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Ebook Microeconomics (19th edition): Part 2

(BQ) Part 2 book "Microeconomics" has contents: Competition among the few, economics of uncertainty, how markets determine incomes, the labor market; land, natural resources, and the environment; capital, interest, and proits; government taxation and expenditure; international trade,.and other contents. | CHAPTER Competition among the Few 10 Look at the airline price wars of 1992. When American Airlines, Northwest Airlines, and other U.S. carriers went toe-to-toe in matching and exceeding one another’s reduced fares, the result was record volumes of air travel—and record losses. Some estimates suggest that the overall losses suffered by the industry that year exceed the combined profits for the entire industry from its inception. Akshay R. Rao, Mark E. Bergen, and Scott Davis “How to Fight a Price War” Earlier chapters analyzed the market structures of perfect competition and complete monopoly. If you look out the window at the American economy, however, you will see that such polar cases are rare. Most industries lie between these two extremes and are populated by a small number of firms competing with each other. What are the key features of these intermediate types of imperfect competitors? How do they set their prices and outputs? To answer these questions, we look closely at what happens under oligopoly and monopolistic competition, paying special attention to the role of concentration and strategic interaction. We then introduce the elements of game theory, which is an important tool for understanding how people and businesses interact in strategic situations. The final section reviews the different public policies used to combat monopolistic abuses, focusing on regulation and antitrust laws. A. BEHAVIOR OF IMPERFECT COMPETITORS Look back at Table 9-1, which shows the following kinds of market structures: (1) Perfect competition is found when a large number of firms produce an identical product. (2) Monopolistic competition occurs when a large number of firms produce slightly differentiated products. (3) Oligopoly is an intermediate form of imperfect competition in which an industry is dominated by a few firms. (4) Monopoly is the most concentrated market structure, in which a single firm produces the entire output of an industry. How do we measure the .