Lecture 6.pptx - Economic Analysis Introduction Consumer...

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Economic Analysis Introduction Strategic Analysis 1. Market Concepts Supply Demand 11.Game Theory Consumer Producers & Competition Market Structure 2.Consumer 3.D-Analysis Network externalitie s Preference P /Income Substitute 4.Production Costs MP & MRTS Scale Types Scale Learning 10. Oligopoly Market Structure 5.Competition 6. Monopoly 8. Pricing Perfect Group Versioning Personal Antitrust Power Collusion Oligopoly Nash Strategies 12. Asym-Info Exam 2 Stackelberg Cournot Bertrand Signalling Lemon MU Lock-in Equilibrium Elasticity Intertemporal 2-part tariff Revision Bundling 9. Peak Load Scope Output in SR Output in LR Tying 7. Exam 1 L6: Monopoly After this lecture, you should be able to: Define a monopoly & case study on Microsoft Analyze output & pricing decisions of a monopoly Explain monopoly power & its social cost Compute Lerner’s Index Explain elasticity & markup pricing. Analyze the impact of price regulation on monopoly Explain the antitrust laws.
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2 Monopoly (1) One seller & many buyers; (2) One product (no good substitutes); (3) Barriers to entry; and (4) Price Maker. Examples : 1. Salt commission, a legal monopoly in China in 758. 2. British East India Co: a legal trading monopoly in 1600. 3. US Steel; anti-trust prosecution failed in 1911. 4. Standard Oil; broken up in 1911. 5. NFL won anti-trust lawsuit in 1960s, convicted as illegal monopoly in 1980s. 6. Major League Baseball ; won U.S. anti-trust litigation 1922 (special status is still in dispute in 2007). 7. United Aircraft & Transport Corp: aircraft manufacturer forced to divest itself of airlines in 1934. 8. AT&T: telecom giant broken up in 1982 7 regional bell companies 9. Microsoft settled anti-trust litigation in U.S. in 2001; fined by EC in 2004. 10. De Beers settled charges of price fixing in diamond trade in 2000s. 11. Apple: accused as a Vertical Monopoly, with iPod, iTunes, iTunes Music Store & FairPlay DRM System. Monopolist: supply-side of market, has complete control over the quantity offered for sale. Monopolist controls P but must consider consumer D. Profits will be maximized at the level of output MR = MC. What is a preferred, normal birthday gift ‘surprise’?
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Case: Microsoft (MS) Novell (1993): MS blocked competitors from market entry via anticompetitive practice . Licensing royalties from each PC sold by a supplier of MS's operating system (OS), regardless the unit contained Windows OS. MS settled the case in 1994, end some licensing practices. MS bundled IE into Windows in late 1990s (no separate purchase) a dominant share of web browser market antitrust case U.S v. Microsoft. Judge Thomas Jackson ruled MS had abused its monopoly in desktop O.S. market. The "findings of fact“ of monopoly power: .. [1] Market share for Intel-compatible PC-OS is extremely large & stable. [2] MS's dominant market share is protected by a high barrier to entry . [3] largely as a result of that barrier, customers lack a commercially viable alternative to Windows. (III.34) The findings explain the nature of the "barrier to entry": … a multitude of people using Windows… more attractive to consumers. The large installed
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  • Spring '14
  • Acquisti,A
  • Monopoly, monopoly power

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