9.4: Monopoly and Concentration

Question 1

First-degree price discrimination - where…

Answer 1

A monopolist is able to charge each customer the highest price the customer is willing to pay.

Question 2

Second-degree price discrimination - when…

Answer 2

The monopolist charges different per-unit prices using the quantity purchased as an indicator of how highly the customer values the product.

Question 3

Third-degree price discrimination - when…

Answer 3

The monopolist segregates customers into groups based on demographic or other characteristics and offers different pricing to each group.

Question 4

Potential ways of measuring market power?

Answer 4

1 - Estimate the elasticity of demand and supply in a market.

2 - Regression analysis.

3 - Cross-sectional regression analysis.

Question 5

What are the other simpler measures in measuring market power?

Answer 5

1 - Calculating concentration ratio.

2 - The Herfindahl-Hirschman Index (HHI) is a common measure of market concentration and is used to determine market competitiveness, often pre- and post-merger and acquisition (M&A) transactions.