Lecture2_Monopoly_Econ121_Fall2010

Lecture2_Monopoly_Econ121_Fall2010 - Lecture 2...

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Click to edit Master subtitle style 4/28/11 Lecture 2 Monopoly (Part II) Econ 121: Industrial Organization UC Berkeley Fall 2010 Prof. Cristian Santesteban
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4/28/11 Inefficiency of Monopoly Prices are higher and output lower than under full competition. For this reason, consumers will be worse off. But, the monopolist will be better off! There is a social cost to monopoly (“deadweight loss”) We can have Pareto improvements to
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4/28/11 Deadweight Loss – Graphical Analysis
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4/28/11 Rent Seeking Behavior Is DWL the end of the story? Perhaps there’s more inefficiency from monopoly Some economists argue that monopoly profits may represent a loss to society to the extent that it creates incentives for a firm to use real resources to become a monopoly.
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4/28/11 Rent Seeking Behavior View monopoly profits as a “prize” to be won in a contest and rent seeking refers to the efforts of firms to win this contest. Two hypotheses: Rent seeking expenditures are wasteful: Instead of producing goods and services that can be consumed, resources used on rent seeking produce monopoly profits and no other socially useful by-
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4/28/11 Benefits of Monopoly Welfare harms may be offset by several benefits Cannot be captured in a static analysis Prospect of monopoly profits may motivate firms to develop new products, improve products, or find lower-cost manufacturing methods: i.e. engage in R&D!
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4/28/11 Benefits of Monopoly Scale economies may be another benefit.
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