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Unformatted text preview: Joonmo Kang Economics 101 Winter 2012 Handout Week 1 Monopoly Definition of Monopoly In Econ 11, you may have learned about the conditions of (perfect) competitive market. This market is the basic of economic analysis. 1. Infinitely many agents (consumers and producers) 2. Homogeneous good 3. Free entry/exit 4. Full information Especially, the first and the second conditions are important, because they two imply that all of the agents are price-taker, which means none of them has market power to set the price. (You can generalize these conditions a little even if there are finitely many agents, if none of them has market power, you can still apply competitive market analysis.) A monopoly is a polar-opposite to the competitive market. A monopoly is a single firm that serves an entire market. Hence, the first condition of conditions above is not satisfied by definition. 1 In this situation, the only supplier can control the quality of a good according to the type of agents, which is not dealt with in this course. There will be some barriers to entry in a monopoly, so the third condition is not satisfied, either. Full information is not guaranteed, but we assume that at least the firm knows the market demand. Definition 1 (Monopoly) A monopoly is a single supplier to a market. This firm may choose to produce at any point on the market demand curve. Why monopoly occurs? The reason a monopoly exists is that other firms find it unprofitable or impossible to enter the market. Therefore, barriers to entry are the source of all monopoly power. There are two general types of barriers to entry: technical barriers and legal barriers.general types of barriers to entry: technical barriers and legal barriers....
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This note was uploaded on 03/05/2012 for the course ECON 101 taught by Professor Buddin during the Winter '08 term at UCLA.
- Winter '08