3.4 - Monopoly Flashcards
What are the characteristics of a monopoly?
Single lead seller
High entry + exit barriers
Price making firms
Supernormal profits in SR + LR
When does the CMA consider a firm a monopolist?
When a single firm occupies at least 25% of total industry sales
When does the profit maximisation point occur for a monopolist?
MC = MR
AC < AR - Supernormal
Are monopolies allocatively efficient?
Less competition
Leads to higher prices
Price > MC
Lost allocatively efficiency
Evaluate the view that a monopoly is productively efficient
Scope for scale economies
Minimises costs
Operates on lowest AC
Are monopolies dynamically efficient?
Supernormal profits achieved
However protected markets limit competition + innovation
Often lack of reinvestment
Evaluate the view that a monopoly is not productively efficient
Absence of competition
Loss of productivity + innovation
How can a monopoly have a harmful impact on prices?
Rise due to lack of competition
Affects lower income households
Lower output/consumption
Fewer economies of scale exploited
Evaluate the likelihood of x-inefficiencies within a monopoly
Wasteful production + spending
AC begins to drift
Little incentive to become prod. efficient
What are the economic arguments for monopoly power?
Profits used to fund R + D
Natural monopolies achieve EoS
Global competition
Price discrimination may help consumers
How can policy be used to regulate monopoly power?
Tax - Windfall to target profits
Price cap - Increases cons. surplus
Nationalisation
Liberalisation of markets
What is the liberalisation of markets?
Lowered entry barriers
Improved contestability
Smaller firms have entry access
