Lecture_Microeconomics_Chapter13

Lecture_Microeconomics_Chapter13 - PART III MARKET...

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13 Monopoly and Antitrust Policy PART III MARKET IMPERFECTIONS AND THE ROLE OF GOVERNMENT
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IMPERFECT COMPETITION AND MARKET POWER: CORE CONCEPTS imperfectly competitive industry An industry in which single firms have some control over the price of their output. market power An imperfectly competitive firm’s ability to raise price without losing all of the quantity demanded for its product. Imperfect competition does not mean that no competition exists in the market. In some imperfectly competitive markets competition occurs in more arenas than in perfectly competitive markets. Firms can differentiate their products, advertise, improve quality, market aggressively, cut prices, and so forth.
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IMPERFECT COMPETITION AND MARKET POWER: CORE CONCEPTS The ease with which consumers can substitute for a product limits the extent to which a monopolist can exercise market power. The more broadly a market is defined, the more difficult it becomes to find substitutes. DEFINING INDUSTRY BOUNDARIES FIGURE 13.1 The Boundary of a Market and Elasticity
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IMPERFECT COMPETITION AND MARKET POWER: CORE CONCEPTS pure monopoly An industry with a single firm that produces a product for which there are no close substitutes and in which significant barriers to entry prevent other firms from entering the industry to compete for profits.
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IMPERFECT COMPETITION AND MARKET POWER: CORE CONCEPTS barrier to entry Something that prevents new firms from entering and competing in imperfectly competitive industries. BARRIERS TO ENTRY Government Franchises government franchise A monopoly by virtue of government directive.
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IMPERFECT COMPETITION AND MARKET POWER: CORE CONCEPTS Patents patent A barrier to entry that grants exclusive use of the patented product or process to the inventor. Economies of Scale and Other Cost Advantages Ownership of a Scarce Factor of Production The DeBeers Company of South Africa controls about 80 percent of the market for uncut diamonds.
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IMPERFECT COMPETITION AND MARKET POWER: CORE CONCEPTS PRICE: THE FOURTH DECISION VARIABLE Price is a decision variable for imperfectly competitive firms. Firms with market power must decide not only (1) how much to produce, (2) how to produce it, and (3) how much to demand in each input market (see Figure 7.3), but also (4) what price to charge for their output. Regardless of the source of market power, output price is not taken as given by the firm. Instead:
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PRICE AND OUTPUT DECISIONS IN PURE MONOPOLY MARKETS To analyze monopoly behavior, we make two assumptions: (1) that entry to the market is blocked, and (2) that firms act to maximize profits.
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PRICE AND OUTPUT DECISIONS IN PURE MONOPOLY MARKETS DEMAND IN MONOPOLY MARKETS FIGURE 13.2 The Demand Curve Facing a Perfectly Competitive Firm Is Perfectly Elastic; in a Monopoly, the Market Demand Curve Is the Demand Curve Facing the Firm With one firm in a monopoly market, there is no distinction between the firm and the
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This note was uploaded on 03/30/2008 for the course ECON 2005 taught by Professor Zirkle during the Spring '07 term at Virginia Tech.

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Lecture_Microeconomics_Chapter13 - PART III MARKET...

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