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Chapter 9 - Ex Perrier owns its springs no one else can use...

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Chapter 9 Monopoly and Other Forms of Imperfect Competition Why study perfect competition? o This is the ideal market o Should compare other markets to this standard Imperfect Competition Various forms of imperfect competition: Pure Monopoly      – (most inefficient) the only supplier of a unique product with no close  substitutes Oligopoly      - (more efficient than a monopoly) a firm that produces a product for which only  a few rival firms produce close substitutes Ex. Duopoly – 2 firms control the market Monopolistic Competition      – (closest to perfect competition) a large number of firms that  produce slightly differentiated products that are reasonably close substitutes for one  another. Perfectly Competitive Imperfectly Competitive Monopoly Monopolistic Market Power – Higher price without losing customers is market power. 5 Sources of Market Power: 1. Exclusive control over inputs
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Unformatted text preview: Ex. Perrier owns its springs, no one else can use them 2. Patents and Copyrights Ex. Microsoft owns copyright for Windows 3. Government licenses or franchises Ex. License for restaurant on thruway rest area 4. Economies of Scale Ex. Very high fixed costs; need lots of money down to be competitive IRTS – Increasing returns to scale CRTS – Constant returns to scale D D D D DRTS – Decreasing returns to scale More customers, lower cost/price Natural Monopoly – for entire range of output you have IRTS 5. Network Economies – larger number of users, greater benefit for each user Ex. Phones – one person, low benefit; many people, larger benefit to each person Ex. Most important to Windows/Microsoft because of number of people who use it Profit Maximizing for the Monopolist...
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