rlecture16 - monopoly intro

rlecture16 - monopoly intro - Topic 7: Monopoly (1)...

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opic 7: Monopoly (1) Topic 7: Monopoly (1) Introduction and regulation USC Marshall
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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 – Each firm faces a downward-sloping demand curve and is thus able to influence the price at which it can sell its product ets MR(Q)=MC(Q) (Q)>MC(Q) – Sets MR(Q)=MC(Q) Æ P(Q)>MC(Q) – Firms in imperfectly competitive markets are said to ave arket power USC Marshall have market power
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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 Oligopoly • A few suppliers of a good or a service Oligopsony • A few buyers of a good or a service Monopolistic competition USC Marshall • A large number of suppliers producing slightly differentiated products
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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 – Pricing strategies • Pricing multiple products • Pricing durable goods • Price discrimination USC Marshall
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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 can ignore their response when choosing its ehavior behavior –Microsoft? irms in small rural towns? –Firms in small rural towns? »Dentists, electricians, plumbers,… ost firms face at least some competition USC Marshall –Most firms face at least some competition
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Monopoly Becoming a monopolist: – Absolute cost advantage – Economies of scale – Government regulation • old: railways, telecommunications, electricity,… – Patents • Pharmaceuticals,… – Control of a crucial input • Alcoa (bauxite), de Beers (diamonds) – First to recognize an opportunity USC Marshall
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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 advantages erode,… he good: The good: • Strive to remain the best in business he bad: The bad: • Anti-competitive behavior (illegal) redatory pricing exclusive dealing USC Marshall –Predatory pricing, exclusive dealing,…
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Pricing Pricing: USC Marshall
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Pricing Pricing: – Total revenue TR Q P Q Q – Total cost – Profit TC Q Q TR Q TC Q – Profit-maximizing output level: Q solves MR Q MC Q USC Marshall
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Pricing P MC D MR USC Marshall Q
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Pricing P P* MC D MR USC Marshall Q* Q
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Pricing P P* MC LATC D MR USC Marshall Q* Q
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Pricing P P* MC Profit LATC D MR USC Marshall Q* Q
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Pricing Elasticity of demand and the profit-maximizing price: USC Marshall
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rlecture16 - monopoly intro - Topic 7: Monopoly (1)...

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