Chapter 12 Monopolistic Competition and Oligopoly Topics to

Chapter 12 Monopolistic Competition and Oligopoly

Topics to be Discussed l Monopolistic Competition l Oligopoly l Price Competition l Competition Versus Collusion: The Prisoners’ Dilemma l Implications of the Prisoners’ Dilemma for Oligopolistic Pricing l Cartels © 2005 Pearson Education, Inc. Chapter 12 2

Monopolistic Competition l Characteristics 1. 2. 3. Many firms Free entry and exit Differentiated product © 2005 Pearson Education, Inc. Chapter 12 3

Monopolistic Competition l The amount of monopoly power depends on the degree of differentiation. l Examples of this very common market structure include: m Toothpaste m Soap m Cold remedies © 2005 Pearson Education, Inc. Chapter 12 4

Monopolistic Competition l Toothpaste m Crest and monopoly power l Procter & Gamble is the sole producer of Crest l Consumers can have a preference for Crest – taste, reputation, decay preventing efficacy l The greater the preference (differentiation) the higher the price. © 2005 Pearson Education, Inc. Chapter 12 5

Monopolistic Competition l Two important characteristics m Differentiated but highly substitutable products m Free entry and exit © 2005 Pearson Education, Inc. Chapter 12 6

A Monopolistically Competitive Firm in the Short and Long Run $/Q Short Run $/Q MC Long Run MC AC AC PSR PLR DSR DLR MRSR Quantity Chapter 12 MRLR Quantity 7

A Monopolistically Competitive Firm in the Short and Long Run l Short-run m Downward sloping demand – differentiated product m Demand is relatively elastic – good substitutes m MR < P m Profits are maximized when MR = MC m This firm is making economic profits © 2005 Pearson Education, Inc. Chapter 12 8

A Monopolistically Competitive Firm in the Short and Long Run l Long-run m Profits will attract new firms to the industry (no barriers to entry) m The old firm’s demand will decrease to DLR m Firm’s output and price will fall m Industry output will rise m No economic profit (P = AC) m P > MC some monopoly power © 2005 Pearson Education, Inc. Chapter 12 9

Monopolistically and Perfectly Competitive Equilibrium (LR) $/Q Perfect Competition $/Q MC Monopolistic Competition Deadweight loss AC MC AC P PC D = MR DLR MRLR QC Quantity Chapter 12 QMC Quantity 10

Monopolistic Competition & Economic Efficiency l The monopoly power yields a higher price than perfect competition. If price was lowered to the point where MC = D, consumer surplus would increase by the yellow triangle – deadweight loss. l With no economic profits in the long run, the firm is still not producing at minimum AC and excess capacity exists. © 2005 Pearson Education, Inc. Chapter 12 11

Monopolistic Competition and Economic Efficiency l Firm faces downward sloping demand so zero profit point is to the left of minimum average cost l Excess capacity is inefficient because average cost would be lower with fewer firms m Inefficiencies would make consumers worse off © 2005 Pearson Education, Inc. Chapter 12 12

Monopolistic Competition l If inefficiency bad for consumers, should monopolistic competition be regulated? m m Market power relatively small. Usually enough firms to compete with enough substitutability between firms – deadweight loss small Inefficiency is balanced by benefit of increased product diversity – may easily outweigh deadweight loss © 2005 Pearson Education, Inc. Chapter 12 13

The Market for Colas and Coffee l Each market has much differentiation in products and try to gain consumers through that differentiation m Coke versus Pepsi m Maxwell House versus Folgers l How much monopoly power do each of these producers have? m How elastic demand for each brand? © 2005 Pearson Education, Inc. Chapter 12 14

Elasticities of Demand for Brands of Colas and Coffee © 2005 Pearson Education, Inc. Chapter 12 15

The Market for Colas and Coffee l The demand for Royal Crown more price inelastic than for Coke l There is significant monopoly power in these two markets l The greater the elasticity, the less monopoly power and vice versa. © 2005 Pearson Education, Inc. Chapter 12 16

Oligopoly – Characteristics l Small number of firms l Product differentiation may or may not exist l Barriers to entry m Scale economies m Patents m Technology m Name recognition m Strategic action © 2005 Pearson Education, Inc. Chapter 12 17

Oligopoly l Examples m Automobiles m Steel m Aluminum m Petrochemicals m Electrical © 2005 Pearson Education, Inc. equipment Chapter 12 18

