REGULATION AND POLITICS

Lecutre 1

Lecture 2

Lecture 3

Deadweight loss  (quantity exchanged before the intervention – quantity exchanged after the
intervention ) (10-6)/ 2 = 4
Total situation is 16 = previous area obtained in the free market and now the consumer obtained an
higher level of area (pass from 10 to 8, obtain to redistribution of income) instead the producer
have a loss and there is a deadweight loss.
Exchange to sustain the consumer, but there is a decrease of the surplus of producer  obtain a
deadweight loss because a quantity is not exchange anymore
Another intervention – price floors

Is a minimum price, seems like a price support. Imagine that this intervention is happen in the
reality in Europe after 2 world war in agriculture market. Government want to support the farmers,
after WW2, 20-30 MILLIONS in western Europe and in Russia, all the sector in Europe will be
destroy.
What happen in Europe ? nobody wanted to working the land, so the government support the
farmer to work the land, and fix a minimum price  increase price and increase income
Imagine that there is a demand and supply and there is a price and quantity of equilibrium. If the
government fix a price to support this kind a market higher then the price of equilibrium  since the
short size the demand  exceed of supply at that kind of price.
So the consumer want to consume 16 and producer want to produce higher amount, so exceed of
good produced by this kind of market. What was the situation before this intervention.

Here is not equilibrium because there is an exceed of supply  some consumer will disappear in
the market and the producer produce more than the wiliness to pay of them.

Now we find the quantity asked and produced  substitute 120 

How much is it the area of surplus of producer? Calculate the price that the producer are wiliness
to pay after the intervention
If the gov interveen in some market is intervene to reduce, to support, to reduce pollution
externalities, but the intervention of the gov produce deadweight loss  also increase some cost to
assume, to increase the people that have to work in PA to control the law. Moreover, the gov failure
in order …

Efficiency when mrk in perfect competition  when mrk is able to obtain max social surplus, is a
moral  generate some inequality but producing some deadweight loss. In US is more impo
--
Lecture 18/04
And another way to restore efficiency by monopolistic market is to use a discrimination price. So in
order to use, for example, your cellular phone by download they application. The apps you give for
free your identity your preference because you follow some some sites some because of for
example I love ice cream. I love Boston Celtics and for all old Google all the the the browser knows
that I'm fonts.
Regarding this, the this teams and then maybe they sell, they try to sell me the the share of this
kind of tips and OK and.
If they know they willingness to pay of each consumer regarding the within the superior of each
consumer, he can sell the product.
Are the price that each consumer is willing to pay this kind of product. So in order to obtain all the
surplus of the consumer?
This is the perfect.
You see this going also the first degree of this election. There are all also do this screaming. The
degree of discrimination, the second they didn't work.
The 1st that it is called also perfect discrimination.
And the the the.
The firms uh Morrissey firms have to know the willingness to pay your own. Each consumer in the
second degree of discrimination, all the consumer fees at the same price, but which the consumer
have different preference. So we'll choose.

P*= a – (a-c/2) = a+b/2 price of equilibrium

Differences btw monopoly and competition
Instead in perfect competition you have to produce higher than the outcome in monopolistic.
Another difference is that you can calculate the degree of monopoly in the learned index. Degree
of straight monopoly.

Marginal cost is equal to average total cost. You can produce in a situation where the marginal
benefit is equal to marginal cost. The intersection is where we are in perfect competition. You
produce where MC= MR  quantity substitute in the inverse of the demand curve.
The surplus of consumer will be reduced  the price is increased, you buy this kind of product at
higher prices. The surplus of consumer will be reduced, the surplus of producer and then there is
DWL  losses when we talk about taxation or when fix price setting.
Calculate it  cost of monopolistic …
MB > MC it can produce this quantity, but firm do not want  do not maximizes the profit 
generates inefficiency so the DWL.
Ask to increase quantity  subsidize this kind of market by giving to monopolistic …

compensate by given the blue area.

You have to increase the taxation to increase the quantity, if they do not pay the disagreement can
be nullify.
Now we try to solve this first task 

1) the rule is that price is equal to MR, in perfect competition is equal to MC

P= MC  100 – 4q = 20
So the q= 20 and P=20  in monopolistic instead we should consider the MR line
Using the inverse of the demand curve  use the derivative of TOTAL REVENUE in respect of
quantity
TR= p*q = (100 – 4q)*q= 100q – 4q^2  derivative of this function in q is  100 – 8q and this the
marginal revenue. (RM)
Now which is the quantity that maximize the profit of monopolistic firms? So the MR = MC
In this way you have to equalize 100 – 8q = 20 that  q= 10 and then substitute q in the inverse in
demand curve.
P= 100- 4(10) = 60
Now we can make a graph of inverse demand function p= 100-4q, also I obtain RM
MC = 20 horizontal line and the quantity that maximize is 20, price also 20, instead the quantity
that maximize in monopolistic firms is 10 (p= 60)

Now we have to find the surplus in both market

Perfect competition market 

Consumer surplus is the area (20*80)/2 = 800
Surplus producer = 0
Monopolistic market 
Consumer surplus = (10 * 40) / 2 =200
Surplus producer = (40*10) = 400
Π= PS – TC= 400 – 20*10= 200 = TR – TC = 100 q – 4q^2 – 20q = 1000 – 400 -200 = 400
Now DWL = net loss of monopolistic firm = triangle = 10*40 / 2 = 200

How restores efficiency?

2 maggio 2023

Point e)
Stategic interaction among firms

In beltran they fight for the price  obtain all the consumer: true when we have no differentiation of
goods. Solving the beltran  higher respect to the original cost. Fight for the price.
In this way instead, they fight for the quantity produced in the market  calculate of firms that
depend also by the quantity chosen by the others.
We have few and very big firms that compete on the market.
The production of the mrk depends on quantity produced by the first firm and the quantity produced
by the second firms.

Profit maximize considering both y1 and y2.

We have inverse demand curve

Two firms can sign/ make an agreement

 maximize the total
monopolist profit  cartel formation born.
Antitrust rules that provide this kind behavior  free riding mechanism

Produce a price lower  give to them (rival) residual demand equal to zero. Esclude the other from
the market.
Imagine that you have a duopoly. Sign a non binary agreement  imagine inverse demand curve
P= a-y
Obtaining the total revenue = a Y- Y^2 = RM = derivative of total revenue with respect the quantity.

They produce 1 half of the quantity of monopolistic market.

The price Is up to the same  obtain the 1 half of monopolistic profit.
How you can find the agreement ? first strategy
When merger two firms and they plan to be one. Also by sign a probing agreement (provided by
US and European commission).
So another solution  collusion, based on respect this agreement by giving your hands and to
produce 1 half of quantity of monopolistic firms.
And this is how to obtain the first behaviro.
Another strategy is considering to not believe in other firms, but I have to compete. I have to find
my best reaction function  quantity that maximize my profit.
Same problem in beltran but now they compete in quantity.
Max profit firm 1 in oligopoly
Also the profit of the two firms  if you substitute

Lower than the monopolistic firms.

s
What happen if one firm agree to produce 1 half of monopolistc market ?
Which is the quantity produced by the market in this situation if they sing a non binding agreement.