2b_Monopoly

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 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 ±erce or light depending on the degree of differentiation Oligopoly May be ±erce or light depending on the degree of inter±rm rivalry Monopoly Light unless threatened by entry 3
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Nile Hatch © 1996 – 2008 Monopoly • In a monopoly, one frm supplies the market with little or no risk oF entry • The market demand curve is the demand curve Faced by the frm • Marginal revenue no longer equals price – elasticity is less than infnity which allows extraction oF monopoly rents • ±irm 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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2b_Monopoly - Monopoly Economics of Competition and...

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