Oligopoly l Management Challenges m Strategic actions to deter entry l Threaten to decrease price against new competitors by keeping excess capacity m Rival behavior l Because only a few firms, each must consider how its actions will affect its rivals and in turn how their rivals will react. © 2005 Pearson Education, Inc. Chapter 12 19

Oligopoly – Equilibrium l If one firm decides to cut their price, they must consider what the other firms in the industry will do m Could cut price some, the same amount, or more than firm m Could lead to price war and drastic fall in profits for all l Actions and reactions are dynamic, evolving over time © 2005 Pearson Education, Inc. Chapter 12 20

Oligopoly – Equilibrium l Defining Equilibrium m m Firms are doing the best they can and have no incentive to change their output or price All firms assume competitors are taking rival decisions into account. l Nash Equilibrium m Each firm is doing the best it can given what its competitors are doing. l We will focus on duopoly m Markets in which two firms compete © 2005 Pearson Education, Inc. Chapter 12 21

Oligopoly l The Cournot Model m Oligopoly model in which firms produce a homogeneous good, each firm treats the output of its competitors as fixed, and all firms decide simultaneously how much to produce m Firm will adjust its output based on what it thinks the other firm will produce © 2005 Pearson Education, Inc. Chapter 12 22

Firm 1’s Output Decision P 1 Firm 1 and market demand curve, D 1(0), if Firm 2 produces nothing. D 1(0) If Firm 1 thinks Firm 2 will produce 50 units, its demand curve is shifted to the left by this amount. MR 1(0) D 1(75) If Firm 1 thinks Firm 2 will produce 75 units, its demand curve is shifted to the left by this amount. MR 1(75) MC 1 MR 1(50) 12. 5 25 © 2005 Pearson Education, Inc. D 1(50) 50 Chapter 12 Q 1 23

Oligopoly l The Reaction Curve m The relationship between a firm’s profitmaximizing output and the amount it thinks its competitor will produce. m A firm’s profit-maximizing output is a decreasing schedule of the expected output of Firm 2. © 2005 Pearson Education, Inc. Chapter 12 24

Reaction Curves and Cournot Equilibrium Q 1 Firm 1’s reaction curve shows how much it will produce as a function of how much it thinks Firm 2 will produce. The x’s correspond to the previous model. 100 75 Firm 2’s Reaction Curve Q*2(Q 2) Firm 2’s reaction curve shows how much it will produce as a function of how much it thinks Firm 1 will produce. 50 x 25 x Firm 1’s Reaction Curve Q*1(Q 2) 25 © 2005 Pearson Education, Inc. 50 x 75 Chapter 12 x 100 Q 2 25

Reaction Curves and Cournot Equilibrium Q 1 100 In Cournot equilibrium, each firm correctly assumes how much its competitors will produce and thereby maximize its own profits. 75 Firm 2’s Reaction Curve Q*2(Q 2) 50 x 25 Cournot Equilibrium x Firm 1’s Reaction Curve Q*1(Q 2) 25 © 2005 Pearson Education, Inc. 50 x 75 Chapter 12 x 100 Q 2 26

Cournot Equilibrium l Each firms reaction curve tells it how much to produce given the output of its competitor. l Equilibrium in the Cournot model, in which each firm correctly assumes how much its competitor will produce and sets its own production level accordingly. © 2005 Pearson Education, Inc. Chapter 12 27

Oligopoly l Cournot equilibrium is an example of a Nash equilibrium (Cournot-Nash Equilibrium) l The Cournot equilibrium says nothing about the dynamics of the adjustment process m Since both firms adjust their output, neither output would be fixed © 2005 Pearson Education, Inc. Chapter 12 28

The Linear Demand Curve l An Example of the Cournot Equilibrium m Two firms face linear market demand curve m We can compare competitive equilibrium and the equilibrium resulting from collusion m Market demand is P = 30 - Q m Q is total production of both firms: Q = Q 1 + Q 2 m Both firms have MC 1 = MC 2 = 0 © 2005 Pearson Education, Inc. Chapter 12 29

Oligopoly Example l Firm 1’s Reaction Curve MR=MC © 2005 Pearson Education, Inc. Chapter 12 30

Oligopoly Example l An Example of the Cournot Equilibrium © 2005 Pearson Education, Inc. Chapter 12 31

