discrimination - charge each consumer the maximum price he or she would be willing to pay for each unit of the good purchased. Second-degree Price Discrimination - is the practice of posting a discrete schedule of declining prices for different ranges of quantities. Third-degree Price Discrimination - firms can profit by charging different groups of consumers different prices for the same product. Two-part Pricing - pricing strategy in which consumers are charged a fixed fee for the right to purchase a product, plus a per-unit charge for each unit purchased. Block Pricing - pricing strategy in which identical products are packaged together in order to enhance profits by forcing customers to make an all-or-none decision to purchase. Commodity Bundling - the practice of bundling several different products together and selling them at a single “bundle price.” Peak-load Pricing - pricing strategy in which higher prices are charged during peak hours than during off-peak hours. Cross-subsidy - pricing strategy in which profits gained from the sale of one product are used to subsidize sales of a related product. Transfer Pricing - pricing strategy in which a firm optimally sets the internal price at which an upstream division sells an input to a downstream division. Price Matching - a strategy in which a firm advertises a price and a promise to match any lower price offered by a competitor. Brand Loyalty - customers will continue to buy a firm’s product even if another firm offers a (slightly) better price. By inducing brand loyalty, a firm reduces the number of consumers who will “switch” to another firm if it undercuts its price.