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IMG_0003_NEW_0028 - can appoint a commission to...

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Patentraces (cont') oRiskiness: suppose there are Z R&D methodolog"ies, one is time-honoured and has a sure completion date of 2-3 years, the other is unproved and has a completion date between I and 4 years. Both approaches diskibute the time to innsrrate uniformly. oFirms will always choose the second approach. oSociefy benefiG because there is a higher chance of innqvation coming early. Puhlic trtoliq tosrards monopoly oPrevention: anti-tn:st laws are designed to prevent the forrnation of monopolies through limiting mergers and price-fixing. o Ownership: goverrnnent can ,,nationalizen or collectively cmn ar indr:stry (i.e.: U.S. Postal Senrice). oRegulation: if a monopoly is deemed "natural", then government
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Unformatted text preview: can appoint a commission to reg"ulate a monopoly and limit renrrns. Natural Monopoly Regulation r AJthough there have a number of experiments with various options world wide, the most widely used methods are rate of retm and price caps. r In principle, one would like a regulator to establish a price thatmaximizes social welfare, i.e. . p:MC, but this is'gpically not feasible because it results in losses. . Average total cost must be incorporated into regulation price, olherwise, a monopolist will exit the market in-the longierm if it is not eaming profits. I Either the regulated price rnust be above ATC or else the lower price must be subsidized by the govemment. '/t...
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