Monopoly Flashcards
what is imperfect competition
where firms are able to differentiate their products in some way and so have influence over their prices
types of imperfect competition
monopoly
duopoly
oligopoly
monopolistic competition
define monopoly
a firm that is the sole seller of a product without close substitutes
in reality how can firms exercise monopoly
by being the dominant firm in the market
how can you asses if a firm is dominant or not
if it owns over 25% of the market share
eg microsoft in operating systems market
what is market share
proportion of total sales in a market accounted for by a particular firm
what is market power
a firm exercises market power when it is in the position to change the price of its products and retain sales
is a monopolistic firm a price maker or price taker
price maker
is a firm in perfect competition a price maker or a price taker
price taker
what is a barrier
something that prevents a firm from entering the industry
barriers to entry to the monopoly market
- ownership of a key resource
- government giving a single firm the right to production
- natural monopoly
- external growth
example of an industry that owns a key resource resulting in monopoly
MARKET for diamonds in 1980s De Beers had market share of 35%
what is a patent
the right conferred on the owner to prevent anyone else making or using an invention or manufacturing without permission
examples of companies that would get a patent
pharmaceutical industry
why are patents give out
incentives for research and innovation, desirable behavior
what is copyright
the right of an individual or organisation to own things they create to prevent them from being copied. the creator is a monopolist
when does natural monopoly happen
when the cost of production makes a single producer more efficient than multiple
why is it unattractive to enter a market in which their is natural monopoly
the firm entering wont experience the same low costs that the monopolist experiences
Start up costs are too expensive so they dont enter
example of natural monopolies
ESB, Bord Gáis
what is a vertically integrated monopoly
owns all production
owns all distribution
owns all the demand
how can monopolies grow
acquisition, merging, taking over other firms
why do governments carefully monitor acquisitions
as to make sure monopolies dont happen
examples of companies that have merged, deciding to build a monopoly positiom
eg facebook buying instagram, whatsapp
do monopolies charge prices above or below marginal costs
above
how is total surplus measured
consumer surplus + producer surplus
why is it that monopolies are socially efficient
some consumers are turned off by high price and producer surplus increases by exactly the amount of consumers that didnt buy, total surplus is never actually changed, as consumer surplus would be increased at same rate as producer surplus
does a monopoly earn a greater or smaller profit than a firm in perfect competition
more profit as a result of its market power
what is price discrimination
selling the same product at different prices to different customers despite the production costs being consistent
The monopolist knows the willingness to pay of eacg customer so can change prices based on this
why is price discrimination impossible in perfect competition
all goods are sold at the market price
examples of price discrimination
weekend vs weekday airline tickets
discount coupons will only be used by people who cut them out and remember to use them
cinema tickets are cheaper for kids and OAPs as they have less interest in going to the cinema
how can government promote competition between firms
prevent merges
break up companies
make competition laws
what is the government agency that controls competition in ireland
competition and consumer protection commission
what are the disadvantages of monopoly
higher prices than competitive markets
lower output usually
no choice for consumers
what can governments do to control monopolies
regulate prices
make more competitive
turn private monopolies into public enterprises
why are monopolies rare
very few products are truly unique
