T5 - Monopoly Flashcards
Barriers to entry in a monopoly
Patents and copyrights
Nationalsied firms
Eco of scale casuing low prices
High FC
Brand image
Marketing
Product Differentiaion
R&D expenditure
Vertical intergration
Sunk costs
Natural barriers to entry in a monoploy
Economies of scale
Incumbent firms have low LRAC
Sunk costs
Artifical barriers to entry
Patents
Product differentiation
High amrketing costs
First mover advantage
Predatory pricing
What type of profits do monopolies make in the long and short run
Supernormal
Do monopolies operate at MC = ATC
No as they dont need to lower costs due to no other firms entering the market
What is X Ineffeciency
Lack of real effective comp, causing no need to lower cost curves
Where is marginal cost pricing
MC = AR
What is allocatiev efficency
Where the selling price is reflectie of the cost of making
What is the poitn fo ATC = AR
Average Cost Pricing
Key characteristics of a natural monopoly
Extremely high captial costs to set up
Copy is unneccesary
The MES occurs in long run (high FC, low MC)
Will experience RTS at all levels of output
Where do the government want natrual monopolies to operate at
MC = AR
What are firms reactions to being made to operate at MC = AR
Argue they are makign a loss, and need subsidising
Positive of monopoly
Benefit from eco of scale
Doesnt waste infrastructure
Can generate export revevnue
Can generate dynamic efficiency
Avoids free rider problem
Negatives of a monopoly
Restrict market output
Charging high prices
Reducign consumer surplus and eco welfare
Restrict chocie for consumers
Reduces consumer soverignty
External costs of a monopoly
Less competitive economy in global market
A less efficent economy
Less productive efficient
Less P = MC
Eco is likely suffer from X inefficiency
Less emplyment, due to lower output, less demand for labour
Why are there only oen firm in a natural monopoly
As if there were multiple, it would be hard to achieve the MES and eco of scales
Examples of a natural monopoly
BT
Royal Mail
National grid
London underground
Issues with natural monoploy
High investment spending
High barriers to entry, explout power and make supernormal profits
Competition policies for NM
NAtionalisation
Price control
Fines for ant comp behvaiour
Introducing comp, selling infrastructure
Giev an evalutaion of - that in a M , there are gains of PE, thereofre products can be suppied on a large scale
Signle supplier could changre the price damarging consumer welfare
Giev evalaution of - indusry regulators may decide to cap prices to achieve P = MC
If MC> LRAC, capping prices will cause losses in indusstry damagign ability to do dynamic efficiency
Giev evaluation of - when there are high BTE, X inefficiency can occur, causign high bills for consumers
SOme of the supply chain to the final consumer may be deregalated to stim comp hence lower prices
why is a imp comp ar and mr curve downward sloping
because the market isnt perfect
a firm in an imp comp market cant have the same price to sell all there shit, they must dec it as the basic law of demand says
monopoly can restirct output by higher prices
why is pc curve hrpiztonal
as they have to accept market price, emanign all qty fo sale is doen at that prcie
it can clear production and output if it sells at that price, therefore it makes no sense not to seel at thta pricce
main reason why a pc curve is hroizotnal adn monopoly is downward slopign
as in pc, firms can seell all qty at taht given price, due to perfectly elastic demand
it woudltn maek snese for them to change that price
where as monoply faces has some control over price, and has to lower price to inc q dmadned
