Monopoly Flashcards
When does monopoly occur
When there is a single, dominant producer with a large market share and price setting ability
What underpins the monopolists ability to gain and retain dominance
Barriers to entry, such as:
Firms experience less EoS than monopoly firm
Predatory pricing
Market share
What are the types of barriers to entry
Structural - high start up costs or skills qualification
Behavioural - incumbent firms making it difficult for new firms to start up via dumping etc to prevent competition
What is the short vs long run equilibrium for monopolies
SR equilibrium where MC = MR (profit max)
In the long run, firms deviate back to their profit level even after shifts in cost or revenue curves
Evaluating monopoly
Benefits:
Natural monopoly can produce more Q and sell for cheaper than PC
Dynamically efficient, as they make more profit so can reinvest, which can make them more productively or allocatively efficient
Can benefit consumers in natural monopoly because network effects
Internal EoS
Costs:
Price discrimination is possible
Lack of contestability
Negative impact on consumers as price setting monopolies can do what they want
Often x inefficient as they can afford to be
Not allocatively or productively efficient
What is a pure monopoly
When a firm has 100% of market share
What link does monopoly have to international competitiveness
By allowing an infant industry to become a domestic monopoly via loose competition policy, they can experience more EoS, making them more price competitive
Why do firms in monopoly discriminate over prices
Because existence of consumer surplus means lost profit potential, so price setting firms can charge people who are willing and able to pay more, higher prices
What are the conditions for price discrimination
Market power
Capacity to segregate consumers
Varying elasticities - consumers have different PED for the good
What is price discrimination
When firms charge different prices for different consumers for the same good