Oligopoly Example l An Example of the Cournot Equilibrium © 2005 Pearson Education, Inc. Chapter 12 32

Duopoly Example Q 1 30 Firm 2’s Reaction Curve The demand curve is P = 30 - Q and both firms have 0 marginal cost. Cournot Equilibrium 15 10 Firm 1’s Reaction Curve 10 © 2005 Pearson Education, Inc. 15 Chapter 12 30 Q 2 33

Oligopoly Example l Profit Maximization with Collusion © 2005 Pearson Education, Inc. Chapter 12 34

Profit Maximization w/Collusion l Contract Curve m Q 1 + Q 2 = 15 l Shows all pairs of output Q 1 and Q 2 that maximizes total profits m Q 1 = Q 2 = 7. 5 l Less output and higher profits than the Cournot equilibrium © 2005 Pearson Education, Inc. Chapter 12 35

Duopoly Example Q 1 30 Firm 2’s Reaction Curve For the firm, collusion is the best outcome followed by the Cournot Equilibrium and then the competitive equilibrium Competitive Equilibrium (P = MC; Profit = 0) 15 Cournot Equilibrium Collusive Equilibrium 10 7. 5 Collusion Curve © 2005 Pearson Education, Inc. Firm 1’s Reaction Curve 7. 5 10 15 Chapter 12 30 Q 2 36

First Mover Advantage – The Stackelberg Model l Oligopoly model in which one firm sets its output before other firms do. l Assumptions m One firm can set output first m MC = 0 m Market demand is P = 30 - Q where Q is total output m Firm 1 sets output first and Firm 2 then makes an output decision seeing Firm 1 output © 2005 Pearson Education, Inc. Chapter 12 37

First Mover Advantage – The Stackelberg Model l Firm 1 m Must consider the reaction of Firm 2 l Firm 2 m Takes Firm 1’s output as fixed and therefore determines output with the Cournot reaction curve: Q 2 = 15 - ½(Q 1) © 2005 Pearson Education, Inc. Chapter 12 38

First Mover Advantage – The Stackelberg Model l Firm 1 m Choose Q 1 so that: m Firm 1 knows firm 2 will choose output based on its reaction curve. WE can use firm 2’s reaction curve as Q 2 © 2005 Pearson Education, Inc. Chapter 12 39

First Mover Advantage – The Stackelberg Model l Using Firm 2’s Reaction Curve for Q 2: © 2005 Pearson Education, Inc. Chapter 12 40

First Mover Advantage – The Stackelberg Model l Conclusion m Going first gives firm 1 the advantage m Firm 1’s output is twice as large as firm 2’s m Firm 1’s profit is twice as large as firm 2’s l Going first allows firm 1 to produce a large quantity. Firm 2 must take that into account and produce less unless wants to reduce profits for everyone © 2005 Pearson Education, Inc. Chapter 12 41

Price Competition l Competition in an oligopolistic industry may occur with price instead of output. l The Bertrand Model is used m Oligopoly model in which firms produce a homogeneous good, each firm treats the price of its competitors as fixed, and all firms decide simultaneously what price to charge © 2005 Pearson Education, Inc. Chapter 12 42

Price Competition – Bertrand Model l Assumptions m Homogenous good m Market demand is P = 30 - Q where Q = Q 1 + Q 2 m MC 1 = MC 2 = $3 l Can show the Cournot equilibrium if Q 1 = Q 2 = 9 and market price is $12 giving each firm a profits of $81. © 2005 Pearson Education, Inc. Chapter 12 43

Price Competition – Bertrand Model l Assume here that the firms compete with price, not quantity. l Since good is homogeneous, consumers will buy from lowest price seller m If firms charge different prices, consumers buy from lowest priced firm only m If firms charge same price, consumers are indifferent who they buy from © 2005 Pearson Education, Inc. Chapter 12 44

Price Competition – Bertrand Model l Nash equilibrium is competitive output since have incentive to cut prices l Both firms set price equal to MC m. P = MC; P 1 = P 2 = $3 m Q = 27; Q 1 & Q 2 = 13. 5 l Both firms earn zero profit © 2005 Pearson Education, Inc. Chapter 12 45

Price Competition – Bertrand Model l Why not charge a different price? m If charge more, sell nothing m If charge less, lose money on each unit sold l The Bertrand model demonstrates the importance of the strategic variable m Price © 2005 Pearson Education, Inc. versus output Chapter 12 46

