nlecture16 - monopoly intro - slides

nlecture16 - monopoly intro - slides - 3/22/2009 Topic 7:...

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3/22/2009 1 Topic 7: Monopoly (1) USC Marshal Introduction and regulation Imperfect competition • So far, we have discussed firm and consumer behavior under perfect competition – Firms act as price takers and choose P=MC • Now, we will move on to analyzing firm behavior under imperfect competition USC Marshal – Each firm faces a downward-sloping demand curve and is thus able to influence the price at which it can sell its product – Sets MR(Q)=MC(Q) Æ P(Q)>MC(Q) – Firms in imperfectly competitive markets are said to have market power Imperfect competition Models of imperfect competition Monopoly • A single supplier of a good or a service Monopsony • A single buyer of a good or a service USC Marshal Oligopoly • A few suppliers of a good or a service Oligopsony • A few buyers of a good or a service Monopolistic competition • A large number of suppliers producing slightly differentiated products
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3/22/2009 2 Imperfect competition Monopoly and monopsony – How do firms become monopolists – Pricing and welfare consequences – Non-price effects of monopolies – How to identify an imperfectly competitive market USC Marshal – Pricing strategies • Pricing multiple products • Pricing durable goods • Price discrimination Monopoly What is a monopoly market? – A monopolist is a sole supplier of a good or a service • Lack of “nearby” substitutes • Competitors are sufficiently distant that the firm USC Marshal can ignore their response when choosing its behavior –Microsoft? –Firms in small rural towns? »Dentists, electricians, plumbers,… –Most firms face at least some competition Monopoly Becoming a monopolist: – Absolute cost advantage – Economies of scale – Government regulation • old: railways, telecommunications, electricity,… USC Marshal – Patents • Pharmaceuticals,… – Control of a crucial input • Alcoa (bauxite), de Beers (diamonds) – First to recognize an opportunity
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3/22/2009 3 Monopoly Staying a monopolist: – The current monopolist would like to retain its position, but other firms would like to get a share of the profits – Patents expire, new competitors emerge, cost dt d USC Marshal advantages erode,… The good: • Strive to remain the best in business The bad: • Anti-competitive behavior (illegal) –Predatory pricing, exclusive dealing,… Pricing Pricing: – Total revenue – Total cost –Pro f i t TR Q P Q Q TC Q Q TR Q TC Q USC Marshal
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nlecture16 - monopoly intro - slides - 3/22/2009 Topic 7:...

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