Zusammenfassung der Ressource
Chapter 4 - Theory of monopoly
- Source of monopoly power
- Patent laws
- nationalised
industry
- Incumbent has exploited
economies of scale
- High sunk costs
- Multiplicity of brands cover
all 'gaps in the market'
- Essential raw
material controlled
- Brand loyalty
- consumer inertia (do
nothing e.g. gas switch)
- imperfect knowledge
- high barriers to entry
- Monopoly pricing
- Marginal cost pricing -
MC=AR - allocatively
efficient
- Average cost pricing -
AC=AR - normal pi
- Monopoly
- 1:100 concentration ratio
- high barriers to entry
- Natural
- High fixed costs force
LRAC to fall continuously
- Better in the
hands of one firm
- high
MES
- Pure
- The higher the MES, the
more likely a Monopoly is
- Consumer and producer surplus
- Monopoly converts some consumer
surplus to producer surplus
- Dead weight loss
- Price Discrimination - Different prices
for different consumers for reasons
other than costs
- Firms cannot be
undercut by other
rivals(monopoly)
- Resale is prevented
- At least two different
elasticities of demand
- Types
- First degree
- All consumer surplus turned to pi
(need to know every consumers
preferences perfectly)
- Second degree
- Different blocks of consumption receive
different prices - bulk buying discount
- Third degree
- Two markets, elastic D lower
price, inelastic D higher price,
combined in between
- LRAC and MC constant in
these markets(is ignored)
- Dimensions of P.D.
- Geographical - car prices higher in UK than
Europe mainland
- Time - peak prices
- Age - Child bus tickets cheaper
- Consequences
- price discriminator
- Higher output than operating at single
price = economies of scale, which leads
to lower prices
- Previous good/service not
able to be provided due to
loss can now be provided, show with AC and AR curves
- consumer
- Some consumers pay less than others.
but some pay more
- first degree = total loss of consumer surplus/welfare
- MARKET FAILURE & EVALUATION
- market failure as there is a dead weight
loss, also called allocative inefficiency
- BUT dynamically efficient
even though not statically
- Dynamic efficiency in monopoly
compared with perfect competition
- MC falls so price also falls
- By restricting output gains from
economies of scale are lost
- consumer faces lack of choice and can
be exploited because the firm is a price
maker BUT pi can be reinvested to
improve quality + lower cost=price
- how do small firms survive
- niche market
- quality of service
- innovation
- internet