Bertrand Model – Criticisms l When firms produce a homogenous good, it is more natural to compete by setting quantities rather than prices. l Even if the firms do set prices and choose the same price, what share of total sales will go to each one? m It may not be equally divided. © 2005 Pearson Education, Inc. Chapter 12 47

Price Competition – Differentiated Products l Market shares are now determined not just by prices, but by differences in the design, performance, and durability of each firm’s product. l In these markets, more likely to compete using price instead of quantity © 2005 Pearson Education, Inc. Chapter 12 48

Price Competition – Differentiated Products l Example m Duopoly with fixed costs of $20 but zero variable costs m Firms face the same demand curves l Firm 1’s demand: Q 1 = 12 - 2 P 1 + P 2 l Firm 2’s demand: Q 2 = 12 - 2 P 1 + P 1 m Quantity that each firm can sell decreases when it raises its own price but increases when its competitor charges a higher price © 2005 Pearson Education, Inc. Chapter 12 49

Price Competition – Differentiated Products l Firms set prices at the same time © 2005 Pearson Education, Inc. Chapter 12 50

Price Competition – Differentiated Products l If P 2 is fixed: © 2005 Pearson Education, Inc. Chapter 12 51

Nash Equilibrium in Prices l What if both firms collude m They both decide to charge the same price that maximized both of their profits m Firms will charge $6 and will be better off colluding since they will earn a profit of $16 © 2005 Pearson Education, Inc. Chapter 12 52

Nash Equilibrium in Prices P 1 Firm 2’s Reaction Curve Collusive Equilibrium at price of $4 and profits of $12 $6 $4 Firm 1’s Reaction Curve Nash Equilibrium $4 © 2005 Pearson Education, Inc. $6 Chapter 12 P 2 53

Nash Equilibrium in Prices l If Firm 1 sets price first and then firm 2 makes pricing decision m Firm 1 would be at a distinct disadvantage by moving first m The firm that moves second has an opportunity to undercut slightly and capture a larger market share © 2005 Pearson Education, Inc. Chapter 12 54

A Pricing Problem: Procter & Gamble l Procter & Gamble, Kao Soap, Ltd. , and Unilever, Ltd were entering the market for Gypsy Moth Tape. l All three would be choosing their prices at the same time. l Each firm was using same technology so had same production costs m FC = $480, 000/month & VC = $1/unit © 2005 Pearson Education, Inc. Chapter 12 55

A Pricing Problem: Procter & Gamble l Procter & Gamble had to consider competitors prices when setting their price. l P&G’s demand curve was: Q = 3, 375 P-3. 5(PU). 25(PK). 25 Where P, PU, PK are P&G’s, Unilever’s, and Kao’s prices respectively © 2005 Pearson Education, Inc. Chapter 12 56

A Pricing Problem: Procter & Gamble l What price should P&G choose and what is the expected profit? l Can calculate profits by taking different possibilities of prices you and the other companies could charge. l Nash equilibrium is at $1. 40 – the point where competitors are doing the best they can as well © 2005 Pearson Education, Inc. Chapter 12 57

P&G’s Profit (in thousands of $ per month) © 2005 Pearson Education, Inc. Chapter 12 58

A Pricing Problem for Procter & Gamble l Collusion with competitors will give larger profits. m If all agree to charge $1. 50, each earn profit of $20, 000 m Collusions agreement hard to enforce © 2005 Pearson Education, Inc. Chapter 12 59

Competition Versus Collusion: The Prisoners’ Dilemma l Nash equilibrium is a noncooperative equilibrium: each firm makes decision that gives greatest profit, given actions of competitors l Although collusion is illegal, why don’t firms cooperate without explicitly colluding? m Why not set profit maximizing collusion price and hope others follow? © 2005 Pearson Education, Inc. Chapter 12 60

Competition Versus Collusion: The Prisoners’ Dilemma l Competitor is not likely to follow l Competitor can do better by choosing a lower price, even if they know you will set the collusive level price. l We can use example from before to better understand the firms’ choices © 2005 Pearson Education, Inc. Chapter 12 61

Competition Versus Collusion: The Prisoners’ Dilemma l Assume: © 2005 Pearson Education, Inc. Chapter 12 62

Competition Versus Collusion: The Prisoners’ Dilemma l Possible Pricing Outcomes: © 2005 Pearson Education, Inc. Chapter 12 63

