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2b_Monopoly - Monopoly Economics of Competition and...

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Nile W. Hatch © 2002 – 2008 ManEc 387 Economics of Strategy Monopoly Economics of Competition and Performance 1
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Nile Hatch © 1996 – 2008 Exploring Industry Structure Threat of Potential Entrants Bargaining Power of Suppliers Rivalry between Competitors 2 Customer Power & Preferences Threat of Substitutes 2
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Nile Hatch © 1996 – 2008 Market Structure and Performance There are few examples of pure perfect competition and monopoly – it is more realistic to allow differentiated products with a few rivals These market structures represent different levels of expected price competition: Market Structure Intensity of Price Competition Perfect Competition Fierce Monopolistic Competition May be fierce or light depending on the degree of differentiation Oligopoly May be fierce or light depending on the degree of interfirm rivalry Monopoly Light unless threatened by entry 3
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Nile Hatch © 1996 – 2008 Monopoly In a monopoly, one firm supplies the market with little or no risk of entry The market demand curve is the demand curve faced by the firm Marginal revenue no longer equals price – elasticity is less than infinity which allows extraction of monopoly rents Firm has control over price 4
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Nile Hatch © 1996 – 2008 Monopolist’s Marginal Revenue P Q Q Demand Elastic Inelastic Unitary Marginal Revenue Total Revenue ($) 5
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