Lec 2 - Different Types of Markets - Delhi School of Economics
608:
Economics
of
Regulation
Lecture
2:
Market,
types,
Perfect
Competition
vs.
Monopoly,
Regulatory
Issues
S u g a t a
B a g
D e l h i
S c h o o l
o f
E c o n o m i c s
W i n t e r
S e m e s t e r
2 0 1 3
VVH:
4
&
11
Outline
? Market
?
DefiniCon
? Market
ConcentraCon
? Perfect
CompeCCon
and
Economic
Surplus
? What
is
a
natural
Monopoly?
? Permanent
vs
temporary
natural
monopoly
? Natural
Monopoly
pricing
problem
? MulC--product
monopolists
? Monopoly
and
Deadweight
Losses
? X--inefficiency
? EsCmates
of
welfare
losses
of
monopoly
? Technological
change
and
CompeCCon
? Patents
and
Copyright
2
Sugata Bag
- Delhi School of Economics -
2013
DeDinition
of
a
Market
? This
is
something
not
easy.
? IdenCficaCon
of
real
markets
can
be
done
by:
o physical
characterisCcs
of
firms'
products
o the
technology/raw
materials
employed
o the
cross
price
elasCcity
of
demand
between
products
o staCsCcal
definiCon
(SIC
figures)
? SIC
system
[ITC
(HS)
codes]
{see:
h\p://exim.sic--codes/
}
Code
Title
51
InformaCon
513
BroadcasCng
and
TelecommunicaCons
5133
TelecommunicaCons
51332
Wireless
TelecommunicaCons
carriers
(except
satellite)
3
513321
Paging
Sugata Bag
- Delhi School of Economics -
2013
How
market
works?
Structure--Conduct--Performance
STRUCTURE
ConcentraCon
Product
DifferenCon
Entry
CondiCons
(barriers)
CONDUCT
Pricing
AdverCsing
R
&
D
PERFORMANCE
Efficiency
Technical
Progress
Sugata Bag
GOVT
POLICY
AnCtrust
Economic
RegulaCon
Ref:
VVH:
3
pp.
62--69
(skim)
4
- Delhi School of Economics -
2013
Measurement
of
Concentration
? ConcentraCon
RaCo:
CRx,
mkt
share
of
largest
x
firms.
o Easy
to
measure
? Herfindahl
index:
H=si2
where
si=mkt
share
of
ith
firm
o
Ideal
properCes
o
Numbers
equivalent
property
?
Herfindahl
Hirschman
Index:
HHI=(100si)2
qHHI=(100si)2=10000
si2
qUsed
by
the
Department
of
JusCce
AnC--Trust
Division
qNote
connecCon
with
N--firm
Cournot
Model
v
P
- MCi P
=
si
where
si
=
1 ; n
i
si
[
P
- MCi P
]
=
HHI
10000.
v
Mkt
power
depends
on
entry
condiCon,
product
differenCaCon,
and
conduct
through
collusion/
compeCCon
5
Sugata Bag
- Delhi School of Economics -
2013
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