Payoff Matrix for Pricing Game Firm 2 Charge $4 Charge $6 $12, $12 $20, $4 $4, $20 $16, $16 Firm 1 Charge $6 © 2005 Pearson Education, Inc. Chapter 12 64

Competition Versus Collusion: The Prisoners’ Dilemma l We can now answer the question of why firm does not choose cooperative price. l Cooperating means both firms charging $6 instead of $4 and earning $16 instead of $12 l Each firm always makes more money by charging $4, no matter what its competitor does l Unless enforceable agreement to charge $6, will be better off charging $4 © 2005 Pearson Education, Inc. Chapter 12 65

Competition Versus Collusion: The Prisoners’ Dilemma l An example in game theory, called the Prisoners’ Dilemma, illustrates the problem oligopolistic firms face. m Two prisoners have been accused of collaborating in a crime. m They are in separate jail cells and cannot communicate. m Each has been asked to confess to the crime. © 2005 Pearson Education, Inc. Chapter 12 66

Payoff Matrix for Prisoners’ Dilemma Prisoner B Confess Prisoner A Don’t confess © 2005 Pearson Education, Inc. -5, -5 Don’t confess -1, -10 Would you choose to confess? -10, -1 Chapter 12 -2, -2 67

Oligopolistic Markets l Conclusions 1. Collusion will lead to greater profits 2. Explicit and implicit collusion is possible 3. Once collusion exists, the profit motive to break and lower price is significant © 2005 Pearson Education, Inc. Chapter 12 68

Payoff Matrix for the P&G Pricing Problem Unilever and Kao Charge $1. 40 P&G $12, $12 Charge $1. 50 $29, $11 What price should P & G choose? Charge $1. 50 © 2005 Pearson Education, Inc. $3, $21 Chapter 12 $20, $20 69

Observations of Oligopoly Behavior 1. In some oligopoly markets, pricing behavior in time can create a predictable pricing environment and implied collusion may occur. 2. In other oligopoly markets, the firms are very aggressive and collusion is not possible. © 2005 Pearson Education, Inc. Chapter 12 70

Observations of Oligopoly Behavior 2. In other oligopoly markets, the firms are very aggressive and collusion is not possible. a. b. Firms are reluctant to change price because of the likely response of their competitors. In this case prices tend to be relatively rigid. © 2005 Pearson Education, Inc. Chapter 12 71

Price Rigidity l Firms have strong desire for stability l Price rigidity – characteristic of oligopolistic markets by which firms are reluctant to change prices even if costs or demands change m Fear lower prices will send wrong message to competitors leading to price war m Higher prices may cause competitors to raise theirs © 2005 Pearson Education, Inc. Chapter 12 72

Price Rigidity l Basis of kinked demand curve model of oligopoly m Each firm faces a demand curve kinked at the currently prevailing price, P* m Above P*, demand is very elastic l If P>P*, other firms will not follow m Below l If P*, demand is very inelastic P<P*, other firms will follow suit © 2005 Pearson Education, Inc. Chapter 12 73

Price Rigidity l With a kinked demand curve, marginal revenue curve is discontinuous l Firm’s costs can change without resulting in a change in price l Kinked demand curve does not really explain oligopolistic pricing m Description of price rigidity rather than an explanation of it © 2005 Pearson Education, Inc. Chapter 12 74

The Kinked Demand Curve $/Q If the producer raises price, the competitors will not and the demand will be elastic. If the producer lowers price, the competitors will follow and the demand will be inelastic. D Quantity © 2005 Pearson Education, Inc. Chapter 12 MR 75

The Kinked Demand Curve $/Q So long as marginal cost is in the vertical region of the marginal revenue curve, price and output will remain constant. MC’ P* MC D Quantity Q* © 2005 Pearson Education, Inc. Chapter 12 MR 76

Price Signaling and Price Leadership l Price Signaling m Implicit collusion in which a firm announces a price increase in the hope that other firms will follow suit l Price Leadership m Pattern of pricing in which one firm regularly announces price changes that other firms then match © 2005 Pearson Education, Inc. Chapter 12 77

Price Signaling and Price Leadership l The Dominant Firm Model m In some oligopolistic markets, one large firm has a major share of total sales, and a group of smaller firms supplies the remainder of the market. m The large firm might then act as the dominant firm, setting a price that maximizes its own profits. © 2005 Pearson Education, Inc. Chapter 12 78

