Monopolies

Question 1

3 kinds of monopolies

Answer 1

1. Market Monopolies
2. Natural Monopolies
3. Artificial Monopolies

Question 2

Market Monopolies

Answer 2

• Comes from invention or efficiency.

- Is controlled by potential competition. Potential competition is nearly as effective as actual competition.

Question 3

Natural Monopolies

Answer 3

• High fixed cost, low marginal cost. Cable TV, and other telecommunications
• Have a first mover advantage
• Most economists approve of regulating these businesses.

Question 4

Artificial Monopolies

Answer 4

• There is coercion involved with these.
• These aren’t all bad. Intellectual property can be an example of this.
• They are bad when the government is providing an unnecessary barrier to entry to create competition.

Question 5

Why does the DoJ regulate dumping?

Answer 5

• Dead Weight Loss
• Protecting competition – avoid predatory pricing and dumping. This does not matter as much as some people say it does.
• Avoid Path dependency – e.g. the keyboard we have is not very efficient.
• DoJ tries to keep many paths open.
• Limits innovation.
• Gives DoJ something to do.

Question 6

Herfindahl/Hirschman Index

Answer 6

Used to determine monopoly power