The main impetus for temporarily modeling an

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Unformatted text preview: in a vacuum and therefore can be modeled as a “monopoly”. The main impetus for temporarily modeling an oligopolistic firm as a “monopoly” is because it provides a “benchmark” for later chapters where we relax the assumption of “dormant rivals” and rigorously model strategic interaction between firms. 2. Market Power In this chapter, market “power” does not mean (as do “leftist” pseudo-intellectual pundits) that the monopolist “forces customers to buy its product or use its service” (only North Korea’s Dear leader has that kind of power!). Rather, total market power (“monopoly”) means that the price depends solely on one firm’s output. For example, the only way the monopolist can sell more output is by lowering the price. It goes without saying that most companies possess some degree of market power. Here are some factors by which firms acquire some degree of market power: Physical/Perceptual Product differentiation (literal or perceived): From ECO 100 you know tha...
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