The Dominant Firm Model l Dominant firm must determine its demand curve, DD. m Difference between market demand supply of fringe firms l To maximize profits, dominant firm produces QD where MRD and MCD cross. l At P*, fringe firms sell QF and total quantity sold is QT = QD + QF © 2005 Pearson Education, Inc. Chapter 12 79

Price Setting by a Dominant Firm Price SF D The dominant firm’s demand curve is the difference between market demand (D) and the supply of the fringe firms (SF). P 1 MCD P* DD P 2 QF QD © 2005 Pearson Education, Inc. QT MRD Chapter 12 At this price, fringe firms sell QF, so that total sales are QT. Quantity 80

Cartels l Producers in a cartel explicitly agree to cooperate in setting prices and output. l Typically only a subset of producers are part of the cartel and others benefit from the choices of the cartel l If demand is sufficiently inelastic and cartel is enforceable, prices may be well above competitive levels © 2005 Pearson Education, Inc. Chapter 12 81

Cartels l Examples of successful cartels m m m OPEC International Bauxite Association Mercurio Europeo l Examples of unsuccessful cartels m m m © 2005 Pearson Education, Inc. Chapter 12 Copper Tin Coffee Tea Cocoa 82

Cartels – Conditions for Success 1. Stable cartel organization must be formed – price and quantity settled on and adhered to m m Members have different costs, assessments of demand objectives Tempting to cheat by lowering price to capture larger market share © 2005 Pearson Education, Inc. Chapter 12 83

Cartels – Conditions for Success 2. Potential for monopoly power m m Even if cartel can succeed, there might be little room to raise price if faces highly elastic demand If potential gains from cooperation are large, cartel members will have more incentive to make the cartel work © 2005 Pearson Education, Inc. Chapter 12 84

Analysis of Cartel Pricing l Members of cartel must take into account the actions of non-members when making pricing decisions l Cartel pricing can be analyzed using the dominant firm model m OPEC oil cartel – successful m CIPEC copper cartel – unsuccessful © 2005 Pearson Education, Inc. Chapter 12 85

The OPEC Oil Cartel Price TD SC TD is the total world demand curve for oil, and SC is the competitive supply. OPEC’s demand is the difference between the two. OPEC’s profits maximizing quantity is found at the intersection of its MR and MC curves. At this quantity OPEC charges price P*. P* DOPEC MCOPEC MROPEC QOPEC © 2005 Pearson Education, Inc. Chapter 12 Quantity 86

Cartels l About OPEC m Very low MC m TD is inelastic m Non-OPEC supply is inelastic m DOPEC is relatively inelastic © 2005 Pearson Education, Inc. Chapter 12 87

The OPEC Oil Cartel TD Price SC The price without the cartel: • Competitive price (PC) where DOPEC = MCOPEC P* DOPEC MCOPEC Pc MROPEC QC © 2005 Pearson Education, Inc. QOPEC QT Chapter 12 Quantity 88

The CIPEC Copper Cartel Price TD SC MCCIPEC • TD and SC are relatively elastic • DCIPEC is elastic • CIPEC has little monopoly power • P* is closer to PC DCIPEC P* PC MRCIPEC QCIPEC © 2005 Pearson Education, Inc. QC QT Quantity Chapter 12 89

Cartels l To be successful: m Total demand must not be very price elastic m Either the cartel must control nearly all of the world’s supply or the supply of noncartel producers must not be price elastic © 2005 Pearson Education, Inc. Chapter 12 90

The Cartelization of Intercollegiate Athletics 1. Large number of firms (colleges) 2. Large number of consumers (fans) 3. Very high profits © 2005 Pearson Education, Inc. Chapter 12 91

The Cartelization of Intercollegiate Athletics l NCAA is the cartel m Restricts competition m Reduces bargaining power by athletes – enforces rules regarding eligibility and terms of compensation m Reduces competition by universities – limits number of games played each season, number of teams per division, etc. m Limits price competition – sole negotiator for all football television contracts © 2005 Pearson Education, Inc. Chapter 12 92

The Cartelization of Intercollegiate Athletics l Although members have occasionally broken rules and regulations, has been a successful cartel l In 1984, Supreme Court ruled that the NCAA’s monopolization of football TV contracts was illegal m Competition led to drop in contract fees m More college football on TV, but lower revenues to schools © 2005 Pearson Education, Inc. Chapter 12 93