Price leadership in oligopoly market. Price Stability in Oligopoly 2022-10-15
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Utilitarianism is a moral theory that holds that the best action is the one that maximizes overall happiness or pleasure. It is a form of consequentialism, meaning that the moral value of an action is determined by its consequences. Proponents of utilitarianism argue that it provides a clear and objective way to determine right and wrong actions, and that it is the most effective way to promote the overall well-being of society.
However, utilitarianism has been subject to criticism on several grounds. One criticism is that it is overly focused on the consequences of actions, and does not take into account the moral intentions or motives behind those actions. For example, under utilitarianism, it might be considered morally acceptable to deceive someone if doing so leads to a net increase in happiness. This ignores the importance of honesty and trust in human relationships, and could lead to a society in which people are constantly scheming to achieve their own ends at the expense of others.
Another criticism of utilitarianism is that it is difficult to measure and compare the happiness or pleasure of different individuals. How can we accurately compare the pleasure of one person's vacation with the pleasure of another person's job promotion? Utilitarianism also ignores the fact that people have different values and priorities, and what brings one person happiness may not bring happiness to another.
A third criticism of utilitarianism is that it ignores the inherent value of individual human beings. Under utilitarianism, the value of a person is determined solely by their ability to contribute to overall happiness. This could lead to the exploitation and mistreatment of certain individuals or groups if their happiness is deemed less important than that of others.
Finally, utilitarianism does not account for long-term consequences or the needs of future generations. An action that maximizes happiness in the present may have negative consequences for the future, such as environmental degradation or economic instability.
Overall, while utilitarianism provides a useful framework for evaluating the consequences of actions, it has significant limitations and is not a sufficient moral theory on its own. It is important to consider the intentions behind actions, the inherent value of human beings, and the long-term consequences of our actions in addition to the happiness they may bring in the present.
How to Determine Price and Output under Oligopoly?
The firms that use the price set by the dominant firm are typically smaller in size and called following firms. The price leadership of low cost firm can be explained with the help of the following diagram: In the diagram output is shown on OX-axis while price, cost, and revenue are shown on OY-axis. Every seller can exercise an important influence on the price-output policies of his rivals. A change in any of its vehicles e. An oligopolistic firm tries to differentiate its product from that of its rivals in order to raise the demand for its product and to make its demand curve less elastic.
Barometric price leadership 4. However, the marginal revenue curve is the one that corresponds to the residual demand curve which measures how much output the leader will be able to sell at each price. Most people object to imperfect competition on the grounds that monopolists may be earning supernormal profits and enriching themselves at the expense of hapless consumers. ADVERTISEMENTS: 7 Any attempt on the part of a seller to push up his sales by reducing the price of his product will be counteracted by the other sellers who will follow his move. Peter Antonioniis a senior teaching fellow at University College London. Markets for steel and agricultural implements have been observed to operate in this manner.
Suppose there is decrease in demand shown by D 1 curve and MR 1 is its marginal revenue curve. Restriction on the entry: Like monopoly, there is a restriction on the entry of new firms in an oligopolistic industry. The resultant price and output will depend upon the reaction of the collusive oligopolists towards the profit maximisation price and their attitude towards the existing and potential rivals. The quantity consumed Q equals qd plus qf. Hence it is necessary to explain why oligopolists can make abnormal profits even while charging an entry limiting price.
Price and Output Determination Under Oligopoly Price and Output A determination under the Oligopoly market can be studied under two heads; One when there is a duopoly and one when there are a few firms. Assumptions : The analysis of joint profit maximisation cartel is based on the following assumptions: 1. As already noted, following firms are price takers. The price should be neither too high nor too low. Hence, a conventional demand curve cannot represent the demand pattern. In America, examples of price leadership industries are: Biscuits, cement, cigarettes, flour, fertilizers, petroleum, milk, rayon, steel, etc. Dominant Price Leadership: Refers to a type of leadership in which only one organization dominates the entire industry.
Price Leadership: Definition, How It Works, and Types
An Oligopoly market condition exists between two of the most extreme market conditions; i. Firms look up to one dominant firm to set prices. State administered pricing takes varied forms. In monopolistic competition, average selling costs may decline so strongly with output that large scale producers gain a cost advantage over small producers. He knows that if raises the price, he will lose his customers and if he lowers it he will invite his rivals to price war. The price OP 1 and quantity OQ b of the high-cost firm В are determined when its MC b curve cuts its MR b curve at point B.
Barometric Price Leadership: In this model it is formally or informally agreed that all firms will follow exactly or approximately the changes of the price of a firm which is considered to have a good knowledge of the prevailing conditions in the market and can forecast better than the others the future developments in the market. Instead there will be some agreement among the various firms with regard to the price that is to be charged. Now let us suppose the leader realizes that if he sets a price p, the follower will supply S p. The above analysis shows that the price- quantity solution is stable because the small firms behave passively as price-takers. This is done to dominate the market. When firms tacitly collude, they often quote identical high prices, pushing up profits and decreasing the risk of doing business. The Stackelberg model mainly describes how a leader and follower relationship is maintained and formed.
Severe competition exists between different firms and each firm tries to manipulate both the prices and the quantity of output in order to outperform each other. In addition, the organization B also has high costs of production that leads to lower profits at price OP 1. The dominant firm simply subtracts the quantity provided by the following firms from the quantity demanded in the market to determine its quantity demanded. A firm considers the action and reaction of rival firms while determining its price and output levels. Game Theory looks at the behaviour of firms when there is interdependence. A price leader is a company that exercises control in determining the price of goods and services in a Price leaders are usually large firms in the industry that incur the lowest Types of price leadership Price leadership comprises three types, which include: Barometric model In the barometric model, a small but efficient company positions itself as a leader in identifying and adapting to changing market conditions better than other firms in the market. One firm is implicitly recognized as leader by all other firms, the followers.
What is the price leadership model of Oligopoly pricing and what are its tactics?
Oligopolists seek to maximize market profits while minimizing market competition through non-price competition and product differentiation. Now take a price OP 1 less than OP. In the long run, there are a number of difficulties faced by a cartel which tend to break it down. Price leadership by the dominant firm The above illustration shows the problem confronting the dominant firms when come to determine price and output to maximize their profits. The products sold in an oligopoly may be homogeneous or differentiated. The demand curve is kinked at point B.